59

And then you have to ask yourself, as a mayor particularly, is
it fair to tax your poorest residents and accumulate their tax dol-
lars in order to pay someone way above the market; or is it better
to rearrange your labor force so that you have your workers in
areas where they are competitive?

Generally, the private sector has not cut wages when they have
won. But there are some areas—mowing grass on the medians,
picking up litter—where our wage rates are too high and we have
outsourced them, taken the money we have saved, and have done
more of the core businesses along the way.

Mr. Horn. How about Virginia?

Ms. YBARRA. It’s very similar. Just going back again to the main-
tenance contract, while this sounds all very easy, but it is an asset
management contract, that what the contractor can now do is go
and hire individuals or smaller firms on a completely different,
flexible schedule. They are the ones that do all of the bonding for
all of their workers; they do provide health care. But they can use
these people on a much more flexible schedule than the State can.

So what we're seeing is a safe—you can’t compare, you know,
this maintenance worker with that one, because they can hire peo-
ple. And they may be just the people picking up litter. It may be
just the people that go and do all the trimming around the fences.
1 would have a maintenance worker at level Z doing any number
of those, where they may be able to use someone once a week to
do, you know, that. That works for them.

Mr. Horn. Well, we thank you on that.

The gentleman from Virginia, Mr. Davis.

ut. Davis. Let me be brief. I know you have to move on to other
things.

I always looked at government jobs—you know, I was the head
of the county government in Fairfax, and we were county and city,
so we were about the size of Indianapolis. We had some great ex-
amples where privatization saved money.

We had one notable failure when it came to school bus repairs.
And we hired a company I wouldn’t recommend to anybody, John-
son Controls. I’ll say that name again if anybody is listening.
They're awful. The out-of-commission rate for school buses was
usually 2 to 3 percent; occasionally we go as high as 5 percent. It
went up to 25 percent when this company came in, because there’s
a whole special rule for school buses that don’t apply to other
buses, which they had done before.

You can imagine, with these kids sitting there at the bus stop
for 2 hours, how our phones were ringing back and forth and it
didn’t work. I think we finally—I said, and over the objection of
some of our Members, this didn’t work, and we're going to go back
and fold it back in.

So it doesn’t always work, but you have to be willing to take
chances and try new things and I think the voters recognize that.
Have you had any notable failures in Indianapolis where you can
look back and say, gee, you know, in retrospect, we tried this, or
we should have tried this, and it didn’t work?

Mr. GOLDSMITH. Sure, and I will disclose them. Let me——

Mr. Davis. We all understand this introduction, though.


123

House Rule XI, Clause 2(g)
AFGE has no grants or contracts to declare.

30


25

STATEMENT OF SENATOR CRAIG THOMAS
U.S. HOUSE COMMITTEE ON GOVERNMENTAL REFORM AND OVERSIGHT
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT
ON THE FREEDOM FROM GOVERNMENT COMPETITION ACT
SEPTEMBER 29, 1997

Mr. Chairman, members of the subcommittee, thank you for the opportunity to testify before
you today regarding the important issue of direct federal government competition with the
Private sector. As an “alumnus” of this committee, it is a pleasure to come back for a brief
visit. I am the primary Senate sponsor of the “Freedom from Government Competition Act”
and look forward to explaining why a statutory provision is needed to solve this problem. I
also thank Congressman Duncan, the primary sponsor of this legislation in the U.S. House,
for his hard work on this topic.

For the past four decades, it has been the administrative policy of the federal government to
rely upon the private sector for its commercial needs. This policy was originally issued in
1955 during the Eisenhower Administration in reaction to a bill very similar to what
Congressman Duncan and J proposing that was moving through Congress at the time.
However, Congress relented when President Eisenhower agreed to solve the problem
administratively. This policy is now found in Office of Management and Budget (OMB)
Circular A-76. Unfortunately, it is routinely ignored. For example, the Defense Department
completed 325 comparisons in 1983 during the Reagan Administration. None were completed
in 1994, In addition, re-competing commercial functions rarely, if ever, happens. In fact,
during a hearing on this issue in the U.S. Senate in June, 1997, OMB was unable to document
if any federal agency has ever re-competed a commercial function.

An estimated 1.4 million Federal employees are engaged in "commercial" activities -- goods
and services that can be obtained from the private sector. The net effect to the taxpayer is
tens of billions of dollars wasted each year. Activities ranging from the mundane to the high-
tech, from laundry services to information technology are performed by government agencies,
even when they can be obtained more cost effectively from the private sector at equal or
higher quality.

Studies by OMB and the General Accounting Office show that the government saves 30
percent or more when services are procured from the private sector. Similar savings were
found when the private sector was utilized in several state and local governments in the
United States and through-out the world. Later today, Mayor Goldsmith of Indianapolis will
explain in detail the success he has had in providing his constituents with better services at
lower costs by utilizing private sector expertise.

However, under the Clinton Administration's “reinventing” government initiatives, agencies
not only engage in commercial activities for their own use (or so called in-sourcing), but have
become entrepreneurial and are marketing their services to other government agencies and the
commercial marketplace, In many cases, they are displacing private sector firms, a number of
which are small businesses. In fact, the problem has become so pervasive that all three
sessions of the White House Conference on Small Business ranked unfair competition from


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Response, ,

‘As noted in our response to question 1, NOAA has begun a serious effort to examine the
commercial services that NOAA might place into competition with the private sector. Many of
these services are highly technical and require significant levels of investment to be fully
performed by the private sector. There are issues of cost comparability, liability, recurring»
operations and maintenance cost and other concems in the development of these asset dominated

cost comparisons, Nevertheless, NOAA is engaged in a cost comparison for the work of the
NOAA ship KATMINOANA, and has issued a CBD request for information in the expectation
of a review of a "charter back” arrangement involving the NOAA ship FAIRWEATHER. Shore
support is included in these analyses.

Attachment 4 is a memorandum from Paul A. Dennett, Director of the Office of
Acquisition and Property Management, Office of the Secretary, Department of Interior (DOI),
dated September 25, 1997. This letter responds to OMB's inquiry regarding DOT's A-76 cost
comparison efforts and the potential for competing the routine maintenance, janitorial, mapping,
recreational oversight and management activities of the National Park Service (NPS). In sum,
the Department and the NPS are reviewing their use of A-76 competitions as a part of their larger
reinvention efforts, A legislatively mandated report is due from the NPS on the use of A-76 cost
comparisons in January 1998. OMB will be working with the NPS in the development of this
report. A more thorough response can be offered at that time.

7. "Finally, OMB's June 24, 1996 memo to agencies (M96-33) requested that they"...
identify the approximate number of FTE they expect to submit to cost comparison (bid
opening) in Fiscal years 1996, 1997 and 1998. Please provide this information,
arranged by year and by agency.”

‘Response.

Attachment 3 is a summary of the data reported by the agencies in response to Questions
4/and 7. These data do not in every case reflect the level of change being considered. Several
agencies have increased their support contracting for new or expanded work or have increased
their level of contracting through other means, including privatization.


COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California

J. DENNIS HASTERT, Illinois TOM LANTOS, California

CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia

CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York

STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York

CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania

ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California

JOHN M. McHUGH, New York ‘CAROLYN B. MALONEY, New York

STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin

JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington,

THOMAS M. DAVIS, Virginia DC

DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania

MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland

JOE SCARBOROUGH, Florida DENNIS J. KUCINICH, Ohio

JOHN B. SHADEGG, Arizona ROD R. BLAGOJEVICH, Illinois

STEVEN C. LaTOURETTE, Ohio DANNY K. DAVIS, Illinois

MARSHALL “MARK” SANFORD, South JOHN F. TIERNEY, Massachusetts
Carolina JIM TURNER, Texas

JOHN E. SUNUNU, New Hampshire ‘THOMAS H. ALLEN, Maine

PETE SESSIONS, Texas HAROLD E. FORD, Jr., Tennessee

MICHAEL PAPPAS, New Jersey

VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont

BOB BARR, Georgia (Independent)

ROB PORTMAN, Ohio
KevIN BINGER, Staff Director
DaniEL R. MOLL, Deputy Staff Director
WILLIAM MOSCHELLA, Deputy Counsel and Parliamentarian
JupitH McCoy, Chief Clerk
Putt ScHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY
STEPHEN HORN, California, Chairman

PETE SESSIONS, Texas CAROLYN B. MALONEY, New York

THOMAS M. DAVIS, Virginia PAUL E. KANJORSKI, Pennsylvania

JOE SCARBOROUGH, Florida MAJOR R. OWENS, New York

MARSHALL “MARK” SANFORD, South ROD R. BLAGOJEVICH, Illinois
Carolina DANNY K. DAVIS, Illinois

JOHN E. SUNUNU, New Hampshire
ROB PORTMAN, Ohio

Ex OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California
J. RUSSELL GEORGE, Staff Director and Chief Counsel
JOHN HYNES, Professional Staff Member
ANDREA MILLER, Clerk
MARK STEPHENSON, Minority Professional Staff Member

aD


119

*At the Department of Labor headquarters, here in Washington, DC, AFGE and
management developed a program called “Serving Our Customer." Teams of
supervisors and employees were brought together to identify customer
improvement opportunities. The teams were empowered to implement their ideas.
without further review by any management official. When it was all over, this
innovative program produced almost 10,000 decisions——not recommendations, but
decisions——for improving service to the agency's internal and external customers.

Mr. Chairman, it would have been easy for a federal employee union like AFGE,
during a time of unprecedented downsizing, to do nothing more than fuss and fight. But
we didn't. Our members are striving every day to make the federal government the
world's best service provider. Until | have an opportunity to discuss with you personally
labor-management partnerships in the federal sector, | hope that you will take the time
to review a copy of Partnership That Works that | am submitting under separate cover.
This AFGE publication discusses in detail almost 30 different partnership success stories.

CONCLUSION

Again, Mr. Chairman, thank you for inviting me to testify at today's hearing. AFGE
is ready to work with you to ensure that non-inherently governmental work remains
‘subject to strong public-private competition before it can be contracted out.

26


EOR A POLITICAL CHAMPION

‘The history of government reform has demonstrated that new policies, whether based
in law or in administrative directives, are not self-implementing. In our work on
state and local privatization initiatives, we reported that reforms such as
privatization are most likely to be sustained when there is a committed political
leader to champion the initiative. In the six governments we visited, a political
leader (the governor or mayor), or in one case, several leaders working in concert

(state legislators and the governor), played a crucial role in fostering privatization.

3


152

ATTACHMENT 4
206 ANALYTICAL PERSPECTIVES

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9

assistance directly to federal employees. This would be a new and possibly
burdensome function for OMBa function that probably could be better handled by
the Office of Personnel Management, which already has responsibility and experience
in this area.

C itive C ing
inE C .

Involving employees in the privatization process by letting them compete for the right
to provide the service was a strategy used by state and local governments to gain
employee cooperation during the privatization process. H.R. 716 neither encourages
nor prohibits public-private competitions. However, it does give implicit authority to
OMB to implement such a program, by requiring that the implementing regulations
include standards and procedures for determining whether it is a private sector
source or an agency that provides certain goods or services for the best value. While
the question of how such determinations would be made is left up to OMB,
competitive contracting has been the traditional method for making such
determinations both at the federal level and the state and local level.”

“Under competitive contracting, also referred to as managed competition, a public-sector
agency competes with private-sector firms to provide public-sector functions or services
under a controlled or managed process. This process clearly defines the steps to be
taken by government employees in preparing their own approach to performing an
activity. The agency's proposal, which includes a proposal for cost-estimation purposes,
is useful in competing directly with private-sector offers.

14


15

Mr. Horn. H.R. 716 would codify existing administration policy
embodied in OMB Circular A-76, which requires agencies to sub-
ject their commercial functions to cost comparison. H.R. 716 and its
Senate counterpart authored by Senator Thomas of Wyoming,
would go further, requiring agencies to determine the best value
provider for commercial functions.

In the private sector, competition has reduced costs and im-
proved performance and consumer choice. The most competitive
sectors of the economy are also the most innovative. Federal anti-
trust policy is designed to ensure competition so that customers do
not get gouged. H.R. 716 has the potential to be the antitrust policy
of the Federal Government.

However, before the bill can become law, we need to examine
several key issues: What are the benefits and costs to taxpayers?
Should government perform commercial tasks when they are the
most efficient provider? Should government perform commercial
tasks when someone else could be doing the job at a much more
reasonable price and better? And, what are the effects on employ-
ees of such competition and potential for outsourcing?

My own view is that some agencies have the most experienced
people doing the job already. Some agencies do not, especially as

uyouts have removed some of the most capable members of the
civil service. Competition can be a spur to improved performance
in either case. According to the Congressional Budget Office, com-
petition can reduce the costs of Government by an average of 20
to 35 percent.

Today, we will hear from the authors of this legislation, Senator
Craig Thomas, Republican of Wyoming, and Representative John J.
Duncan, Jr., Republican of Tennessee. Mr. Duncan was delayed in
his district, I believe, and we hope he will join us a little later in
the hearing. Our witnesses represent some of the best minds in
this area at the Federal, State, and local levels, and we look for-
ward to their testimony.

I want to add that the subcommittee staff has received several
unsolicited statements for the record of the hearing which we will
put in the hearing at the appropriate place.

The subcommittee would like to encourage additional thoughts
on this issue. We will hold open the testimony for 3 weeks for any
person to provide a statement. We will post all testimony on our
subcommittee Internet site. We do not mean to close the door to
any point of view and we encourage a healthy debate on this con-
troversial issue.

I now yield to the ranking minority member, Mrs. Maloney of
New York, if she has an opening statement.

[The prepared statement of Hon. Stephen Horn follows:]


128

Mr. Horn. Thank you, Mr. Harnage. That’s a very thorough
statement that you provided us.

Let me start with you just to ask a couple questions to fill out
some details. On page 6, you note in the first line under the para-
graph, H.R. 716 is not needed, the legislation fails to take into con-
sideration recent statutory and policy reforms, which provide the
government greater flexibility to privatize and outsource its work
to the private sector. What statutory and policy reforms are you
thinking of? I would just like them in the record at this point.

Mr. NAGE. Well, first of all, we’re talking about the revisions
of A-76, which we participated in in 1995 and the early part of
1996. We all had considerable concerns about the previous docu-
ment not being adequate, and fair competition was a concern of
everybody’s. If you get a contractor’s comments, they will say, it’s
unfair competition; if you get a manager’s comments, they'll say it’s
unfair competition; if you get a union’s comments, they'll say it’s
unfair competition. What we all consider unfair is not necessarily
the same.

We think this provision went a long way toward eliminating
many of the concerns. When something new like that takes place,
it slows down the process for everybody to get familiar with it; reg-
ulations will be updated, and people, to begin the process. So con-
tracting or outsourcing may have appeared to slow down, but it
was simply that a new procedure was being implemented. The
same thing will happen with H.R. 716. If it’s implemented, things
will come almost to a screeching halt for a considerable amount of
time, for everybody to understand what the new law provides.

So that was one of the things that we—

Mr. Horn. So that the policy side is the rewrite of A-76 essen-
tially?

Mr. HaARNAGE. Right.

Mr. Horn. It’s the statutory side I’m fishing for, because frank-
ly—maybe it’s there and maybe I just don’t know about it, but is
there a statutory base that you’ve had to confront when I’ve argued.
some of these points with OMB or different departments that
might have engaged in outsourcing?

Mr. HarnacE. I can’t recall right now exactly what we're talking
about there, but I will be glad to get that to you.

Mr. Horn. Yeah. If we could, we'll have a space left, without ob-
jection, at this point in the record.

{The information referred to follows:]


134

How do you close it? Because I see there is a little bit of a flaw
directing this essentially, it seems to me. Let me start, Mr. DeSeve,
with you, and hear Mr. Stevens and Mr. Harnage on that.

It seems that is the nub of this issue. If you are serious about
making sure the government is making right decisions about
outsourcing, there are going to be instances where we have to do
more of this, and there are instances where we are just not going
to save money, even though people think we can. What is the best
way to get to it?

Mr. DeSeve. I think Chairman Horn touched on it when he
talked about the annual appropriations process, which is, in fact,
a double-edged sword. I think one of the reasons for DOD’s success
has been the base closing initiative they had. It forced people to re-
alize that if they didn’t become more efficient, it was possible that
their function could be terminated and moved somewhere else. So
there was what one might call a “negative incentive.” There was
a bit of a stick in that sense.

The Balanced Budget Act, with its very tight spending caps, both
in defense and the domestic discretionary area, as well as in the
mandatory area, will be a reality check starting this year for many
agencies. I don’t want to be too dramatic here, but the survival, or
at least the survival of their entity, will be continuously tested over
the next several years in the budget process.

In addition, the output of these entities will be viewed for the
first time as part of performance plans that are coming in with the
1999 budget. OMB and the agency heads will be asking: What are
we getting for what we are spending?

Now, with perfect accounting information, it would be easier to
ask that question. But even in the aggregate, when you balance the
outcomes within a budgetary framework against the budget re-
sources, even if you have not attributed all the indirect costs, all
the facilities’ costs and so on, it begins to make you wonder. If you
are challenged by having less money, and you are challenged with
hard questions about what your real mission is, and what your out-
puts and outcomes are, many of the incentives for becoming more
efficient starts to become clearer, as Mayor Goldsmith has said.

Mr. Davis of Virginia. Let me fellow. One of the concerns is you
put too many criteria down in statutory language, then somebody
can come after you and say you didn’t follow this, you get the ap-
peals, you get all those kinds of issues. As I said, one size doesn’t
fit all. It is impossible to prescribe all this kind of thing, and that
is the concern.

On the other hand, you have to be driven by the bottom line. I
think there is probably a way to write that in. It just seems to me
it ought to be written at a level where the people who make those
decisions are going to get the benefit that will save the dollars or
whatever as opposed to the current system where it works OK with
DOD. I would still make some changes in the circular, but on the
other side of the ledger it has not had the same effect. Is that a
fair comment?

Mr. DESEVE. Very fair.

Mr. Davis of Virginia. Let me ask Mr. Stevens and Mr. Harnage,
any reaction to that?


189

US. GEOGRAPHIC INFORMATION RESOURCES
ISSUES

Policy Bases: Are the policy bases under which the federal government and individual agencies
‘conduct their surveying, mapping, and Gi activities adequate end relevant to current problems and

‘Leadexship. Coordinstionand Standards: Do E.0. 12906 on the National Spatial Data Infrastructure
‘& OMB Circalar A-16 ou operations of the Federal Geographic Data Committee provide sufficient
Policy and institution bases for seting standards, integrating federal activities, end coordinating
‘With other governmental and private sector activities?

‘Structure & Onganization: Are there opportunities to consolidate major federal activities or
‘otherwise share capabilities that could eliminate redundancies, significantly improve performance,
and/or reduce costs?

Public Purpose: Which surveying, mapping, and Gi activities serve fundamental public purposes
‘and are inherently governmental functions? Which are inherently federal?

‘Outsourcing: Are there significant opportunities to contract out substantial additional portions of
the federal government's surveying, mapping, and GI activities? :

Intellecaual Property Rights: What policy options are there to protect and/or mouetize data rights
+ that would enhance revenues for federal operations and/or motivate the private sector or other
providers to perform greater portions of these activities?

Pricing: Would alternative pricing strategies and/or mechanisms for government products help to
“clear the market", ic, betier balance federal government demands with federal govemment
resourves? What oe they?

Painerships: Are thre significant opportunities for federal agencies to enter into aitioal
partnership arrangements (with states, localities, academe, NGOs and/or private industry) to help
Detter meet federal, state and local needs? What are they?”

‘Technology: Are there major technological options that could significantly impect federal
performance of geographic information missions that should be more aggressively pursued/funded?

ins: | Whst national security and/or intemational
consi ssgicly luce ev srveying mapping, and GI seve nd how sbould


178

ACSM

American Congress on Surveying and Mapping
5410 Grosvenor Lane, Bethesda, Maryland 20814
Phone: (301) 493-0200; Fax: (301) 493-8245

Statement of the American Congress on Surveying and Mapping to the House
Committee on Government Reform and Oversight’s Subcommittee on Government
Management, Information, and Technology, on H.R. 716, Freedom From
Government Competition Act

September 29, 1997

The American Congress on Surveying and Mapping (ACSM) is pleased to submit its
views on H.R. 716, the proposed Freedom From Government Competition Act. ACSM is
an individual membership society that represents more than 7,500 professionals in the
fields of surveying, cartography, geodesy, and geographic information systems technology
who work in both the public and private sectors throughout the world, ACSM is made up
of four member organizations that serve as special interest groups. ACSM’s member
organizations are the American Association for Geodetic Surveying, the Cartography and
Geographic Information Society, the Geographic and Land Information Society, and the
National Society of Professional Surveyors.

In commenting on H.R. 716, ACSM seeks to represent the interests of its private- and
public-based members, the surveying and mapping profession as a whole, and the nation’s
Jong-term interest in ensuring the availability of comprehensive, timely, accurate, and
useful geospatial information.

General Comments on H.R. 716

ACSM commends Representative Duncan, Senator Thomas, and the other sponsors of the
Freedom From Government Competition Act for introducing the bill. H.R. 716 makes an
important contribution to the ongoing debate over the appropriate roles of government
agencies and the private sector in providing needed services. Whether, and to what degree,
services provided by agency staff should be outsourced to private firms is an important
part of that debate.

ACSM believes it can look at outsourcing objectively because its membership includes
surveying and mapping professionals who work in private firms as well as government


14

State and local governments that we reviewed used incentives to accomplish their
goals. In Virginia, officials said department managers were allowed to retain savings
garnered through privatization and restructuring for use in productivity and
technology improvements.* This practice, according to the Director of Virginia's
Commonwealth Competition Council, provided the incentive needed and helped solve
the question often asked by managers of "what's in it for me"? In Indianapolis’
managed competition process, if the public sector won a competition and the union-
management team performed the activity at the desired level of performance for less
than it had bid, the team would receive a share of the savings at the end of the year.
‘The city, after tracking performance over a period of years, could place a moratorium

- on bidding for areas for which city employees had demonstrated performance
excellence and in which they had consistently outbid private competitors. In
addition, Indianapolis built community support by taking some cost savings achieved
through outsourcing and managed competitions and allocated it to hiring additional
police, lowering tax rates, and increasing infrastructure projects. According to the
Deputy Mayor, this approach built community support and provided further

incentives for managed competition and outsourcing.

In contrast, Georgia's Governor instituted a budget redirection program that required
all agencies to prioritize their current programs and activities and identify those
programs that could be eliminated or streamlined. The agencies were required to
make at least 5 percent of their total state-funded budgets available for redirection to
higher priorities. According to a Georgia Privatization Commission official, agencies
were given a 6-month notice that their budgets would be cut by 5 percent. State

8S, 959, Workforce Transition Act of 1995, Chapter 811 of the Acts of Assembly,
‘Commonwealth of Virginia.

9


82

and already competed, certainly that would satisfy the bills re-
quirements.

Mr. Davis of Virginia. The government is moving to more IDIQ
contracts, administered by GSA as kind of the referee, but a lot of
different private sector groups, sometimes dozens, into one area.
We can talk about that later. .

Mr. Horn. Should we exempt services that government agencies
are unquestionably the cheapest provider. For example, the GSA-
negotiated air fares from the process, as Mr. Davis asked you, or
should we just leave it as it is and assume that whether it is gov-
ernmentwide negotiated or piece-by-piece negotiated. If the private
sector could work out, let’s say, that the Dallas-Washington route
was better than what they will give GSA, would that mean then
let’s use the private sector in the Dallas-Washington route, at least
for that part, it is a better deal?

Senator THOMas. It would seem to me that the bill is designed
to say, let’s take a look at the package and take those activities and
give the private sector an opportunity to compete. Someone has to
make some judgments along the line.

uu know, the idea sometimes, and we will hear it from OMB
and from the unions later on, is that contracting is such an un-
usual, tough thing. Yet, it is done all the time in the private sector.
That is what it does, contract out. So I think this bill is designed,
at least, and if it does not do that, we ought to make it do that,
to give some flexibility to the agencies who are doing the contract-
ing, but what we are asking for is to go through a competitive proc-
ess and to have it made available. I am not particular about ex-
actly how every detail of that works.

I do know, however, that to make it really work over time, par-
ticularly in some of the agencies, the agencies are going to have to
reconform themselves to the idea of oversight of contracting. I am
looking, for instance, at doing something with the National Park
Service, and we are looking at getting an asset manager to do
something with the concessions. Concessions are wholly commer-
cial. We ought to get somebody from the private sector to do this.

Now, the Park Service will still have oversight in terms of how
that impacts on their core function, which is to manage the re-
source. We are saying somebody ought to have a chance who is a
professional to do asset management, to contribute to that. I think
that concept applies on all the things the Federal Government

loes.

Mr. Horn. Certainly the Park Service has changed its attitude
over the years, partly by congressional pressure, with some conces-
sionaires who had a very good deal, but the government didn’t have
a very good deal. I think they are probably bidding it more appro-
priately for the taxpayers’ standpoint.

Senator THomas. I think probably they haven’t adapted them-
selves to being contract supervisors and managers and putting out
Prospectuses and so on. They do not do a very good job of managing
what has become a very large commercial activity.

Mr. Horn. I yield 5 minutes to the gentlewoman from New York,
Mrs. Maloney.

Mrs. MALONEY. Would your legislation allow the private sector to
compete with the public sector? In other words, you were saying to


103

attentive to the needs of the Executive Branch's political agenda than to the needs of
agencies, their customers, and the nation's taxpayers.

For example, upon cursory examination, one could argue that photographic
services are a commercial activity which should be opened to competition. We would
agree with that determination if the service only provided photographs for such events as
Promotions, social events, “or visits of dignitaries. However, if the service made
photographs of competition- or national security-sensitive plans, blueprints, or materials,
would that work be commercial? We, and many others, would argue that such work --
because of competition and security concerns -- should be considered inherently
governmental and kept in-house.

This example illustrates just one of the many flaws contained in H.R. 716. The
question, | place before the Committee is very succinct. Do we want a political appointee
at OMB -- far removed from the front-lines and perhaps with a political agenda to
advance -- to be responsible for making a decision whether an activity is inherently
governmental? Or does the Committee want to apply a lesson from the private sector
by empowering the people who actually perform the work to determine whether the
relevant activity is inherently governmental.

Nor would the bill result in a windfall of opportunity for small businesses. Most
‘small businesses are not capable of providing the vast majority of services now provided
by federal employees. If H.R. 716 is opening any door to the private sector, it would be
for larger firms and corporations--with smaller businesses merely serving as support
subcontractors through reimbursable agreements.

10


39

understand what it costs to produce a good as well as the prevailing market standards for
quality. The majority of governmental entities, however, have no idea what it costs to
produce a good or service, They also have little sense of the quality and performance
standards that govem the production of the good or scrvice and they rarcly voluntarily
subject themselves to the rigors of an open and competitive marketplace. ‘The current
system in government is generally onc of monopoly control over production, performance
standards, and purchasing. As such, I think that H.R. 716 may actually be misnamed. 1
think it might more accurately be called the “Freedom from Government Monopoly Act.”
This distinction between a government monopoly and true competition may at first
Appear to be semantic. I believe that it is important, however, particularly as 1 describe

our efforts in Indianapolis with privatization and public-private competition.

T was clected Mayor of indianapolis nearly six years ago. 1 ran on a platform of
aggressive privatization and rigorous public-private competition. At that time, J was not
alone in the privatization and competitive government effort. David Osbome and Ted
Gacbler had just written Reinventing Government and a few othcr reform-minded leaders
like Mayor Norquist and Mayor Rendell were beginning to usc the specter of private
sector compctition to spur improvements in services then provided by government
employces. It was clear at that time, and it remains clear today, that there are enormous
barriers to any cfforts to reform government. That is particularily true when discussing
privatization, outsourcing, or even public-private competition. The federal barriers,

which are too numerous to mention, include section 13(c), which effectively prohibits


164

consider the conversion of work to or from in-house, contract or ISSA performance. Upon
reaching this decision, the requirements of OMB Circular A-76 apply. Again, the incentives
presented by the Balanced Budget Agreement, the recognition that resources are constrained, the
need to reallocate existing resources to reflect mission and technology changes, the need to
consider employee impacts and the recognition of efforts to improve financial management,
technology investment and output measures are creating pressures for agencies to consider
changes to the in-house and contract mix. The Revised Supplemental Handbook also requires
agencies to establish an Administrative Appeal process that may address not only questions
related to the conduct of a cost comparison, but also, fundamental compliance with the policies
and procedures of the Circular and its Supplement.

9. “OMB Circular A-97, which implements the Intergovernmental Cooperation Act,
requires state or local government to certify to the Office of Management & Budget
that services cannot be procured reasonably and expeditiously by it from the private
Sector through ordinary business channels before a Federal agency can provide such
services. How many such certifications have been filed with OMB? What is the
process for requesting and processing such certifications? For what types of services
have such certifications been filed with OMB?”

Title III of the Intergovernmental Cooperation Act of 1968 was implemented through
OMB Circular A-97, dated August 29, 1969. OMB Circular A-97 then refers to Circular A-76
with respect to the conduct of cost comparisons to justify Federal performance of State or local
workload requirements, Federal agencies are not permitted to provide commercial services to
State of local governments unless they are providing such services to meet their own needs and
are doing so in compliance with the requirements of OMB Circular A-76. At paragraph 7.c. of
OMB Circular A-97, the requesting entity must also certify to the Federal agency that they have
‘been unable to procure the requested services reasonably and expeditiously through ordinary
business channels from the private sector. This approach permits Federal, State and local
agencies to rely on one another for the provision of inherently govermmental or other unique or
highly technical services while ensuring that generally available commercial services are
provided cost-effectively.

To the extent that a Federal agency began to provide a commercial service to a State or
local agency after 1968, the State and local certifications should be on file with the Federal
agencies involved. OMB has not requested or maintained a file of these State or local
certifications.


64

I would like to apply just a couple of these lessons to the bill that
you have in front of you, if I may. The statement does so at some
length. I'll be very brief.

bill does not and it probably cannot provide for the effective
political leadership that the entities found that they needed, but it
does provide a tool that a committed political champion could use.

OMB Circular A-76, as you know, has never been enacted into
a law. And its effectiveness in practice has been questioned both
in the executive branch and in dozens of congressional hearings.
The bill, H.R. 716, would give the force of law to general reliance
on the private sector for commercial goods and services and, thus,
would provide a stronger foundation but not a substitute for politi-
cal leadership. I must also mention the possible downside of sub-
jecting some of these decisions that are now made purely on admin-
istrative authority to greater judicial scrutiny.

To implement the privatization issues, I mentioned that most of
these entities needed to establish a dedicated organizational and
analytical structure to carry it out. H.R. 716 does this by establish-
ing a new center for commercial activities in OMB to implement
the requirements of the legislation and ensure compliance and so

forth.

Given the wide latitude that the current bill allows OMB, and
it’s in some contrast to the first version of this bill, by the way, but
the current bill does give OMB a great deal of latitude. And there
will be a number of questions that will come up, such as whether
government corporations and the Postal Service, the State govern-
ments, would qualify as private sector entities, for example, or
whether public buildings would have to be sold to the private sector
in order to house public employees. Many questions like that OMB
would have to answer and we would raise the question of how is
Congress going to hold OMB accountable for this.

The short answer is that the Government Performance and Re-
sults Act provides an ideal mechanism we believe, and I can go into
that in more length if you would like. We would also point out,
however, that this would add a lot of resource burden on OMB, and
their resources are already strained, I believe, particularly on the
management side. That is something that would have to be ad-
dressed.

I mentioned the need for reliable and complete cost data on gov-
ernment activities that these entities we examined felt were essen-
tial in assessing the overall performance of the activities that are
designated for privatization and in making these decisions easier
to implement and to justify to potential critics. Mayor Goldsmith
noted the difficulty, and it is certainly true of the Federal Govern-
ment, of determining what all of the costs, both direct and indirect,
are. The ABC program that he mentioned was probably one of the
most innovative approaches to this.

The fifth major lesson that was learned was that these entities
needed to develop strategies for work force transition. One that
was used in dealing with employees in Virginia, for example, was
to provide an incentive for them to embrace privatization in the
form of allowing them to retain some of the savings from that.

Then, as I mentioned, the weakest link that most of these enti-
ties identified was in their oversight of the process. You, Congress-


148

5. "What portion of the dollar value of services that the Federal Government contracts out
is accounted for by the Department of Defense - over the past 5 years?”

‘Response, (dlso provided in OMB letter dated September 24, 1997)

Service Contracting
(S Biltions)
FY 1992 $105.2 360.9 579
FY 1993 $105.5 $62.0 58.8
FY 1994 $110.0 $65.3 59.4
FY 1995 $1141 $66.9 58.6
FY 1996 * $111.7 $68.8 61.6

Note: Source: The Office of Federal Procurement Policy (OF PP), Federal Procurement Data Sysiem
(FDS). These numbers include R&D, Construction, A&E, ADP services (including installation and
maintenance) and other services.

For comparative purposes we have also provided the total Federal civilian personnel
compensation figures for the same years, which are also essentially flat after 1992.

Federal Civilian Personnel Compensation

(S Billions)
FY 1992 $107.3 $42.7 39.9
FY 1993 $110.9 $413 372
FY 1994 S111 $40.7 36.6
FY 1995 $12 $40.1 36.0
FY 1996 $112.3 $39.6 35.3

6. "At the conclusion of the questioning, Mr. Koskinen agreed to give me his reaction to a
Jist of potential contracting candidates that I would provide... I would like to have
OMB's reaction to (1) the contracting potential of the many activities of the NOAA fleet
and your plans to fulfill that potential and (2) the routine maintenance, janitorial,
mapping, recreational oversight and management activities of the National Park Service
(NPS)...



35

The tradition in the committee is to swear in all witnesses except
Members of Congress. We assume they tell the truth automatically,
or we shun them forever.

[Witnesses sworn.]

Mr. Horn. The clerk will note both have affirmed the oath.

We will begin, mayor, with you. Mr. Burton very much hoped to
be here, the chairman of the full committee. He did not know if he
could make it back by the time you were testifying, but he was de-
lighted to see you on the witness list. I showed it to him last week.
He wanted to welcome you if he could make it back from Indiana.
I don’t know if you flew in early this morning or came in last night.

Mr. GOLDSMITH. I came in last night and, with the committee’s
permission, will probably slip out shortly after my testimony and

ly back.

Mr. Horn. We are glad you are here. You have quite a record
in this area. Please proceed.

STATEMENTS OF STEVE GOLDSMITH, MAYOR, CITY OF INDI-
ANAPOLIS; AND SHIRLEY J. YBARRA, DEPUTY SECRETARY
FOR TRANSPORTATION, STATE OF VIRGINIA

Mr. GOLDSMITH. Thank you. Mr. Chairman, members, it is a
pleasure to be able to participate in this important discussion. The
stage has been well set by the Senator.

My remarks will be relatively brief. I am pleased that the com-
mittee is focusing attention on the fact that government often can
procure services for the citizenry more effectively than it can
produce those services itself. Distinguishing the procurement and
production issues is terribly important.

As previous testimony reflected, government distorts this process
in two ways: One, by insisting on a monopoly, Government is in-
herently unfair to its taxpayers, driving up the cost of services and
driving down the quality at the same time. Second, by unfairly
competing government obviously is intruding in the private mar-
ketplace.

Government monopoly is unfair to the small business or large
business with which government competes, but, more importantly,
it is unfair to the taxpayers for whom value is reduced.

Mr. Chairman, I appreciated your rephrasing of the title of the
bill. I do think it is more appropriately called “Freedom from Gov-
ernment Monopoly.” Our experience, in Indianapolis is that private
monopolies are only marginally less inefficient than public monopo-
lies. It is competition that drives value for the taxpayers. I think
the reference to “Freedom from Government Monopoly” is an im-
portant one. If we look at that, it seems to me the great thing that
this committee and the Congress could do is to remove the struc-
tural barriers that now unfairly enforce the monopoly, and, in so
doing, intrude on the value equation.

Those structural barriers are that very few governments, wheth-
er they are Federal, State, or local, know the costs of a single activ-
ity. They know how much money they take in, they know how
much money they spend, but they do not know how much it costs
to do an activity. So one of the major structural barriers we have
is on costing.


67

have committed political leaders to champion the privatization initiative;
establish an organizational and analytical structure to implement the
initiative;

enact legislative changes and/or reduce resources available to government
agencies in order to encourage greater use of privatization;

develop reliable and complete cost data on government activities to assess their
performance, support informed privatization decisions, and make these
decisions easier to implement and justify to potential critics;

develop strategies to help their workforces make the transition to a
private-sector environment; and lastly,

enhance monitoring and oversight to evaluate compliance with the terms of the
privatization agreement and evaluate performance in delivering services to
ensure that the government's interests are fully protected.


190

OTHER ANALYSES

1. Economic Value: How important are these activities to the nation’s global competitiveness?
‘What are their most important uses on a national scale?

2. Historical Evolution: How have U.S. geographic activities evolved and how does this history
impact current geographic missions and options?
3. Societal Changes: What noo-technological changes in society are significantly impacting
Sree inion vies hw do ty ty ate open eng
: How do international and the practices of other nations compare to those
ofthe Unies Sasa?

5. Best Practices: What exemplary practices exist in the surveying, mapping, and geographic
information areas that should be emulated more widely?

ie)


104

The bill would also result in serious delays, which would in turn result in lost
savings and opportunities, because of the time unnecessarily consumed by the
implementation of the less effective system mandated by H.R. 716. For example, the
current round of public-private competitions would have to be halted until OMB's Center
for Commercial Activities could be established. Given the nature of the legislative and
regulatory processes, further delays would occur when various agencies and interest
groups inevitably attempted to have site-specific, functional, or even agency-wide
prohibitions enacted. In the meantime, needed efficiencies and cost savings would be
permanently lost as the new, less responsive system is put in place. Never has the
adage, “Nothing good comes from something poorly begun" been more applicable.

Finally, | want to state my concems regarding another unintended consequence
of codifying a public-private competition regimen, i.e., of taking the rule-making function
away from essentially impartial civil servants and tossing it into the political hurly—burly-—
a world populated by skilled advocates who are eager and willing to help out their
constituents, whether they be wealthy contractors or anxious federal employees.
Inevitably, this bill would generate a plethora of statutory exceptions and set asides --
both pro- and anti-privatization -~ as various interest groups would demand and secure
protection from the rigors of the competition. However, | urge the Subcommittee to keep
in mind this consequence, which would be as inevitable as it would be undesirable to
those of us who are interested in full and fair public-private competition for non—inherently

governmental work.

1


167

STATE
LOCATION/ORGANIZATION UNIT.
FTE.

COMMERCIAL ACTIVITY FUNCTION CODE.

REASON CODE

YEAR OF COST COMPARISON OR CONVERSION

CIVIFTE SAVINGS.

ANNUAL DOLLAR SAVINGS

DATE OF COMPLETED POST-MEO PERFORMANCE REVIEW.

ree meas ge

Enclosure 4 is a copy of the most recent agency submissions requested by OMB. This
submission identifies each agency's commercial activities FTE by agency and function.

15. “What is OMB estimate of the total dollar value or appropriated amount provided to
agencies in the most recent fiscal year available for performance of commercial
activities?”

Federal budgets are not structured to identify or split out, by agency, location or function,
the total dollar or FTE resources authorized for the performance of commercial activities.


126

DISA WESTHEM Memo, WE04, Results of the DMCs’ Revenue Based
Staffing Plans

¢. We are still working several issues relating to filling
vacancies from within the WESTHEM “family” and will update you as
decisions and solutions are achieved.

3. Quarterly, we will be reviewing with you your staffing plan
revisions. The next review will occur in May 1997. Details will
be provided to you under separate cover.

4. Points of contact for staffing plan guidance are staff
members of WEO4 at DSN 869-9600 or commercial (614) 693-9600.

Points of contact for personnel actions are WE1 staff members at
DSN 761-2284.

» na pater

JOAN
igadier General, USAF
Commander
Distribution:
WEO, WEOCS, WEO1, WEO2, WEO4, WEOS, WEO6, WE1, WE2, WE3, WE4,

WES, WEA, WEB, WED, WEE, WEG, WEH, WEJ, WEK, WEL, WEM, WEP, WER,
WES, WET, WEW, WEY


45

Mr. Horn. Ms. Ybarra, if you will give your statement, we will
then go to questions.

Ms. YBARRA. I am Shirley Ybarra, deputy secretary of transpor-
tation, and I also am a Governor’s appointee to the Commonwealth
Competition Council. I appear here really on behalf of both, and
will try, instead of reading my statement, to fill in a few details
about the experiences we have had.

I must say that I echo the mayor’s statements in many of the
things and virtually everything that he said, in particular where
we see the price going down and the services going up. If you set
the standards correctly, you would be surprised the private sector
can even outdo those.

At the Commonwealth Competition Council, and I believe you
will hear later from GAO, they have come to visit us, what we do
is seek a number of ways and areas where we could privatize, work
as a public-private competition, or compete the service. What we
did in setting up this council, which is an independent agency, we
asked the agencies to come in throughout government and tell us
what they would be interested in working through, and it was sur-
prising. I figured that we would just have a few things. They came
in with a host of great ideas. They were looking for ways to step
through the process.

We have developed at the council something called a cost analy-
sis program, which we use and allowed the agencies, educated
them in, and it is called COMPETE. It is really designed to capture
all of the costs of a government service or function.

This program is essential in making the good decisions in our
process. We also gave them a little bit of an incentive and said that
the agency could keep whatever savings they got. It was amazing
what they could come up with when they knew they might be able
to keep the savings.

The council recently contracted. We have just been reviewing
what we have done. We recently considered 91 of the opportunities
with the following disposition: 20 opportunities have already been
privatized; 32 are not going to be recommended at this time; 16 are
under current study; and 23 opportunities are being recommended.
to the Governor and his submission of his budget.

We are also, at the Competition Council, under the direction of
the secretary of administration and with the council, and I am on
one of the committees looking at ESOP’s for certain functions. We
are finding that there are, in fact, areas where the employees
would be interested in taking, if you will, the one off, taking it out
and being a private operation or a public-private operation.

Just a couple of things that we did in particular in the transpor-
tation arena. We probably have the unique act in the country
called the Public-Private Transportation Act. It is unique because
it allows both solicited and unsolicited proposals for construction as
well as services in the transportation arena.

We felt that in enacting this that the market might tell us better
what they would like to either construct or a service they could
offer. The market would be better at it than us just saying, here,
do this one, which would be a regular competitive procurement.

In order to ensure the competition when an unsolicited proposal
comes in, we post it and allow anyone else to come in without see-


87

better contract offers as more viable, responsive and cost-effective competitors come to the table.
Indeed, experience here and abroad has shown that the use of public-private competition can
reduce costs by 30% and more of previous costs. In testimony offered in June by Dr. Samuel
Kleinman, Center for Naval Analysis, before the Senate Governmental Affairs Committee, it was
‘noted that in more than 2,100 competitions conducted by the DOD, involving over 80,000
positions, savings of approximately 30 percent were achieved - savings that have translated into
over $1.5 billion annually. However, it was also noted in that testimony that in approximately 50
percent of those competitions the Federal Government was found to be the lowest cost, highest
value offeror.

THIS ADMINISTRATION SUPPORTS OUTSOURCING

‘We support outsourcing. But, we also believe in competition and the ability to chose that
alternative which is the most cost-effective and in the best interest of the taxpayer. By issuing the
March 1996 OMB Circular A-76 Revised Supplemental Handbook, we have committed to a
broader range of competition and have encouraged new public and private sector competitors to
enter into the competition. The Revised Supplemental Handbook provides the needed
organizational and analytic structure. Under this structure, new opportunities, including certain
agreements that were not previously subject to competition will be made available to both public
and private sector offerors.

‘As you know, the Government Management Reform Act authorized us to develop six
franchise fund pilots and to expand the competitive environment that exists for reimbursable
activities Government-wide. This means that agencies may develop cost-effective alternatives and
offer their services on a competitive and reimbursable basis, including the opportunity to challenge
existing contract prices. This will result, as shown in the FAA's decision to award its ICEMAN
contract to the USDA, in more aggressive competitions and, we believe, lower costs and
improved performance. Again, competition between public and private offerors, on a level
playing field, spurs Federal employees and the private sector to be more productive, more creative
and ensures that taxpayers receive high quality services at the lowest possible cost.

‘We do not believe that these competitions should be one-time events. To ensure that the
taxpayer continues to get the best deal, we need to periodically reexamine our outsourcing, cross
servicing and in-house performance decisions. If the function was kept in-house, is the public
sector continuing to provide the best deal? If the private sector is performing the service, is the
current offeror the best one for the job, or has the Government developed a better, more
competitive approach? Competition should be used on a regular basis to review the situation and
to determine who can best provide required services.


© OW YAW PB wn

Pon meme
RBBBEBSSEIRADEBEAS

7
(ii) FACTORS CONSIDERED.—The

standards and procedures shall include re-
quirements for consideration of analyses of
all direct and indirect costs (performed in
a manner consistent with generally accept-
ed cost-accounting principles), the quali-
fications of sources, the past performance
of sources, and any other technical and
noncost factors that are relevant.

(iii) CONSULTATION REQUIREMENT.—
The Director shall consult with persons
from the private sector and persons from
the public sector in developing the stand-
ards and procedures.
(D) APPROPRIATE GOVERNMENTAL ACTIVI-

TIES.—The regulations shall include a meth-
odology for determining what types of activities
performed by an agency should continue to be
performed by the agency or any other agency.

(b) COMPLIANCE AND IMPLEMENTATION ASSIST-

ANCE.—

(1) OMB CENTER FOR COMMERCIAL ACTIVI-

TieS.—The Director of the Office of Management
and Budget shall establish a Center for Commercial

+ HR 716 TH


H.R. 716, FREEDOM FROM GOVERNMENT
COMPETITION ACT OF 1997

MONDAY, SEPTEMBER 29, 1997

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

The subcommittee met, pursuant to notice, at 10:35 a.m., in room
2154, Rayburn House Office Building, Hon. Stephen Horn (chair-
man of the subcommittee) presiding.

Present: Representatives Horn, ‘Bavis of Virginia, and Maloney.

Staff present: J. Russell George, staff director and chief counsel;
Mark Brasher, senior policy director; John Hynes, professional staff
member; Andrea Miller, clerk; Matthew Ebert, staff assistant;
Mark Stephenson, minority professional staff member; and Ellen
Rayner, minority chief clerk.

Mr. Horn. A quorum being present, the Subcommittee on Gov-
ernment Management, Information, and Technology will come to
order.

Tomorrow, the Government Performance and Results Act re-
quires agencies to submit strategic plans. This is one of the steps
on the road to establishing performance-based government. Ulti-
mately, Congress and the taxpayers of this Nation want to be able
to hold agencies accountable for results. Already we have seen im-
provements in agency performance. For example, boating accidents

ve been dramatically reduced as the Coast Guard has begun to
focus on reducing accidents rather than on counting the number of
safety inspections performed.

Today, we are discussing H.R. 716, the Freedom From Govern-
ment Competition Act. This bill and its Senate counterpart would
impact every Federal agency. It holds the promise of changes for
Federal employees, taxpayers, and citizens.

[The text of H.R. 716 follows:]

mM


150

From Senator Mrownback’a letter of August 28, 1997,

1, “hatin the explanation for the significant decline in the use of the A-76 program
within a Department that has averaged 31 percent cost savings through the program?
Have oder departments expertenced a similar decline? Please update the attached data
through 1996."

‘Response

‘During the 1980s, legislation was introduced to end, delay, change or otherwise restrict
the conduct of cost comparisons for the conversion of work from in-house to contract
performance. There are several provisions of law that have inhibited DoD's outsourcing efforts.
‘The first provision, contained in the National Defense Authorization Act for Fiscal Years 1988-
89 (P.L. 100-180), authorized installation commanders to determine whether to study activities
for potential outsourcing. Because of disruptions to their workforce, the cost of committing local
Tesources to conduct studies, and a desire for more direct control of their workforce, many
‘commanders chose not to pursue outsourcing. This law, which was known as the "Nichols
Amendment” and codified at 10 U.S.C. 2468, was effective through September 30, 1995,
Another provision contained in the Department of Defense Appropriations Act for Fiscal Year
1991 (P.L. 101-511) and subsequent DoD appropriations acts, prohibited funding for lengthy A-
‘76 studies and required their cancellation in certain cases. Finally, the National Defense
Authorization Acts for Fiscal Years 1993 and 1994 contained provisions that prohibited DoD
from entering into contracts resulting from cost studies done under A-76 (conversions from in-
house to contract performance). Taken in combination and overtime, these provisions have
limited the level of outsourcing by A-76 until 1996. Legislation was also passed affecting the
program at GSA, Veterans, and Interior.

We are reversing these restrictions and have encouraged the agencies to commit the
necessary resources to once again conduct the needed cost comparisons, The chart included with
your letter of August 28, 1997 is updated as follows:

FTE BY FISCAL YEAR OF STUDY COMPLETION

XEAR CIV MIL qorAL
1995, 44 146

1996 1,601 840 nat
1997 o 505 505

Grand Total 18,989 64,818 83,807
(4978-1997)


42

~ First, J believe that government is full of grcat people who arc caught in bad
systems. As you analyze and revicw this bill, I would urge you to make it as simple and
straightforward as possible. Public managers need to understand their goals clearly and
then be given the freedom and flexibility necessary to achieve them. The regulations that
will inevitably be promulgated to implement this bill need to be simple, concise, and
focuscd on outputs and outcomes rather than processes. In Indianapolis, we believe that
much of our success has been due to a simple system with clearly defined objectives and

fully empowcred employees.

-- Socond, this bill and your efforts will likely be in vain unless their is a strong
commitment at the top of the organization to reduce the cost of government services. In
our study and analysis of reinventing government efforts around the world, we have never

seen a successful initiative where there was not a political champion in a leadership role.

+ Third, you will need to develop systems that support the decision-making
process contemplated in the bill. These systems will likely include activity based costing
(or a similar cost accounting methodology) and a rigorous performance measurement
system that focuses both on quality and quantity goals for goods and services. These cost
‘accounting and performance measurement systems should have applicability both to
existing govemmental processes as wcll as any newly privatized functions. Thesc
‘systems need not be complex or cumbersome, however.


161

those competitions the Federal Government was found to be the lowest cost, highest value
offeror. Savings from reviewing the current organization and implementing the Government's
Most Efficient Organization (MEO) have averaged 20 percent per study. Over the years, this too
has translated into billions of dollars of annual savings, without service reductions. This is a
strong indication that competition creates added incentives to reform the way the Government
conducts its work and that the competition process itself works.

4. “Prior GAO and Inspector General studies have pointed out contract administration
weaknesses throughout the Federal Government. What efforts might OMB undertake
to improve the Federal Government capacity to manage contracts, since the passage of
H.R. 716 may result in the increased use of private sources for goods and services?”

As a result of ongoing efforts to reengineer the acquisition process, agencies have a
number of tools that can serve as an efficient and effective alternative mechanism to intrusive
and costly types of oversight.

Contract administration constitutes that primary part of the procurement process that
assures that the Government gets what it pays for. ‘The specific nature and extent of contract
administration varies from contract to contract. Good contract administration starts with
developing clear, concise performance based statements of work and preparing a contract
administration plan that effectively measures the contractor's performance. We are working to
improve this capability and assure that the end users are satisfied with the product or service
being obtained. One way to accomplish customer satisfaction is to obtain input directly from the
customers through the use of customer satisfaction surveys. These surveys help to improve
contractor performance because the feedback can be used to notify the contractor when specified
aspects of the contract are not being met. In addition, the contracting and program officials can
use the information as a source of past performanice information on subsequent best value
contract awards, which we are also now encouraging.

For the acquisition of services, we are using performance-based service contracts that
include objective performance requirements and standards (which give contractors latitude to be
innovative and adopt the latest, most cost effective management practices). Performance based
service contracts (PBSC) are accompanied by a quality assurance plan that allows for the use of
both positive and negative incentives. The contractor's payment is tied to the achievement of
requirements and standards. Poor contractor performance may result in an immediate reduction
in payment and would also be reflected in contractor past performance evaluations which could
impact the contractor's future business opportunities.

‘The Administration has also undertaken a concerted effort to do business with better-
performing contractors that are committed to excellence and to meeting cost, schedule, and
performance, goals. FAR Subpart 42.15 now requires evaluation of contractor performance for
all contract actions (with certain exceptions) in excess of $1,000,000. Because completed
evaluations are used to support future award decisions - and agencies have been increasing their

3


73

of activities should and should not remain in government. This provision, if
integrated with the strategic planning and annual performance planning
requirements of the Results Act, could avoid the potential situation of agencies
inadvertently replacing unneeded federal functions with unneeded private sector
contractors--a concern we have expressed regarding Department of Defense depots.®
By making clear that, as part of their strategic planning and performance
measurement activities, agencies should review potential outsourcing candidates in
light of their contribution to mission accomplishment, the bill could reduce the

possibility of such an outcome.

Incentives May Be Needed for Implementing Change

Encouraging the magnitude of change that this bill contemplates will require
incentives if it is to be effective. We believe that integrating the bill's requirements
with those of the Results Act is one of the best incentives Congress could use to
ensure successful implementation. The Act should, if successfully implemented,
expand opportunities for congressional oversight of agency performance, including, for
example, closer scrutiny of agency budget requests for specific activities in the context
of expectations about program performance. Another incentive could be to allow
government agencies to use savings gained from eliminating duplication and
unnecessary non-core functions to further improve operations or satisfy other
priorities such as modernization.’ However, such proposals need to be carefully
examined as they raise questions of congressional oversight and the allocation of

scarce financial resources.

Defense Depot Maintenance: Priv:
(GAO/NSIAD-96-148, Apr. 17, 1996).
"See for example: i :_Eliminati
ili in Waste (GAO/T-NSIAD/AIMD-97-143).


82

grappled with a variety of contract management problems. NASA has made
considerable progress in developing ways to better influence contractors’ performance
and to improve oversight of field centers’ procurement activities. It has, for example,
established a process for collecting cost, schedule, and technical information for all
major NASA contracts to assist management in the tracking of contractor
performance, and it also has restructured its policy on award fees to emphasize

contract cost control and the performance of contractors' end products.

In conclusion, Mr. Chairman, striking a proper balance between the public- and
private-sector provision of goods and services to the American people is among the
most enduring issues in American polities and public policy. The Freedom From
Government Competition Act would redirect current policy, which does not now have
the weight of legislative authority and significantly affect the operation and
management of the federal government. We believe that Congress is the proper
forum to address such fundamental questions, and we hope that our testimony today
has been helpful by raising some issues for the Subcommittee to consider in its

deliberations on the proposed act.

‘That concludes my prepared statement. I would be pleased to answer any questions

the Subcommittee may have.

(410189)

17


H.R. 716, FREEDOM FROM GOVERNMENT
COMPETITION ACT OF 1997

HEARING

BEFORE THE
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
ON

HLR. 716

TO REQUIRE THAT THE FEDERAL GOVERNMENT PROCURE FROM THE
PRIVATE SECTOR THE GOODS AND SERVICES NECESSARY FOR THE
OPERATIONS AND MANAGEMENT OF CERTAIN GOVERNMENT AGEN-
CIES, AND FOR OTHER PURPOSES

SEPTEMBER 29, 1997

Serial No. 105-105

Printed for the use of the Committee on Government Reform and Oversight

ae

U.S. GOVERNMENT PRINTING OFFICE
48-185 WASHINGTON : 1998

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-056591-X
a



108

at GS-12 and below with contractors, or re-engineer the positions in order to make up
for FTE shortfalls. Again, this is a clear case of management-by-FTE ceilings, and then
contracting out work that might have been performed more cheaply by federal employees.
Administration officials say I'm wrong; it's not that the DISA manager is a bad writer, it's
that I'm a bad reader. Again, Mr. Chairman, you be the judge.

Moreover, a senior DoD official admitted to me in writing in response to our
concems that he had discovered that "some managers have been establishing FTE
bogeys on some depot maintenance activities." This official insisted that he was taking
corrective action. I'd be happy to share this correspondence with you and your staff. |
didn't include his letter in my testimony because his deviation from the Pentagon line that
“management-by-FTE's is never, ever practiced" at DoD would surely invite retribution.
And since he is one Pentagon political appointee who's trying to be part of the solution,
I wouldn't want that to happen.

As bad as this problem is, Mr. Chairman, it's not limited to DoD. Actually, it's
government-wide. As OMB reported three years ago, several agencies—-including the
Departments of Agriculture, Health & Human Services, Housing & Urban Development,
State, Education, Treasury, as well as the Environmental Protection Agency——said that
they each could have saved several million dollars by performing functions directly rather
than having them performed by contractors but did not do so because either their
requests to OMB to take on the necessary FTE's were refused or the agencies were so
‘sure such requests would be refused that they were not even submitted®

* office of Management and Budget, Summary Report of
Agencies' Service Contracting Practices (January 1994), p. v.

15


182

ACSM Statement on H.R. 716, Freedom From Government Competition Act
September 29, 1997
Page 5

shipping by enabling shipping companies to increase the capacity of their vessels.

a State and local governments use USGS base data for GIS and other applications; base
data are also used as an unbiased, accurate basis to which more detailed information is
added, such as for legal, tax, and other official purposes. Many state governments
cooperatively produce maps and digital geospatial data in conjunction with USGS.

Finally, it is clear that agencies are increasingly dependent on the private sector:

a In response to personnel cuts and direction from Congress, federal surveying and
‘mapping agencies increasingly are tuming to private firms for surveying and mapping
products. Our members at USGS, for example, report that approximately 50 percent of
their map production in FY 1997 (ca. $40 million) will be done in conjunction with
the private sector.

= Of course, agencies need to maintain enough technical staff who are current in their
knowledge in order to oversee the work of contractors. It is also clear that private
firms will continue to depend on agencies to perform surveying and mapping of areas
that are not commercially attractive. For example, private firms would not routinely
update base maps of federal lands, rural areas, or forests. Ownership of geospatial data
is another concern that has arisen as outsourcing increases. However, H.R. 716s
potential impact in this area is completely unknown.

The foregoing analysis illustrates the interdependence that characterizes relations between
surveying and mapping professionals in the public and private sectors. Other technical
professions may evince a similar relationship between agencies and private firms. ACSM
believes Congress needs more information on the impact of H.R. 716 on surveying and
mapping and other technical goods and services before it moves the bill toward enactment.

Study of U.S. Geographic Information Resources Will Provide Vatuable Information

Since 1995, ACSM has played a leading role in generating a nonpartisan study of the
appropriate future roles of government and the private sector in surveying and mapping.
The study, "U.S. Geographic Information Resources," began in October 1996 and will be
completed this fall. Conducted by the National Academy of Public Administration
(NAPA), the study examines options for reducing duplication in the surveying and
mapping activities of federal agencies or for increasing the amount of surveying and
mapping done by private firms. The study will look at outsourcing, the specific focus of
H.R. 716, as well as broader options such as privatization, consolidation, downsizing, or
elimination of certain agency functions. Other issues covered by the study include public
Purpose; the policy bases of surveying and mapping; leadership, coordination, and



131

I was interested in the degree to which the “savings,” come from
either removal of the middle management staff that are not the
worker-bee * producers of work on the job, but do sign their initials
to things. at I’m interested in is, do the health care benefits go
with, say, union members that are going to maybe be in that con-
tracted-out operation? Do the pension benefits go? Did the GAO
ask those questions when they looked at some of these contracting-
out examples? Did they look at what the average salary was, whic!
I was getting to at the last with the mayor, what’s the average sal-
ary of contracted-out work versus the average salary of the in-
house work?

Mr. STEVENS. No, we didn’t really analyze those numbers. What
we reported back was what the cities and the State had told us
themselves. And what we heard was basically what Mayor Gold-
smith said. I didn’t hear him say anything that was inconsistent
with what we heard and what we reported to you. Pension port-
ability is a problem. Health care benefits tend to be as good or even
better in the private sector than those available to government em-
ployees; in many instances, pension benefits often are not. And
very often, particularly people who have been in the workforce for
a long time in the Federal context, the 49 percent of the Federal
employees that are still in the Civil Service Retirement System
tend to get locked into Federal employment by that pension benefit
that’s off in the future.

FERS, the Federal Employees Retirement System in the Federal
system has anticipated that somewhat by being much more port-
able. Two-thirds of that, including Social Security coverage, is port-
able to wherever you’re employed. So as we go along, that should
be less of a problem in the Federal context than it’s been so far.

Mr. Horn. Are there any existing laws now where the Federal
pension programs could accept contributions from contracted-out
work for the Federal Government?

Mr. DESEVE. I believe there was a pilot project passed as part
of one of last year’s defense bills that permitted that. But it was
costly, and I don’t believe the Defense Department ever imple-
mented it. It is very complicated. We advised against that in fact,
Mr. Chairman.

Mr. Horn. Yes. Since I don’t have the Civil Service Subcommit-
tee—that’s Mr. Mica’s—I’m not up on all those laws.

You’re saying that’s one example that was put in the defense
software?

Mr. DESEVE. It was put in as a demonstration project for privat-
ization. I believe it was in Indianapolis. And it basically provided
that employees who went to work for a contractor would get their
Federal benefits and have them indexed over time so that when
they finally did collect their Federal pensions, they would have
built up cost-of-living allowances in the meantime. One of our
major objections was that such a benefit would not be available to
anyone else who lost their jobs during the same time period. There
have been hundreds of thousands of Federal employees released.

Mr. Horn. Mr. Brasher informs me that Chairman Mica is obvi-
ously clairvoyant. He’s holding a hearing on that subject on
Wednesday, so maybe something will come out of it. We'll see what
it is.


159

ENCLOSURE 1

OMB RESPONSES
TO
CHAIRMAN HORN'S QUESTIONS DATED OCTOBER 6, 1997,
IN RESPONSE TO THE HOUSE SUBCOMMITTEE ON GOVERNMENT
MANAGEMENT, INFORMATION AND TECHNOLOGY
HEARING OF SEPTEMBER 29, 1997,
ON
H.R. 716, "THE FREEDOM FROM GOVERNMENT COMPETITION ACT OF 1997."

OCTOBER 17, 1997

1. “In your testimony, you note that “30,000 FTEs are under study in the Defense
Department alone.” How many agencies outside of the Department of Defense are
currently conducting studies under OMB Circular A-76? How many employees, of the
estimated million or so Federal employees engaged in commercial functions, are
involved?”

OMB has surveyed the agencies to collect information on their current application of the
cost comparison requirements of the OMB Circular A-76. Enclosure 2 is a summary of the data
submitted by the agencies. Within DOD, 34,000 FTE have been announced for competition
(completion) in FY 1996 through FY 1998.

The annual OMB Circular A-76 Inventory of Commercial Activities, as required by the
March 1996 Supplemental Handbook, currently identifies approximately 475,000 FTE as
commercial in nature. However, these numbers are being reviewed within the agencies. Overall,
we expect this number to increase, as more thorough reviews are conducted. Estimates based
upon simple aggregations of government position descriptions to produce a figure of a million or
more commercial FTE are not reliable and do not, necessarily, reflect whether a function is
contractible, inherently governmental or determined by the agency to reflect core mission
requirements.

2. “What incentive is there for an agency to engage in an A-76 study?”

There are several incentives for an agency to consider an A-76 study. These incentives
include the Balanced Budget Agreement, the recognition that discretionary resources are severely
constrained, the need to reallocate existing resources to reflect mission and technology changes,
and the reengineering of management processes as envisioned by the CFO Act, GPRA, FASA,
and the Clinger-Cohen Act, and the competitions now required for new and expanded
interservice support agreements are creating a new competitive management environment within
the Government.




109

‘Mr. Chairman, | think you'd agree that even if you, the Ranking Minority Member,
OMB, a representative from the contractor community and | locked ourselves in a room
to think of ways that A-76 could be made even more fair to both contractors and federal
employees, all of our work would be in vain. What's the point in coming up with a more
equitable public-private competition system if federal employees aren't even allowed to
compete because the in-house workforce has been so arbitrarily downsized?

| respectfully suggest, Mr. Chairman, that before we turn our attention to A-76, we
must first lift the arbitrary in-house personnel ceilings. Quite simply, agencies must be
allowed to manage by budgets. If agencies have the money to perform the work, they
‘should be allowed to use either contractor employees or federal employees-—depending
‘on which provider gives the most efficient, most effective, and most reliable service to the
nation's taxpayers and the government's customers.

OMB insists that to the extent management-by-FTE's occurs, it is perpetrated by
Managers who should know better. Regardless of whether one accepts that position,
Management-by-FTE's is happening. It's costing the taxpayers money. It's depriving
federal employees of opportunities to compete. It's wrong--and the Congress and the
Administration must become more aggressive in eliminating this pemicious practice.

Representative Eleanor Holmes Norton (O-DC) has introduced legislation (H.R.
888) which would prevent agencies from replacing downsized federal employees with
contractor employees. Such meritorious legislation should serve as the starting point for
your own effort to address this problem. With respect to H.R. 716, it does not address
management-by-FTE ceilings, arguably the worst defect in the A-76 and government

16


30

5. Senator Thomas asked Mr. Koskinen to provide him with information on what portion of
the $115 billion in services the federal government contracts out is accounted for by the
Department of Defense, and he agreed to provide it. In response to a follow up question from
Senator Thomas, Mr. Koskinen also agreed to provide such information for the past five years
Please provide this information to the Subcommittee.

6. At the conclusion of the questioning period, Ms. Koskinen agreed to give me his reaction
to a list of potential contracting candidates that | would provide. To keep it manageable and
ensure an expeditious reply, I would like to have OMB’s reaction to (1) the contracting
potential of the many activities of the NOAA fleet and your plans to fulfill that potential and
(2) the routine maintenance, janitorial, mapping, recreational oversight and management
activities of the National Park Service (NPS). Related to that, please provide me with
information on the number of A-76 competitions previously conducted by the NPS (including
FTE involved), the number of such competitions currently underway (along with estimated
FTE), and the number of such competitions (and FTE) that will be initiated in FY 1998.

7. Finally, OMB's June 24, 1996 memo to agencies (M-96-33) requested that they “...identify
the approximate number of FTE they expect to submit to cost comparison (bid opening) in
Fiscal years 1996, 1997 and 1998.” This information was to be submitted to OMB by
September 13, 1996. Please provide me with this information, arranged by year and by
agency.

I look forward to you response to these questions, initially asked at our June 18, 1997
hearing. If you have any questions about this request, please do not hesitate to call the
Subcommittee’s staff director, Ron Utt, at 224-3682

Sam Brownback
Chairman

Subcommittee on

Oversight of Government Management,
Restructuring, and the District of Columbia


89

the national defense to private sector performance. What H.R. 716 does do, however, is require,
‘as a matter or law, that which has been appropriately managed through administrative policy in
the Executive Branch.

Unfortunately, the legislation does not nor can it reflect all the other ongoing reinvention
efforts currently underway. This is also its weakness. We are moving to implement strategic
capital acquisition planning, ITMRA and the recommendations of the Federal Accounting
Standards Advisory Board (FASAB). We are looking at privatization and exiting existing
business lines. We are downsizing, consolidating, and taking advantage of new technologies. We
are incorporating competition into our budgets, into our financial and accounting systems and in
our other management approaches to improved service delivery. Government wide acquisition
reform initiatives are enabling us to take more effective advantage of competition among private
sector offerors and better leverage the Government's buying power.

SPECIFIC CONCERNS

HR. 716 begins by stating that the Government's current mixes of in-house and contract
resources are "unacceptably high", that the existence of reimbursable arrangements between
agencies is inappropriate, that such consolidations divert the Government's attention from its core
mission, that small business is being hurt by our current mix of in-house and contract resources,
and that current laws and regulations have proven ineffective in controlling the growth of
Government. While individual anecdotes can be offered pro or con, there is no quantitative data
to establish any of these “findings.”

We are concerned that the bill would limit the ability of public offerors to begin or
otherwise participate in the competitive process for determining who should meet Federal
workload requirements. The key here is that we want everyone -- public and private ~- to
compete for our work so that taxpayers can be assured of getting the most for their money.
Restricting the scope of that competition, based upon the evidence to date, is clearly not in the
taxpayer's interest. The issue is not about jobs or employee rights ~- we have long had the Right-
of-First-Refusal in A-76 solicitations -- and even Federal unions have supported competition. It
is not even about the fundamental question as to whether to outsource. The question here is
when and where to outsource in the taxpayer's best interests.

HL. 716 requires that certain information be made available to the public, including the
development of inventories of commercial activities performed by the agencies. The March 1996
A-76 Revised Supplemental Handbook already requires that agencies develop reliable and
complete cost data and conduct annual inventories of their commercial activities performed with


84

compete in appropriate circumstances. Eliminating viable public
offerers through legislative prohibitions is the worst kind of unfair
competition.

For these and other reasons detailed in my statement, the ad-
ministration opposes H.R. 716. In our view, H.R. 716 undermines
the principles of competition on a level playing field. It does so by
restricting the consideration of competitive public offerers and by
inserting provisions that affect the structure of the level playing
field, including the establishment of a new bureaucracy at OMB.

The issue here is not about jobs, contractors, or employee rights.
It is not even about the fundamental question of whether or not to
outsource. The issue here is when and where to outsource in the
taxpayer's best interest.

We are concerned that H.R. 716 may give the private sector and
the employee unions new statutory rights to review agency inven-
tories, schedules, and other information and to seek judicial or
other review of agency determinations. These reviews will delay,
not expedite, the needed competitions.

We're concerned that the statute is not sufficiently flexible to
provide even limited exemptions from requirements to rely on the
private sector. We’re concerned, for example, that the legislation
does not address the need for core agency functions, the need to re-
tain a minimum level of technical and ensuring competencies, and
flexibility to meet research and development needs, emergency ca-
pabilities and related work loads.

We're concerned that H.R. 716 may adversely affect our ability
to expand contracting with small businesses. In many cases now,
it is only because of our current mix of technical in-house, reim-
bursable, and contract resources that small businesses are eligible
to participate as direct prime contractors to the Federal Govern-
ment.

The H.R. 716 requirement to convert all work to contract -
formance, unless otherwise justified on the basis of a best-value,
past-performance competition, could result in fewer and fewer op-
portunities for small business participation.

Finally, we’re concerned that H.R. 716 would, as a matter of law,
mandate specific cost-comparison requirements. The proposal spe-
cifically amends the March 1996 supplemental handbook by chang-
ing the costing and bid evaluation rules that were so carefully es-
tablished through public review and discussion. And, as I men-
tioned earlier, it moves the decisionmaking on these reviews from
agencies to a centralized bureaucracy in OMB.

In conclusion, Federal employees are some of our Nation’s most
highly trained and dedicated. They respond to vast arrays of mis-
sions, public concerns, and operational requirements. We really are
fundamentally reorganizing the way the Federal Government con-
ducts its business. H.R. 716, in our view does not take into consid-
eration the flexibilities that must exist for making this transition
in a reasoned and responsible manner. Perhaps more important,
H.R. 716 could result in a significant level of new litigation caused
by the conversion of what were essentially management implemen-
tation decisions into statutory obligations subject to judicial review.


12

11

(1) PERFORMANCE OF INHERENTLY GOVERN-
MENTAL FUNCTIONS.—For the purposes of section
3(e)(1)(A), goods or services are inherently govern-
mental in nature if the providing of such goods or
services is an inherently governmental function.

(2) INHERENTLY GOVERNMENTAL FUNCTIONS
DESCRIBED.—

(A) FUNCTIONS INCLUDED.—For the pur-
poses of paragraph (1), a function shall be con-
sidered an inherently governmental function if
the function is so intimately related to the pub-
lic interest as to mandate performance by Fed-
eral Government employees. Such functions in-
clude activities that require either the exercise
of discretion in applying Federal Government
authority or the making of value judgments in
making decisions for the Federal Government,
including judgments relating to monetary trans-
actions and entitlements. An inherently govern-
mental function involves, among other things,
the interpretation and execution of the laws of
the United States so as to—

(i) bind the United States to take or
not to take some action by contract, policy,

HR 716 1H


54

should be, how much does it cost per prisoner per day to house a
prisoner humanely? Why don’t you all bid?

And so we have a private company building a jail, designing a
jail, and managing the jail. Their job is to deliver prisoners to the
courthouse and take them back to the jail—at a very substantially
reduced cost.

Mr. Horn. Now, is that under your authority as mayor?

Mr. GOLDSMITH. Indirectly. The contract will be monitored by the
sheriff, because he knows more about jails than I do. We are man-
aging the contract. He has a public jail, and we will have a private
jail. He will be responsible for the level of care. One, he'll be hiring
his own correctional guards, and at the other, he will be managing
the contracts. So the sheriff will be monitoring the contract.

Mr. Horn. Now, is he elected at large?

Mr. GOLDSMITH. Yes, sir.

Mr. Horn. In the same jurisdiction that you are?

Mr. GOLDSMITH. Yes, sir.

Mr. Horn. What is it, a city and county arrangement?

Mr. GouLpsmiTH. Yes. It is a consolidated city and county ar-
rangement.

ir. HORN. Because I was going to say, I was one of the founders
of the National Institute of Corrections. and IJ also chaired the jails
committee for a while. But I made the mistake, as chairman, of
putting sheriffs on the jails committee and then raising the ques-
tion of privatization of jails.

Mr. GOLDSMITH. Yes.

Mr. Horn. Sheriffs do not like to part with their jail.

Mr. GOLDSMITH. Yes, sir.

Mr. Horn. But you're absolutely correct. It is idiotic what hap-
pens in some—well, Dade County, good example. They listened to
our experts, and they were so impressed with what Nelson, a
former warden in a Federal prison—in fact, in Chicago he built
that metropolitan correctional center. And he went down and
showed Dade County how they could save millions of dollars.

They were so impressed, they named a day after him, junked
their plans, and saved millions of dollars, because we don’t need to
build jails the way we build them. It’s 19th century the way they
do it. And you can save a lot of money.

And that is certainly one thing you shouldn’t privatize, except
the sheriff hates to part with anything, and that’s one of the prob-
lems. But we've got jails overcrowded all over America. If we can,
you know, classify the population, get the violent ones, put them
in the old clinker, assuming the doors do lock, and get the others
out where you can deal with them.

Mr. GOLDSMITH. Yes, sir.

Mr. Horn. I commend you on that. That’s a very interesting ex-
periment.

What other things are going on in Indianapolis that are exciting
and the world should know?

Mr. GOLDSMITH. I would just conclude, Mr. Chairman, in re-
sponse to your challenge, by saying that I do not think a mayor,
Governor, Congressman, or President can really determine the
value until an activity is nominated for competition. There is no
way to study it.


wm

billions of federal budget dollars without reducing services, and (3) it prohibits government
competition with the private sector.
LESS BUREAUCRACY

The FFGCA establishes a consistent government policy that relies upon the private
sector to provide goods and services necessary for the operation and management of federal
agencies and departments, The exceptions to this policy are for goods or services that are (1)
inherently governmental, (2) those that are necessary for national security, or (3) those so
unique or of such a nature that they must be performed by the government. The bill also
requires activity-based cost comparisons between public and private entities and exempts goods
and services performed by the government if the production or manufacture by a government
source represents the best overall value. The very nature of this bill will reduce the size of the
federal bureaucracy and improves government performance.

A 1987 study from the Congressional Budget Office (CBO) estimated that 1.4 million
federal workers are engaged in “commercial activity.” Similarly, the Office of Management
and Budget (OMB) estimated that 800,000 federal workers could be working in the private
sector rather than in the public sector if many of these activities were outsourced.

Claims of massive unemployment of federal workers as a result of privatization have
been historically disproven. The most comprehensive evaluation of the effect of privatization
on government workers was conducted in 1989 by the National Commission of Employment
Policy (NCEP), a research arm of the Department of Labor. The study, entitled “The Long-
Term Employment Implications of Privatization,” examined 34 privatized city and county


AFGE AND OMB CIRCULAR A-76

Since this is my first appearance before this panel, Mr. Chairman, permit me to say
a few words about where AFGE stands on contracting out and outsourcing. Unlike some
organizations in the federal employee community, AFGE is not reflexively opposed to
each and every instance of contracting out. In these times, such a position is as
unrealistic as it is untenable. Because we are conscientious employees, patriotic
Americans, and hard-working taxpayers, AFGE members are determined to see that the
federal government's dollars are spent wisely. Quite simply, federal employees shou!d
not perform work that is not inherently governmental if they cannot do it more effectively,
more efficiently, and more reliably than contractors.

In fact, AFGE is unreservedly pro-competition when it comes to work that is not
inherently governmental. Full and fair competition for such work spurs federal employees
and contractors to be more productive and ensures that taxpayers and customers receive
high-quality services at low costs. As the General Accounting Office (GAO) concluded
in a recent report,

*...(C)ompetition is the key to realizing some savings, whether the function is

outsourced or remains in-house. According to (Department of Defense) data on

cost comparisons done between fiscal year 1978 and 1994, savings from
competed functions occurred regardless of whether the government or a private

company was awarded the work. DoD's data shows that the government won
about half of the time and private industry won the other half.""

? General Accounting Office, BASE OPERATIONS: Challenges
(March

1997), p. 8. Although this report discusses the Department of
Defense, the agency responsible for most contracting out, its
competition-friendly conclusion applies to all other federal
agencies.

- 3


185

ACSM Statement on H.R. 716, Freedom From Government Competition Act
September 29, 1997
Page 8

will help the subcommittee understand the pros and cons of outsourcing for surveying and
mapping. The study’s general findings may have application to other technical professions
that would be affected by H.R. 716. ACSM recommends that Congress take no action on

H.R. 716 until it has examined the findings of the NAPA study.

ACSM also recommends that the subcommittee gather more information on individual
agencies’ procurement decisions before moving to approve H.R. 716. Examination of a
representative sample of agencies that have elected to perform services in-house, or that
perform work for other agencies, could provide helpful information on the procurement
issues addressed by H.R. 716.

CSM appreciates this opportunity to present its views on the proposed Freedom From
Government Competition Act and will be pleased to provide additional information on any
point in our statement. Please contact Joseph Kuchler, ACSM Government Affairs
Director, at 301-493-0200.


170

STATEMENT
H.R. 716, THE FREEDOM FROM GOVERNMENT COMPETITION ACT
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION AND TECHNOLOGY
HOUSE COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
R. Bree Josten
September 29, 1997

My name is R. Bruce Josten. I am Senior Vice President of Membership and Policy at
the U.S. Chamber of Commerce. The U.S. Chamber of Commerce is a business federation
representing an underlying membership of more than three million businesses and
organizations of every size, sector, and region. We appreciate the opportunity to lend our
enthusiastic support for H.R. 716, The Freedom From Government Competition Act (FFGCA).
Mr. Chairman, we request that these remarks be included in the record of testimony for the
September 29, 1997 hearing on The Freedom From Government Competition Act.

‘The Chamber believes that because of Representative Duncan's careful redrafting, this
year’s version of the Freedom From Government Competition Act is more practical than
previous versions. The Chamber believes earlier objections have been addressed and this bill
should be given serious consideration. The bill’s implementation provisions strike a balance
beeween private and public sector interests and outsourcing decisions are based upon statutory
requirements for managed competition.

‘This bill accomplishes three very important objectives: (1) it reduces the size of the
federal government bureaucracy by limiting it to performing its core mission functions, (2) it


15

officials said these budget cuts required managers to rethink how they could perform
the same activities for a lower cost. This action provided the incentive for agencies to
contract out more activities, such as vehicle maintenance and management services

for a war veterans facility.

THE RELATIONSHIP OF ¥LR, 716 TO OTHER
RELEVANT LAWS IS UNCLEAR

In our state and local work, we found that all five states and the city of Indianapolis
used some combination of legislative changes and resource cuts as part of their
privatization initiatives. These actions were taken to encourage greater use of
privatization. Georgia, for example, enacted legislation to reform the state's civil
service and to reduce the operating funds of state agencies. Virginia reduced the size
of the state's workforce and enacted legislation to establish an independent state
council to foster privatization efforts. These actions, officials told us, reduced
obstacles to privatization and sent a signal to managers and employees that political
leaders were serious about implementing it.

While providing a statutory basis for competitively contracting out government
functions, H.R. 716 has implications for certain existing laws. As currently drafted,
the bill is broad in its application, and how it will relate to existing laws and policies
is not entirely clear, For example, H.R. 716 prohibits agencies from beginning or
carrying out any activity to provide any products or services that can be provided by
the private sector, and it prohibits agencies from providing any goods or services to
any other governmental entity. This could conflict with the "Economy Act of 1932"
(31 U.S. 1535-1536), which authorizes interagency orders for goods and services, as
well as with the General Services Administration's (GSA) authority to provide
agencies with goods and services. GSA was created, and still exists, to provide goods

10


36

The second one is that government, whether it is internal or
often even external, rarely measures itself in terms of quality. If
we look at costs and we look at quality, then we will begin to have
a formula.

Third, the Federal Government intrudes in several ways. First,
obviously, you have the issues you are talking about today, which
are the regulatory and legal environments that prevent the Federal
Government from privately acquiring services; but also, with all
due respect, you have the heavy hand in the local marketplace as
well. A series of regulatory and legal barriers make it much more
difficult for mayors, Governors, city council members, county com-
missioners, and others to privatize their services.

In fact, the current tax law favors socialism over capitalism, pro-
viding an incentive for government monopolies that is not available
in the private sector. Section 13(c) of the Urban Mass Transit Act
penalizes mayors if they compete out mass transit services, even if
they help the poorest and most desperate people in our community.

As you look at these issues, I would encourage you to look at re-
moving both the barriers that prevent the Federal Government
from private procurement, but also the barriers that penalize local
and State governments when they want to do private procurement
as well.

Inevitably, I need to give a short commercial at this point on be-
half of Indianapolis. We now have competed out 75 public services.
We, at the end of this year, will have saved $400 million, real, ac-
countable, measurable dollars as a result of this competitive proc-
ess. We have dramatically reduced our overhead and yet, although
our total nonpublic safety work force is down 45 percent, no union
worker has been involuntarily displaced. They have worked with us
in competing.

We have had the largest airport privatization in the country, the
largest wastewater privatization in the country, the largest mili-
tary base privatization in the history of the Department of Defense,
and we probably have the 5 smallest privatizations as well in the
midst of these 75. Inherent in all of this is that a simple process
of competitive bidding produces the most value for our taxpayers.

In conclusion, I have half a dozen fairly straightforward rec-
ommendations, Mr. Chairman. First is that the process should be
simple. The more it is burdened down by regulatory restrictions or
specifications, the more likely it will be to get hung up along the
way. I think A-76 is a good example of that. As people try to walk
through these processes, they stumble. The simpler the process, the

ter.

Second, I think that this Congress, this committee, and this bill
can remove the structural barriers to privatization and competi-
tion. The National Council on Public-Private Partnerships has a
privatization task force that has submitted a series of recommenda-
tions that would help in this regard.

Third, I think we need to develop systems. These systems need
to measure cost; they need to measure performance; they need to
measure quality; and straightforward systems will move us along
the way as well.

Fourth, sometimes this conversation starts as if competition is
antagonistic to employees. I think we need to recognize existing


181

ACSM Statement on H.R. 716, Freedom From Government Competition Act
September 29, 1997
Page 4

distance measuring equipment. NGS also transfers new technical developments, such as
the Globel Positioning System (GPS) to the private sector. GPS is increasingly being
used by professional land surveyors for efficient, accurate measurements.

Land surveyors also depend on the U.S. Geological Survey in their work. USGS
provides (1) basic geospatial data to which cadastral (i.e., property boundary)
information can be related, (2) mapping requirements for map revision, orthoimagery,
and so forth, and (3) a nationally consistent, accurate map series that depicts the Public
Land Survey System.

Geographic Information Systems/Land Information Systems (GIS/LIS) specialists
depend on government agencies to provide the base mapping and earth science layers
for GIS/LIS projects. Agencies provide reliable, standard, multi-scale base cartographic
data such as digital elevation models, digital line graphs, digital raster graphics, digital
land use/land cover, and digital orthophotoquads, as well as various specialized data
sets covering geologic, hydrologic, and biologic phenomena on the land surface that
GIS/LIS specialists employ in creating their products.

= Private-based cartographers and academics depend on agencies for (1) establishing map
standards, (2) base maps from which enhanced or value-added maps can be produced
and resold or onto which research is plotted, and (3) digital orthophotographs for
compilation of map features.

On the public side, there is interdependence between federal agencies, and between federal
agencies and other levels of government. For example:

m= Other federal agencies depend on USGS to coordinate the collection of a broad suite
of geospatial data and research, including providing GIS support, applications
development, and orthophotographic base data. ISSAs are one mechanism used to
provide this information.

= Other agencies depend on NGS for positioning data for applications ranging from
defining political boundaries, to national defense, to communications systems.
‘Agencies use these data to make decisions on placement of highways, fuel storage
sites, geothermal energy development, and other structures in areas prone to
earthquakes, Makes, subsidence, and fault zones. The dala are also essential to the
development of precision agriculture, “smart” highways, and other leading-edge
transportation systems. For example, the National Ocean Services is currently
conducting a pilot project in San Francisco Bay to determine accurate, real-time
Positions and clearances for large container ships and other ocean-going vessels.
Findings from the project will help make the U.S. more competitive in commercial


48

government services while maintaining the quality of the services.

To date, over 700 state government functions have transferred to the private
sector, saving the state millions of dollars in operational costs. Even greater
savings are anticipated for the 1998-2000 biennium.

I will specifically address the aspects of four major privatization initiatives
in Virginia - transportation, corrections, higher education, and the Virginia
Government Competition Act.

‘Transportation
The Virginia Public-Private Transportation Act of 1995 authorized state and

local agencies to enter into agreements allowing private entities to acquire,
construct, improve, maintain, and/or operate qualifying transportation facil

Corrections

The Virginia Corrections Private Management Act allows use of private
prisons only if it provides a cost-benefit to the Commonwealth. To date, Virginia
has initiated two medium security prison projects utilizing private vendor
initiatives. The Lawrenceville Correctional Center in Lawrenceville, Virginia will
open in the spring of 1998 and the Drakes Branch Correctional Center in Charlotte
County, Virginia will begin construction in the spring of 1998. In both facilities,
it is estimated that after the first year of operations the annual private cost of
operating these facilities will be over $2000 less per inmate than if operated by the
state.

Education

The Virginia Education Loan Authority (VELA) was closed in 1995 and
responsibilities transferred to the private sector. VELA’s function was to sell tax-
exempt bonds and use the proceeds to make student loans to Virginia residents.
However, there are many private alternatives for the provision of student loans at


117

This is an emotional Issue for both unions and contractors——and the absence of
comprehensive and reliable information invariably leads to fiery debates that shed far
more heat than light. Therefore, Mr. Chairman, | suggest that you ask GAO to compare
the compensation--pay, health care benefits, and retirement benefits—-of the federal
employees who have been downsized in favor of contractors with that of the contractor
employees who have assumed their work. {f it appears that significant savings from
contracting out are being generated simply because the contractor workforce is poorty-
compensated, then lawmakers like yourself need to consider the necessity of
implementing corrective measures to ensure that some basic floors exist for the pay, and
heatth care and retirement benefits of contractor employees.

government even more competitive
Taking a lesson from the private sector, the Administration issued an executive
order in 1998 that established labor-management partnerships in agencies throughout
the federal government. It hasn't been easy to change the hostile climate of labor-
management relations in the federal sector, but we're making great strides. And that
progress is paying dividends for the taxpayers.
*Before partnership at the Naval Warfare Center, in Crane, IN, it took two years
for the parties to cobble together a collective bargaining agreement. After
partnership, the parties finished their negotiations in less than two months. And
by jointly designing new work systems and using self-directed work teams, the

union and management were able to eliminate 150 front-line supervisor and mid-

24


53

Mr. Horn. I agree with you on that. I take it Indianapolis has
what we would call a strong mayor government, as opposed to a
weak mayor?

Mr. GOLDSMITH. Yes, sir.

Mr. Horw. Is there a city administrator anywhere in that group
Working directly with department heads, hiring them and firing
them?

Mr. GOLDSMITH. Yes. I think your point is a very good one,
though. Just as an aside for city officials, the cities that have had
the most reform in terms of competition over the last 3 or 4 years
have tended to be those with strong mayor forms of government.
Where the mayor is able to get over the top of the kind of bureauc-
racy and put the issues out for competition.

Mr. Horn. Yes. I would think when you make the argument,
hold me accountable, you have got to be the one that has the yes
and no on what is accountability, because it is your hide that will
suffer at the polls if it doesn’t work. You are absolutely right. We
haven’t held a lot of mayors accountable.

I come from an area, Los Angeles and Long Beach, where you
have weak mayors. They are wonderful people, but they do not
have the power. It is either in a city administrator or a city man-
ager, in the case of Long Beach, or it is in a series of city commis-
sions in the city of Los Angeles, that once the mayor appoints peo-
ple, they say, “Bye-bye, we don’t need to listen to you, mayor, for
another 4 years.” If they want a renewal on the appointment, they
will start currying favor.

But they hire the police chief, they fire the police chief. The
mayor does not. Yet the voters think, hey, mayor, we sent you up
there to run the city of Los Angeles. You know what that problem
is. You are a lucky mayor to have that power.

I think that the Federal Government, we’ve got 40,000 full-time
equivalent cases here studying under OMB certain A-76 out of the
total of somewhere between 800,000 and 1.2 million individuals
who are Federal employees and performing commercial functions.
In other words, it’s about 3 to 5 percent. What proportion of city
employees are you having, or studying, to actually have their work
competed by the private sector?

Mr. GOLDsMITH. Well, it is virtually everyone except police, fire,
and land control zoning. If you really step back and look at it, at
the Federal, State, and local levels, there are very few areas in
which commercial enterprise is not already involved.

Second, as you know, Mr. Chairman, inside this bundle of activi-
ties—take a military base. There may be 400 different businesses
on that base. Even within these umbrella areas, there are seg-
ments that can be competed out. We essentially have competed vir-
tually all of our civil activities.

Mr. Horn. Do you have an overcrowed jail in Indianapolis?

Mr. GOLDSMITH. We will for another month, when the private jail
opens at one-sixth the cost per prisoner of the public jail that was
opened 10 years ago. And the jail is a good example because, in-
stead of hiring a private company to design a jail, and a private
company to build a jail, and a private company to manage a jail,
we just decided we wanted to buy an output. And our output


138

Have you any data on that in terms of when the Federal employ-
ees do not go into the operation, that even under A-76, which not
much seems to be really happening under it, but even when they
go in there, have we looked at how the pensions were affected and
how many received further Federal employment and how many go
to work for the contractor? Does the union have any data on
situations?

Mr. HaARNAGE. No, sir, not at this time. We have added a new
staff person that will be doing some of that research for us. I do
not know how far back we will be able to go.

Mr. Horn. OPM should be doing this kind of thing.

Mr. HarnaGE. We have asked for it for years. We do not get any
response. Somebody in the Federal Government ought to be keep-
ing that data for your use as well as ours.

Mr. Horn. I think the President is ill-served by the staff. As I
was listening to this dialog and the fact that President Eisenhower
had authorized this A-76 under which not much is happening, I
am reminded of what President Truman was said to have said
about President Eisenhower. He said,

You know, the old general will get in here, the White House, and he will make

a decision and tell somebody to do something, and 6 months later he will find out
nobody has done anything about it.

That was Truman’s experience with the White House.

Of course, now, with A-76, we have got living proof. It isn’t just
6 months later and nobody has done much about it, it is about 60
years later almost, not quite, but it certainly is getting to be 45,
shall we say, years later, and not much has happened. So if some-
thing is going to happen, we are going to need some sensible guide-
lines and rules that take into account people’s service and other
things.

Mr. DeSeve, maybe this is under your jurisdiction, is it, down in
OMB, the implementation of that?

Mr. DESEVE. Yes, sir.

Mr. Horn. What do you think of it? You are a longtime civil
servant in this Government. How have you seen it change between
administrations, starting with Eisenhower?

Mr. DeSeve. Actually, I am a political appointee confirmed by
the Senate. Senator Thomas would hold tenaciously to that right.
I served in other governments, local governments and State govern-
ments, but with this administration I came in as the Chief Finan-
cial Officer at Housing and Urban Development.

Mr. Horn. That is right, that is a political appointment.

Mr. DESEvE. I think Mr. Duncan’s statement offers an interest-
ing way to look at this. He quotes the Roles and Missions Commis-
sion, under former Deputy Secretary White, as saying that at least
250,000 civilian employees are performing commercial-type activi-
ties that do not need to be performed by government personnel.

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


49

competitive rates. The sale of the VELA loan portfolio and facilities generated $61
million in net revenues for the General Fund. The Student Education Assistance
Authority (SEAA) was also closed in 1995 and operations transferred to a private
entity. SEAA operated as a contract loan servicing center for federally guaranteed
student loans offered under several federal programs.

‘The Virginia G C an

The last point I want to discuss is the Virginia Government Competition Act
of 1995. This Act created the Commonwealth Competition Council. The Council
is a bipartisan, independent entity of state government consisting of ten members,
six appointed by the Governor, and four appointed by the General Assembly. The
members include legislators, executive branch and private citizens. The mission
of the Council is to seek effective government solutions through the promotion of
privatization/competition and the development of effective techniques, including
outsourcing, managed competition, and public-private partnerships.

The Council has developed an automated comprehensive cost analysis
program called “COMPETE” designed to capture the fully allocated costs
associated with performing a service or function. This program is an essential
decision-making tool in the Council’s process and a necessary step in make a
fair and objective evaluation when comparing government costs with a private
sector cost.

In 1996 the Council developed an inventory of opportunities for
privatization/competition through a state-wide survey of all state agencies and
institutions. The Council recently considered 91 of these opportunities with the
following disposition: 20 opportunities have been privatized; 32 are not being
recommended at this time; 16 are currently under study; and 23 opportunities are
being recommended to the Governor for consideration in Virginia’s 1998-2000
budget.

One last point on the Council before | conclude: The Secretary of


78

Improvement Program (JFMIP) plans to issue guidance to facilitate the acquisition
and development of managerial cost accounting systems needed to accumulate and

assign cost data consistent with governmentwide data.’”

HLR. 716 RECOGNIZES FEDERAL WORKFORCE
TRANSITION NEEDS

We found that governments we visited needed to develop strategies to help their
workforces make the transition to a private-sector environment. Such strategies, for
example, might seek to involve employees in the privatization process, provide
training to help prepare them for privatization, and create a safety net for displaced
employees. Among the six governments we visited, four permitted at least some
employee groups to submit bids along with private-sector bidders to provide public
services. All six governments developed programs or policies to address employee
concerns with privatization, such as the possibility of job loss and the need for

retraining.

The bill's findings section states that it is in the public interest for the private sector
to utilize government employees who are adversely affected by conversions of
fanetions to the private sector. The legislation does not create any new benefit or
competitive job right that does not already exist. It does, however, assign to the
Director of OMB the function of providing information on available benefits and

"The JFMIP is a joint cooperative undertaking of the Office of Management and Budget,
the General Accounting Office, the Department of the Treasury, and the Office of
Personnel Management, working in cooperation with each other and with operating
agencies to improve financial management practices throughout the government. An
exposure draft of the system requirement was issued in April 1997, and final issuance is
projected for later this calendar year.

13


88

While we are encouraging agencies to promote competition, we are also opposed to
unfair competition. That said, we certainly appreciate that public offerors should not be receiving,
work where their offers would not provide a cost-effective alternative to the private sector. But
such a result need not, and should not, be achieved -- as is suggested by H.R. 716 ~- at the
expense of permitting viable public offerors the opportunity to compete, in appropriate
circumstances. Eliminating viable public offerors through legislative prohibitions is the worst kind
of unfair competition.

A clear distinction also needs to be drawn between the Government's involvement in
private sector or even State or local markets and the need to manage our own resources on a
cost-effective basis, through competition on a fair and level playing field. A substantial statutory
and policy framework exists that carefully restricts the Federal Government's involvement in the
private economy and in State and local service markets. This framework is provided, for
example, by statutes, policies and procedures authorizing our Federal Prisons Industries, the DOD
Arsenal Act (10 USC 2539), Title III of the Intergovernmental Cooperation Act of 1968, OMB
Circular No. A-97, “Rules and Regulations Permitting Federal Agencies to Provide Specialized or
Technical Services to State and Local Units of Government," USC 2553 with respect to DOD
laboratories, the Federal Acquisition Streamlining Act, OMB Circular A-76 and others. H.R. 716
does not accommodate these situations. We would also ask your assistance in eliminating
existing barriers to competition, such as those found in 10 USC 2461- 2469 and applicable to the
Department of Defense.

HLR. 716 IS NOT NEEDED

HR. 716 undermines the principle of using competition, on a level playing field, as a
critical part of the decision process, It does this by restricting the consideration of competitive
public offers and by inserting provisions that effect the structure of that playing field. A-76 is not
a one-sided cost comparison that favors in-house performance over contract performance.
Rather, A-76 permits public-private competitions, and lays out a carefully balanced approach to
the costing question, recognizing the differences between public and private offerors and the
interests of the taxpayer in that decision,

To its credit and like the current Circular A-76, H.R. 716 does not require the Federal
Government to contract-out everything nor does it require the conversion of work from in-house
to contract performance in accordance with some specified or otherwise arbitrary time-line. H.R.
716 also recognizes that some activities are inherently governmental in nature and should not be
performed by the private sector. The bill would not require the conversion of functions related to


43

-- Fourth, recognize that your existing employees are a resource. You should
work hard to smooth the transitions that will inevitably be necessary for your employees.
At the same time, you should identify and pursuc opportunities to use financial and carcer
development incentives to drive performance. Work diligently to identify opportunities
for creating goal congruence between the intercsts of taxpayers, employees, and

managers.

-- Fifth, connect these efforts to positive outcomes. In Indianapolis, we used the
savings from our privatization and competition efforts to reduce previously unfunded
liabilitics, lower the property tax rate, increase minorily business contracting, complete
the largest infrastructure program in the City’s history, and put more police officers on
the street. Connecting our reform efforts to these initiatives helped maintain support
when it came time to make the more difficult decisions. I anticipate that you will find, as
T did, that citizens care little about privatization or competition but they care a lot about

safe strects, working sewers, low taxes, and well-maintained parks.

-- Finally, don’t get caught in the intellectual trap that lowering the cost of goods
and services will lead to lower quality. Our experience in Indianapolis has indicated,
almost without exception, that the rigors of competition and the private sector
marketplace not only drive down the cost of goods and services but also, at the same
time, drive up the quality. Our initiative in Indianapolis has consistently shown that

spending Icss can get you more.


129

57562

MR. HARNAGE. Reliable cost and performance information is
crucial to the effective management of government operations and
to the conduct of competitions between public or private sector
offerors. Unfortunately, until recent enacted statutory reforms,
this information was not generally available and was often found
to be unreliable. The two legislative reforms having the most
impact on the flexibility to outsource are the Chief Financial
Officers Act of 1990 (CFO Act) and the Government performance and
Results Act (GPRA).

The Chief Financial Officers Act of 1990 (CFO Act) includes
among the function of chief financial officers "the development
and reporting of cost information" and "the systematic
measurement of performance." This includes performance by in-
house, contract or Inter-Service Support Agreement resources.

In July 1993, Congress passed the Government Performance and
Results Act (GPRA) which mandates performance measurement by
Federal agencies. This reform, in turn, generated policy reforms
such as the Statement of Federal Financial Accounting Concepts
No. 1, "Objectives of Federal Financial Reporting (1993)," which
states that one of the objectives of Federal Financial reporting
is to provide useful information to assist in assessing the
budget integrity, operating performance, stewardship, and control
of the Federal Government. Additionally, in 1995, the Federal
Accounting Standards Advisory Board (FASAB), in response to GPRA
reforms, recommended standards for managerial cost accounting.
These standards were then approved by the Director of OMB, the
Secretary of the Treasury and the Comptroller General. They were
issued as the Statement of Federal Accounting Standards No.4,
"Managerial Cost Accounting Standards for the Federal
Government.”

The importance of these reforms to the contracting out
process cannot be underestimated or understated. The revised
Supplement to A-76 is based on the managerial cost accounting and
performance standards established by the CFO Act, GPRA, and the
Federal Accounting Standards. These laws and standards, in turn,
serve as the basis for the cost and performance information used
in the A-76 cost comparison proce: It is with this in mind
that I base my contention that H.R. 716 is not needed. I urge the
Committee not to "over~legislate". Federal managers already have
sufficient authority and flexibility under the existing
statutory and policy framework to outsource and privatize.



118

Mr. Chairman, what do you think should happen when it is shown that a contractor
has not lived up to the terms of the contract? | say that the work should be recompeted
or brought back in-house—-and | think you'd agree. The new supplement to A-76
already requires agencies to collect the information necessary to determine if satisfactory
performance of a contract has been achieved. Now we need to charge agency managers
with the responsibility of acting on well-informed determinations of poor performance by
requiring them to correct the problem by either recompeting the work or bringing it back
in-house. To ensure that all taxpayers and customers benefit from this important
initiative, the post-contract audit should be required for all contracting out decisions,
including those made outside of A-76.

Improving contract administration

In order to ensure that agency managers make well-informed contracting out
decisions, we need to conduct a bottom-up review of the entire contract administration
process, Problems from start to finish are unnecessarily increasing service contracting
costs.

As OMB itself has reported, Statements of Work, the forms used to describe
specifically the services to be contractually procured, are frequently so poorly-written that
it is difficult to determine the agency's requirements or the standards against which the

contractor's performance is to be measured.*

* OMB, Ibid., p. v.
20


122

Before serving as National Vice President, Hamage worked as a National
Representative for the 5th District for 10 years——from 1968 to 1978. As a National
Representative, he worked with AFGE members in South Carolina and Georgia.

He served in the Air Force from 1959 to 1963. During that time Harnage worked
as an Air Police Investigator at Clark Air Force Base in the Philippines. He was later
transferred to the Strategic Air Command at Wamer Robins Air Force Base in Georgia.
While at Robins he became involved in small arms competition and won the 8th Air Force
Individual Championship twice. He also won the Georgia State Championship, was a
team member of the Air Force Logistics Command Championship Team, placed fourth
in worldwide competition and won a gold medal in 1962.

After his discharge in 1963, Harnage stayed at Wamer Robins, beginning his
civilian career as a sheet meta! helper. He later transferred to the Security Police, where
he worked until his resignation in 1968 to accept the position of National Representative.

Bom October 2, 1939 in Lakeland, Florida, Hamage was raised and educated in
Moultrie, Georgia. He graduated from Moultrie Senior High in 1957. He attended
Norman Junior College on a baseball scholarship prior to entering the Air Force. After
his discharge from the military, he attended Macon College and the University of Georgia.

29


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151

2. “What efforts are underway to reverse this trend?”
‘Response,

In March of 1996, OMB issued the A-76 Revised Supplemental Handbook. Since then,
agencies have begun to review their inventories of commercial activities and have considered the
options available, including reinvention, consolidation, privatization, technology investment and
‘outsourcing. Agencies have undergone training in the use of the Revised Supplement, have
announced studies and have begun cost comparisons. The Revised Supplemental Handbook took
a significantly different tack from the approach that had preceded it, e.g., one that encourages
‘expanded and improved competition on a level playing field, while allowing the forces of
downsizing, budgetary reductions and the effects of statutory and administrative reinvention
initiatives (CFO Act, GPRA, GMRA) to create the incentives for conducting cost comparisons.

‘The Revision modifies the cost comparison requirements for recurring commercial
activities and makes certain interagency agreements that were not previously subject to
competition available to both public and private sector offers. Agencies are not required to
conduct an A-76 cost comparison, unless that agency seeks to convert workload to or from in-
house, ISSA or contract performance and that conversion is not otherwise authorized by the
Circular or its Handbook. As a result, we believe that agencies, the unions and the private sector
are viewing the Revised A-76 Supplement not simply as a tool to contract out, but rather, as one
of several management tools to reduce cost and improve

3. "Recognizing that the results of A-76 completions reflect earlier actions to conduct A-76
reviews, and that such reviews can take as long as two to four years to complete, will you
please provide us with information on the number of A-76 reviews (and the number of
FTE covered) that were initiated at Defense in each year since 19922"

Response,
DEPARTMENT of DEFENSE
COST COMPARISON INFORMATION
COST COMPARISONS AND FTE INITIATED DURING FISCAL YEAR:

NO. OF MILITARY CIVILIAN TOTAL
xX STUDIES EXEs EYE: FTEs
92 14 200 296 496
93 8 236 205 441
94 10 1417 206 1623
95 18 804 1324 2128
96 64 1810 3431 5241
97 344 2423 23032 25255

Total 458 6890 28494 35384

6


155

ATTACHMENT 4

United States Department of the Interior

OFFICE OF THE SECRETARY
‘Washington, D.C. 20240
September 25, 1997

‘Memorandum

To: David C. Childs, Program Examiner
Office of Management and Budget, BASD

FROM: —_Peul A. Denett, Director 4

Office of Acquisition and Property Management
SUBJECT: OMB CIRCULAR A-76 DATA REQUEST

In response to your transmittal message dated September 3, 1997, attached is the Department of
the Interior’s data on cost comparisons completed during the period from Fiscal Year 1992
‘through the present. At this time, no formal cost comparison studies are contemplated for Fiscal
Year 1998. However, we intend to exercise continuous A-76 program oversight and further
assess the implementation of the Circular’s requirements on the Department's updated inventory
of commercial activities.

‘The attachment responds to your request for cost comparison data. We are waiting for a response
from the National Park Service (NPS), which we expect by January 1, 1998. The NPS continues
to undergo leadership changes in organization and management of administrative support
activities, and therefore, is having difficulty gathering the requested data and especially,
assessing agency impact of the House Committee Report recommendation on increasing its
contracting of commercial activities. Upon receipt of NPS’ response, we will promptly submit it.

Please contact Jennings Wong at (202) 208-6704, if you have any questions conceming the
preliminary data submitted.

Attachment

cc: Director, Office of Budget
Deny Galvin, Deputy Director, NPS


CONTENTS

Hearing held on September 29, 1997
‘Text of H.R. 716 .
Statement of:

Goldsmith, Steve, mayor, city of Indianapolis; and Shirley J. Ybarra,

deputy secretary for Transportation, State of Virginia ... 35
Stevens, L. Nye, Director, Federal Management and Workforce, U.S.
General Accounting Office; G. Edward DeSeve, Acting Deputy Director
for Management; Office of Management and Budget; and Bobby L.
Harnage, Sr., national secretary-treasurer, American Federation of
Government Employees, AFL-CI 63
Thomas, Hon. Craig, a U.S. Senator from the State of Wyoming 20
Letters, statements, etc., submitted for the record by:
DeSeve, G. Edward, Acting Deputy Director for Management, Office of
Management and Budg:
Prepared statement of . 86
Questions and responses. . 145, 159
Duncan, Hon. John J., a Representative in Congress from the State
of Tennessee, prepared statement of 139
Goldsmith, Steve, mayor, city of Indianapolis, prepared statement of 38
Harnage, Bobby 'L., Sr., national secretary-treasurer, American Federa-
tion of Government Employees, AFL-Cl
Information concerning A-76 129
ared statement of .. 95
Horn, Hon. Stephen, a Representative in Congress from the State of
California, prepared statement of . 16
Maloney, Hon. Carolyn B., a Representative in Gongress from the State
of New York, prepared statement of 19
Stevens, L. Nye, Director, Federal
General Accounting Office, prepared statement of 66
Thomas, Hon. Craig, a U.S. Senator from the State o!
statement of 25
Ybarra, Shirley J., deputy
prepared statement of . 41

ID,


145

ENCLOSURE 3

EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503,

DEPUTY DIRECTOR November 12, 1997
FOR MANAGEMENT

United States Senate
Washington, D.C. 20510-6250

‘Dear Mr, Chairman:

This forwards detailed responses to the questions you posed in your leters of August 21
‘and August 28, 1997. These questions were developed in response to the Subcommittee's
June 18, 1997, hearing on S. 314, "The Freedom from Government Competition Act.” An
interim response was forwarded to you on September 24, 1997, which covered questions 2, 3,
and 5 in your letter of August 21st. For your convenience, the enclosure restates questions 2, 3
‘and 5 along with your other questions.

‘Again, thank you for your inquiry. Please let me know if I can be of any further
assistance.
Sincerely,

C Shrub lL

G. Edward DeSeve
Acting Deputy Director
For Management

Enclosure


106

Lifting Arbitrary Cellings On Government Employees
Quite simply, Mr. Chairman, the federal government is contracting out work that

could be performed more cheaply by federal employees because of the arbitrary ceilings
‘on full-time employees (FTE's) imposed as part of the government's overall downsizing.
That's not just what AFGE says. That's what independent observers, and, yes, even
Administration officials say.

‘This problem is particularly acute in DoD-~even though the Congress has explicitly
prohibited management-by-FTE ceilings. GAO reported in a recent survey that a “senior
command official in the Army stated that the need to reduce civilian positions is greater
than the need to save money. An earlier report by the DoD Inspector General noted
that “the goal of downsizing the Federal workforce is widely perceived as placing DoD in
a position of having to contract for services regardless of what is more desirable and
cost-effective.”

In 1995, the personnel directors of the four branches of the Armed Forces told the
Senate Armed Services Personne! Subcommittee that civilian ceilings-—not workload,
cost, or readiness concems-——are forcing them to send work to contractors that could be
performed more cheaply in~house. The witnesses bemoaned the fact that their services’
depots must tum away valid, funded workload requirements because of the FTE ceilings,
thus limiting the flexibility of our depots to adjust to and meet quickly the critical,
unprogrammed, surge requirements of our Armed Forces.

* General Accounting Office, 2

11
Bs (GAO/NSIAD~
97-86) (March 1997), p. 11.

13


66

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to assist the Subcommittee in its consideration of

HLR. 716, the Freedom From Government Competition Act. The bill would require
that the government procure from the private sector, with some exceptions, the goods
and services it needs to carry out its functions. As you know, we testified in June on
S. 314, the Senate companion bill to H.R. 716, and my remarks today closely parallel
our statement before the Senate Committee on Governmental Affairs.' Specifically, I
will discuss H.R. 716 as a potential vehicle for competitive contracting, using the
results of our recent work on privatization initiatives at the state and local

government levels.

We reported in March 1997 on the major lessons learned by, and the related
experiences of, state and city governments in implementing privatization efforts.”
Our report, done at the request of Representative Scott Klug, examined the
privatization experiences and lessons learned by the states of Georgia,
Massachusetts, Michigan, New York, and Virginia, as well as the city of Indianapolis.
While not done across the board each of these governments made extensive use of
privatization—primarily contracting out governmental functions~over the last several
years, tailoring their approaches to their particular political, economic, and labor
environments. On the basis of our literature review, the views of a panel of
privatization experts, and our work in the six governments, we identified six lessons
that were generally common to all six governments. In general, the governments
found that they needed to

Privatization and Co
Competition Act (GAO/T-GGD-97-134, June 18, 1997).



52

Although it is totally contracted out in Virginia, there were those
proposers who wanted to undertake a road that could bring it on
line 10 to 15 years sooner. Yes, it may be a toll road or some other
beneficial road. It would also eliminate, in terms of Virginia, using
our bonding and not hit our debt capacity model in the States. So
we had some real advantages with it. We have two of those under
negotiation at the moment.

Mr. Horn. In the case of Indianapolis, was this an ordinance an-
swer completely within the city of Indianapolis, or did you need a
State law, also?

Mr. GoLpsmITH. I am not sure. I just did it.

Mr. Horn. In other words, this is an executive action of the
mayor; is that it?

Mr. GOLDSMITH. Yes, sir. If you follow the progression, if you do
privatization, you do not have to know how much your own costs
are, because you just put out the bid—you buy outputs. The private
sector bids, and they work out the cost accounting. If you move to
competition, you need to know your costs.

Government inherently tricks itself on its costs. It does not really
know its costs; it does not fully load its costs. So if you move from
a privatization model to a competition model, you have to do activ-
ity-based costing in order to have your own numbers and have
those numbers connected to outputs. So we did it.

Mr. Horn. Now, is this a one-time affair that once you have the
contract, you don’t worry about it, or who in your administration
worries about this? Do you have a secretary of a particular depart-
ment or a deputy city administrator or something? How is this
thing administered? Or is the mayor everywhere in Indianapolis?

Mr. GOLDSMITH. Well, eventually when your trash does not get
picked up, you lose an election, so to some extent I am kind of the
arbiter in some ways.

But, first of all, the competition process will never be over with,
and now we are recompeting contracts we did previously because
long term, monopolistic private contracts are not necessarily the
best transaction for the public either. At the same time, govern-
ment employees need to be trained on how to be contract monitors.
Some are so involved that they suffocate private management
value, and others are so casual that they do not hold them account-
able for quality.

We have tried to set up a separate contract monitoring group
that understands it needs to be very flexible in terms of allowing
the private sector, or even the Government employee, the maxi-
mum leverage in terms of how it does its work, but hold them very
precisely to the quality that they promise, whether it is internal or
external.

Mr. Horn. Does that group report to you as mayor?

Mr. GOLDsMITH. Yes, sir. The proposition I have taken to my tax-
payers is, “Hold me responsible.” i it is a private trash truck or
a public trash truck, whatever the case may be, you should still
have the right to hold your elected officials responsible. It is up to
me to figure out whether I can produce that service better by buy-
ing it in the open market or doing it through my own employees.
Regardless, I should be what the voters see, in terms of public serv-
ices, as the person responsible.


173

government could be candidates for outsourcing or reengineering. OMB estimated savings of
$9,700 per FTE when studied, regardless if the function was reengineered and remained in-
house or was outsourced.

‘Assuming a conservative 3.0% average annual inflation rate over the past ten years, a
simple annual compounding of the $9,700 figure would yield a 1997 inflation adjusted figure
of $13,035.99 for FTE savings. If we round the 1997 figure to $13,000 and apply it to the
800,000 FTE's identified by OMB, approximately $10.4 billion of savings would accrue from
the implementation of this legislation. Even with the recent government downsizing, the
OMB's 800,000 FTE figure is a conservative benchmark since the latest data from the 1996
Defense Science Board (DSB) Report identified 640,000 FTE's for outsourcing within the
Department of Defense (DoD) alone.

2. The Defense Science Board Estimates $24-32 Billion of Savings in DoD Alone

Looking at only DoD, billions of dollars could be saved. A 1996 report by the DSB
identified 640,000 DoD workers whose jobs have private sector equivalents. DoD spends
between $120-160 billion annually on these support functions. The DSB estimated $12-16
billion in savings annually if a 20% rate (the midpoint derived from the 10-30% private sector
savings from outsourcing) were applied to just half of the Department's $120-160 billion in
support expenditures (i.e. $60-80 billion). Using the same assumptions, the savings would be
between $24-32 billion annually if applied to all of the support services at DoD. Ata
minimum, applying a 10% figure to only half of the $120-160 billion in annual support
expenditures, the DoD would realize savings between $3-8 billion annually. Even the minimal

savings are comparable to annual budgets for the Environmental Protection Agency ($7.1


101

*For activities with 65 or fewer FTE's, agencies and departments may,
under certain conditions, employ a "streamlined" cost comparison process

which expands the opportunities to convert to private sector performance.

There are a few who might say:
“So what? There are no incentives for federal managers to exercise this
new flexibility to contract out. Unless prodded by a measure such as H.R.
716, managers will always opt to maintain the status quo."
This view ignores the realities and incentives imposed by government downsizing.
The fact is, we are already engaged in the largest privatization and outsourcing effort ever
undertaken by the federal government. Currently, over 40,000 FTE positions are being
examined for contracting, and many thousands more are being identified for outright
privatization as the government makes the decision to “get out of the business" of
performing certain types of work. Since enactment of the Federal Workforce
Restructuring Act of 1994 the federal workforce has been reduced by approximately
300,000 federal employees. Consequently, federal agencies have been forced into
reexamining not only “what" or "how" they do a particular function, but whether or not
performance, in light of a smaller workforce, should continue to remain in-house.
| might add that during this era of downsizing, the current A-76 framework helps
the government to rightsize. Unlike H.R. 716, the circular requires the agency to
reexamine the way it performs a function and how that agency configures itself into a
Most Efficient Organization (MEO). This provision is the key to savings and efficiencies.

It forces agencies into “being competitive" instead of just “competing.” Through re—


26

government and government supported entities as one of the biggest concerns to small
entrepreneurs.

To inject market competition into government monopolies in Washington, I introduced the
Senate version of the “Freedom from Government Competition Act.” This legislation would
establish a statutory basis for determining whether a good or service for government use could
be provided more cost effectively by the government or the private sector. It would establish
a preference, as does the 1955 policy, for reliance on the private sector, but would provide
four fundamental exceptions -- inherently governmental functions, those critical to national
security, those in which private sector practices fail to meet government needs and those
which the government can provide at the best value to the taxpayer. An Office of
Commercial Activities and Privatization within OMB would be created to assist federal
agencies in carrying out the bill.

This legislation is based upon the premise that government should not unfairly compete with
its citizens. Congress should question the practice of taxing private enterprise so it can
maintain a similar, but often less efficient capability within the government. Furthermore,
Congress should never allow that same government agency to compete in the marketplace to
provide commercial goods and services to the private sector. Yet, instead of focusing on its
core missions, government agencies are more concerned with providing payroll services,
computer support and helicopter rides.

A government agency that competes with and duplicates activities in the private sector stifles
economic growth by dominating certain markets, diverts needed technical personnel from
private sector employment, thwarts efforts by U.S. firms to export their services, and erodes
the tax base by securing work that would otherwise be accomplished by tax paying entities.
At a time of continuing Federal deficits it also siphons precious resources from higher
priority, core governmental functions or deficit reduction efforts.

In the 104th Congress, the Senate Governmental Affairs Committee examined the “Freedom
from Government Competition Act.” Based on input by several parties, including Senators
Stevens and Glenn, OMB, GAO, private industry and labor unions, H.R. 716/S. 314 is a
better bill. For example, a “best value” comparison mechanism has been added to the
legislation. Instead of the one-sided cost comparison that favors government production of
commercial goods and services now found in OMB Circular A-76, this legislation will allow
federal employees and the private sector to compete on a level playing field. The comparison
mechanism will take into account many factors, such as qualifications, past performance and a
fair cost accounting system, to determine whether the private sector or the federal government
will provide the “best value” to the American taxpayer.

Another change would provide for the “soft landing” of federal employees who may be
displaced by outsourcing. It is important to note that most government employees are not
adversely affected by outsourcing and privatization. Several studies have found that 90-95
percent of displaced employees went to work for the private sector entity, transferred to other
government jobs or retired. Employee transition has been a major facet of every successful
privatization and outsourcing determination, both on the federal and state level. That is why


22

Government Competition Act. This legislation would establish a
statutory basis for determining whether a d or service from the
government could be provided more cost-effectively by the govern-
ment or the private sector. It would establish a preference, as does
the 1955 policy, for reliance on the private sector, but would pro-
vide for fundamental exceptions, inherently governmental func-
tions, those critical to national security, those in which the private
sector failed to meet government needs, and, finally, those which
the government can provide at a better value than the taxpayer.

Let me emphasize that. If the government can show it can pro-
vide a better value, then it is exempted. An office of the commercial
activities and privatization within OMB would be created to assist
Federal agencies in carrying out the bill. This legislation is based
on the premise that the government should not unfairly compete
with its citizens. Congress should question the practice of taxing
private enterprise so it can maintain a similar but often less effi-
cient capability within the government. Furthermore, Congress
should never allow the same Government agencies to compete in
the marketplace to provide commercial services and services and
goods to the private sector. Yet instead of focusing on its core mis-
sion, Government agencies are many times more concerned with
providing payroll services, computer support, and helicopter rides.

Government agency that competes with and duplicates activi-
ties in the private sector stifles economic growth by dominating cer-
tain markets, diverts certain needed technical personnel from the
private sector, thwarts the efforts of U.S. firms to export their serv-
ices, and erodes the tax base by securing work that could otherwise
be accomplished by taxpaying entities.

At a time of continuing Federal deficits, it also siphons off pre-
cious resources from high priority core government functions or def-
icit reduction. But notwithstanding these specific benefits, it also
appeals to those of us who would like to see a smaller government
over time. We constantly talk about reducing the size of the Fed-
eral Government. Here is one way to seek to do it.

In the 104th Cor ss, the U.S. Senate Governmental Affairs
Committee examined the Freedom from Competition Act. Based on
input from several parties, including Senators Glenn and Stevens,
OMB, GAO, private industry, labor unions, H.R. 716 and S. 314 are
better bills. For example, a best value comparison has been added
to the legislation. Instead of a one-sided cost comparison that fa-
vors government production of commercial goods and services now
found in OMB Circular A-76, this legislation will allow Federal
employees and the private sector to compete on a level playing
field. The competition mechanism would take into account many
factors such as qualifications, past performance, fair cost account-
ing system, in order to determine whether the private sector or the
Federal Government provides the “best value” to the American tax-
payer.

Another change would provide for the soft landing of Federal em-
ployees who may be displaced. It is important to note that most
Government employees are not adversely affected by outsourcing
and privatization. Several studies have found that 90 to 95 percent
of displaced employees went to work for the private sector entity,
transferred to other government jobs, or retired.


105

THE RATIONALE FOR THIS BILL IS FLAWED

The bill's sponsors claim that work currently performed by the federal government
could be "better done and could be more cheaply done through outsourcing." Since the
notion that the private sector is always better and cheaper is false, legislation based on
‘such a faulty premise is clearly not in the best interest of the taxpayers. For example,
the General Accounting Office (GAO) surveyed nine studies on service contracting and
concluded that in each case, substantial savings would have been realized if the work
had been retained in-house.° Another example comes from a GAO report of two years.
ago in which the investigative arm of the Congress said that even after years and years
of billions and billions of dollars in contracting out, it could not “convincingly prove nor
disprove that the result of federal agencies’ contracting-out decisions have been

beneficial and cost-effective.“

AFGE'S SUGGESTIONS FOR IMPROVING THE COMPETITIVE PROCESS

Mr. Chairman, | welcome the Subcommittee's interest in the important issue of
ensuring that the government's taxpayers and customers actually benefit from contracting
out. Today's hearing has been an excellent beginning. Permit me now to make some
suggestions for related issues to be discussed at future hearings of your panel.

> GAO, Governmen A Servic
contractors Versus Federal Employes 2 1994), p.3.
* GAO, GOVERNME! view o:

GOVERNMENT CONTRACTORS: An Overview of the Federal
Contracting-Out Program (GAO/T-GGD-95-131) (March 29, 1995), p.
7.

12


162

focus on the past performance of contractors when conducting competitions for work ~
contractors are motivated to excel in their performance. A recent survey conducted by OFPP on
pilot to study the impact of increased use of past performance revealed that customer
satisfaction with contractor performance was significantly higher when past performance was
more heavily considered in the source selection process.

‘Agencies are also taking steps to improve their management systems for major
acquisitions. They are working to develop realistic cost, schedule, and performance goals that
establish clear accountability for project progress and support budget priorities. We have been
stressing to agencies the importance of creating performance-based management systems that
will provide agency managers good visibility into the progress of their projects in achieving
stated goals. +

5. “The Economy Act provides authority for one agency to provide services to another
agency. Under the Act, agency heads are required to determine whether goods or
services provided by a Federal agency can be procured more cheaply and conveniently
from a private sector source. Do you know how agencies make this comparison, if not
through A-762”

Interservice Support Agreements (ISSAs) are authorized under the provisions of the
Economy Act of 1932 (31 USC 1535), the Federal Property and Administrative Services Act of
1949, and the Government Management Reform Act of 1994 (103 USC 356). As a general
matter, the decision to acquire commercial services by in-house, contract or ISSA has been left to
the customer agency. It is our understanding that, in most cases, when ISSA performance was
feasible, the decision with respect to ISSA versus private sector performance generally centered
on a review of existing contract prices for similar types of work and administrative convenience.
‘They have not been based upon competitive offers submitted by the ISSA or the private sector, in
accordance with OMB Circular A-76, so that comparisons could be conducted on a fair and level
playing field. This approach changed with the issuance of the March 1996 A-76 Supplemental
Handbook. The cost principles and competition procedures established by the Supplement are
now being applied to determine whea recurring commercial services should be performed by in-
house, contract or ISSA resources.

& “Last year, OMB issued a Supplemental Handbook to OMB Circular A-76 allowing
agencies to avoid « cost-comperison after October 1, 1997 for Interservice Support
Agreements (ISSA). Given that a cost comparison is required by the Economy Act and
the FAR, on what legal basis docs OMB waive the cost comparisons in ISSAs through
4 Supplement Handbook to an OMB Circular? Could you provide for the record the
sting of ISSAs covered by this situation?

Beginning on October 1, 1997, the March 1996 Revised Supplemental Handbook
requires cost comparisons for new and expanded ISSAs, where such cost comparisons were not
conducted or required in the past. Cost comparisons have not been waived. What the Revision

4


165

10. “President Reagan issued Executive Order 12615, which requires each agency to study
not less that 3 percent of its work force engaged in commercial activities each year.
This executive Order has not been repealed. How has it been enforced and
implemented?”

Executive Order 12615, dated November 29, 1987, required Federal agencies to conduct
an inventory of commercial activities, schedule commercial activities for cost comparison,
include budget savings from these prospective studies in annual budget proposals, designate a
senior level official to coordinate Circular A-76 requirements within the agency and report the
progress on each study to the President, through the Director of OMB, on a quarterly basis.
‘These requirements were implemented. The March 1996 Revised Supplemental Handbook
provides similar requirements, though it eliminates the quarterly reporting requirement as
unnecessary and administratively burdensome.

The Order also required each Federal agency to “conduct annual studies of not less than 3
percent of the department or agency's total civilian population..." This requirement was never
fully implemented or enforced. As noted in Enclosure 3, the first legislative restrictions to
implementing OMB Circular A-76 were enacted at about the same time and contained in the
‘National Defense Authorization Act for Fiscal Years 1988-89 (P.L. 100-180). Other restrictions
followed, including those contained in the Department of Defense Appropriations Act for Fiscal
Year 1991 (P.L. 101-511) and subsequent DoD appropriations acts, which prohibited funding for
A-76 studies and required their cancellation and the National Defense Authorization Acts for
Fiscal Years 1993 and 1994, which contained provisions that prohibited DoD from entering into
contracts resulting from cost studies done under A-76 (conversions from in-house to contract
performance).

11, “What major goods or services have been converted from in-house to contractor
performance in recent years?”

A wide variety of commercial functions have been submitted to cost comparison and
converted to and from in-house, contract and ISSA performance. A representative list of
functions contained in the OMB Circular A-76 Inventory of Commercial Activities is provided
as Enclosure 4.

12. “A franchising pilot program was established by the Government Management Reform
Act. This act specifically applies to “administrative support services.” Where do
administrative services fall vis-a-vis inherently governmental and commercial services?
How are such services defined?”

Inherently governmental activities are not subject to Circular A-76 or its Supplemental
Handbook. As a matter of policy, an inherently governmental activity is one that is so intimately
related to the exercise of the public interest as to mandate performance by Federal employees.
The Office of Federal Procurement Policy (OFPP) Policy Letter 92-1, dated September 23, 1992

7


169

Mr. Horn. I appreciate your coming up here. Those were very
thorough statements. Let’s continue the dialog. So the record will
be open for at least 2 weeks and we will work it out with OMB to
get that evidence in the record.

With that, I want to thank the staff that have been involved in

utting together this hearing. We have our thanks to J. Russell
Geo e, staff director and chief counsel seated back against the
wall here; Mr. Brasher, the senior policy director to my left; Mr.
Hynes, professional staff member; Mr. Bartel, my chief of staff; An-
drea Miller, our faithful clerk; and Matthew Ebert, the staff assist-
ant working with the subcommittee. We also have Mark Stephen-
son, faithful professional staff member for the minority; Jean Gosa,
faithful clerk for the minority, who is not here, but she is some-
where out there working; and obviously, needless to say the court
reporters, with Bob Cochran, who is still at it, and Vicki
Stallsworth, who occasionally relieves him. We thank you all for
that.

With that, the hearing is adjourned.
(Whereupon, at 1 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record follows:]}


34

sonable cost, we should not be setting up or permitting it to go on,
government monopolies.

Senator THOMAS. The map thing, Mr. Chairman, continues to be
an issue. As a matter of fact, that is one of the very specific ones.

Mr. Horn. OK. Any other questions?

Mrs. MALONEY. Could I just bring up one related issue, Senator
Thomas? I would like to send you a bill I am working on in bank-
ing which relates to the Federal Reserve. The Federal Reserve, ac-
cording to the Monetary Control Act, is supposed to balance their
costs and services so that there is no burden to the taxpayer, the
private sector is able to compete on a level playing field, and mon-
eys that are saved that would then be used to reduce the deficit.

It turns out that in the transportation of paper checks, they
claimed they were following the Monetary Reserve Act, that it was
totally balanced, but at the hearing, Mr. Greenspan sent a letter
that said they were, in fact, operating at a loss, meaning it was
being subsidized, money being shifted over which then had an un-
fair competition with the private sector. In any event, I would like
to send you that information and see if that ties in to what you are
trying to accomplish in this bill, and we are looking for a Senate
sponsor.

Senator THOMAS. I have heard something about this issue, there
is the airplane there that belongs to the Federal Reserve, and there
are UPS and the others, Federal Express who could do it. A similar
thing, I have heard, is happening also somewhere in the Forest
Service, where they always have contracted with flying before in
the commercial sector and are now doing some flying on their own.
These are the kind of things we ought to look at.

As you pointed out, if that is the most efficient and effective way
to do it, fine. We need to really look at it and make sure. I would
be happy to look at your bill.

Mrs. ONEY. I truly believe the best way is through competi-
tive bidding. When you have these negotiated contracts, that is
when the prices seem to go up.

Senator THOMAS. Sure. I agree with that. However, let me just
say again that it is a little more difficult to put a public group on
the same basis as a private business, they & not pay any taxes,
and so on. They have some overhead they do not count into the
costs. We just need to make sure that the competition is fair, and
that is one of the things we need to do.

Mrs. MALONEY. With the Federal Reserve, they had a 17 percent
difference, taking into account the points that you were talking
about.

Senator THOMAS. I appreciate your time and look forward to
working with you. Thank you, sir.

Mr. Horn. I am going to make sure you have an escort back to
the Senate with my staff director and professional staff. They have
a subject on my behalf to talk with you about that is coming up
in the House. They want to protect you while you are in our terri-
tory. Thank you. They will meet you and walk with you a little
while.

Now we have the next panel, which is Mayor Steve Goldsmith,
mayor of Indianapolis, and Shirley Ybarra, the deputy secretary for
transportation of the State of Virginia.


175

escalations. Improper contract management negatively impacts the cost savings achieved via
outsourcing.

It should also be noted that while the data from the A-76 studies is helpful as
background for cost savings, the U.S. Chamber disagrees with individuals who contend that
The Freedom From Government Competition Act is not needed because A-76 achieves the same
purpose. The Freedom From Government Competition Act is better than A-76 for at least two
reasons: (1) The FFGCA is mandatory for agencies, while A-76 is voluntary and (2) the
FEGCA requires the use of generally accepted accounting principles that force agencies to
perform cost competitions based upon the same costs that the private sector has to account for.
‘A-16 has no such requirement, thus tilting the playing field and skewing the results.

STOP UNFAIR GOVERNMENT COMPETITION

‘The FFGCA also prevents the proliferation of the widespread abuse of unfair
government competition with the private sector by precluding federal offices from starting or
carrying on new activities if those products or services can be provided by commercial
sources.

‘The Act precludes the contracting of agency functions to other government entities. A
recent example of this unfair government competition involves the renewal of an information
technology contract between a private sector firm and the Federal Aviation Administration
(FAA). The new contract was not awarded to another private sector firm, but to a public
sector bidder~the Department of Agriculture (USDA). Interestingly, the cost information
from the USDA for this contract has not been revealed and the USDA is under investigation by

GAO for poor internal information technology management. The private sector questions why


115

vigorous public-private competition would be ill-advised. But to do so when our existing
contract administration system is in need of significant repairs would be nothing short of
irresponsible. We would be committing a profound disservice to the nation's taxpayers
and the federal government's customers. AFGE represents many hard-working federal
employees who perform contract administration work--from the Pentagon to the
Government Printing Office--who have many good ideas for saving precious tax dollars.
Please permit us to help you to address this problem.

H.R. 716 does not address the issue of contract administration. Of course, if
proponents of H.R. 716 have their way and manage to privatize much of the work
currently performed by the working and middle class Americans who make up the federal
workforce, then an already problematic contract administration system would be
hopelessly overloaded —- costing the taxpayers even more money.

Maki ting out

Mr. Chairman, you and many of your colleagues have spoken eloquently about the
economic difficulties confronting working- and middle-class Americans. While all of us
can't agree on explanations and solutions, ail of us would accept the simple principle that
the federal government should not exacerbate those difficulties.

That's why when we contract out we must do it for the right reasons. If a
contractor can do work more cost-effectively than federal employees because she has
devised a better system, employs better managers, or has done a better job inspiring her
workforce, then that work should be contracted out. But what happens if a contractor can
do the work more cost-effectively than federal employees merely because he pays his


136

several reasons for it. One is DOD is the one that got most of the
attention back in the early days. Even today there has been some
reference to President Eisenhower’s initiative and his concern,
which was the Department of Defense, more so than other Govern-
ment agencies.

One of the things that has helped drive the competition, and that
is the position that this union has taken, is that we are supporting
fair competition, not just opposed to contracting out under any cir-
cumstances, but in looking at that. The BRAC did a lot to create
the competition within the government, within DOD, knowing that
either they would be a target if they were inefficient, or if they be-
came a target, they needed to be very efficient to survive, if they
were going to do that.

Mr. Davis of Virginia. So survival is a pretty good incentive.

Mr. HaRNAGE. Right. Exactly. One of the problems we have with
a continuation of the BRAC, though, is an example of how this got
politicized. BRAC got politicized at the very end with the privatiza-
tion in place, initiatives of McClellan and Kelly, and we opposed
any continuation of BRAC until that matter was revolved. So that
is just a small example of what could happen with this one individ-
ual overseeing all of the government competition and outsourcing
initiatives.

I think the main thing that drove DOD was, first of all, that was
phere, the interest was shown by Congress, and, second, BRAC

elped.

Mr. Davis of Virginia. I would just add one other thing. I know
we talk about protecting wages and benefits, but if, for example,
I will just use local government, which I am very familiar with, if
you are paying your trash collector $60,000 a year with benefits
and you can end up hiring people for $30,000 equally qualified to
do the same thing, why would you worry about protecting jobs? It
seems to me your loyalty is to the taxpayers who are electing you
to provide the best service at the cheapest cost. I probably exagger-
ated the numbers, although there have been some instances.

I think still we have to be driven at the bottom line at the end
of the day. There are a lot of factors that go into that. But if we
start looking with other objectives, preserving employees,
privatizing two competing objectives, as opposed to trying to get
the taxpayers the best value for their dollar, I think we can go
astray very quickly.

Mr. HARNAGE. I agree with you on that. In that example I gave,
one of the problems, the contractor wasn’t just saying they wanted
to cut _the Federal employees’ salary that was following the con-
tract. It was proposing to cut new employees’ salary by one-half so
we would have employees working side-by-side, one drawing twice
as much as the other, doing the same job with the same skill. The
only difference was the prior employment, which would create a
havoc work situation. So there is more to it than just that.

Mr. Davis of Virginia. I hear you. Good point. Thank you very
much, Mr. Chairman.

__ Mr. Horn. Well, we thank you for that excellent line of question-
ing.

Now, I have listened to the base closure process get into this. Let
me just tell you, I know 3,000 employees personally that do not


177

managed competition language removes objections by federal employees who wanted an
‘opportunity to compete for work currently performed by the public sector designated as
“commercial,” rather than automatically giving the work to the private sector. The inclusion
of agency reporting requirements under GPRA is a critical mechanism for Congressional
oversight of the conversion process.

‘Mr. Chairman, on behalf of the U.S. Chamber of Commerce and its underlying
membership of more than three million businesses of every size and sector, I urge the
Committee's favorable consideration of this important legislation that will reduce the size of
‘our government's bureaucracy and save American taxpayers billions of dollars annually. I
thank you for allowing us to submit these comments on this very important budget and small
business issue.


58

Ms. YBARRA. Not “union” as you would use it. They do have an
association.

Mr. Horn. Uh-huh.

Ms. YBARRA. And we have worked very closely with that group.

Mr. Horn. Let me ask you, Mayor Goldsmith, ’m curious wheth-
er Indianapolis saved the money by reducing salaries or reducing
overstaffing. When you hit that middle-level staff group, I would
think every corporation I know and every university and city I
know that’s been successful, that’s where they’ve taken out the fat,
because that’s grown over the years.

The Federal Government is a prime example where there were
two of us that were assistants to the Secretary of Labor 35 years
ago. Why they’ve got enough to fill this room that are assistants
now. I mean, it’s unbelievable the way the bureaucracy just sort of,
on the staff side, people signing initials and not really producing
too much, maybe slowing things down.

And I think that’s what you sort of suggested, union members
got empowered when you got a few of those staff people out of the
way. So I would be curious just how you dealt with that. Was it
the savings from getting rid of overstaffing, not just competition?

Mr. GOLDSMITH. It is part and parcel of the same, Mr. Chairman.
The process of competition drove the workers to find better ways
of increasing their productivity, and that often led the unions to bid
without their managers. So I would say, here is how we want to
do our bidding; we actually gave them some consulting services.

I think the other very important point that you just made in your
question, Mr. Chairman—very important—is that our savings have
not come from reducing the salaries of the employees, whether they
were kept inside or outsourced. In fact, in most circumstances, the
salaries have actually gone up as have the career opportunities. As
the secretary mentioned, people have a larger base from which to
move.

The salaries of our inside workers have benefited the salaries of
people going out. The savings have come from buying somebody
else’s management talent, removing middle layers of bureaucracy,
and better use of technology.

Mr. Horn. I was going to ask you, have you studied the average
wages of your contractor operations? And I gather you have to
make those statements. Is that sort of a regular look at what the
contractor operations are paying with the—say, the comparison
with the city worker on the one hand and then the contractor oper-
ations full-time equivalent, however figured, on the other. Have
you made those comparisons?

Mr. GOLDSMITH. Well, indirectly. But inherently, this is a very
difficult question, because there are some services the government
is in that it just cannot afford to be in. My street workers came
to me and said, essentially,

We do not think you can afford to have us pick up litter because our wages are
too high. We do not want to be competitive in that business. We want to take all
of our extra workers and do road construction instead, where the wages in the mar-
ketplace are higher.

Generally where we win or where we watch the outside contrac-
tor, the salaries are about the same. But there are some activities
where government wage rates, frankly, are way above the market.


112

‘of non-federal employees engaged in service contracts. H.R. 716 does not address the
pressing need to develop more information about the federal government's "shadow

Ns on all service contractit

Even though public-private competition has proven to save money for the
taxpayers and spur providers, whether they be federal employees or contractor
employees, to offer better service, much work is, incredibly, still contracted out without
the benefit of cost comparisons. DoD officials, the same people who gave us prohibitively
expensive toilet seats, are “considering the possibility of avoiding A-76 studies by
eliminating a given function as a government activity and relying on the private sector for
its provision (privatization)."”

Clearly, the A-76 process may not be the best for conducting every single type of
public-private competition. And AFGE is always willing to consider changes that might
expedite the public-private competition process. But at the same time we must impose
some form of cost comparisons on all of the federal government's lucrative service
contracting.

Representative Norton has introduced very sensible legislation (H.R. 885) which
would require agencies to make cost comparisons before contracting out work and
prevent agencies from contracting out that work if the cost comparisons show that the
work could be performed less expensively by federal employees.

7 GAO, Ibid.
19


16

and services to agencies, such as office space, consolidated purchasing, air fare
contracts, and excess property disposal. Its role under H.R. 716 is unclear.

In addition, the bill does not contain language limiting judicial review of management
actions taken under its provisions. The possibly unintended effect of subjecting
management decisions to judicial review could slow implementation and increase
costs due to litigation.

RELIABLE AND COMPLETE COST INFORMATION
NEEDED FOR PRIVATIZATION DECISIONS

In the governments we visited, reliable and complete cost data on government
activities were deemed essential in assessing the overall performance of activities
targeted for privatization, in supporting informed privatization decisions, and in
making these decisions easier to implement and justify to potential critics. Most of
the governments we surveyed used estimated cost data because obtaining complete
cost and performance data, by activity, from their accounting systems was difficult.
However, Indianapolis, and more recently Virginia have used activity based costing
(ABC) to obtain more precise and complete data on the cost of each separate program
activity.

°ABC is a methodology that assigns costs to products or services based on the resources
they consume. It assigns functional costs, direct and indirect, to the activities of an
organization and then traces activities to the product or service that caused the activity to
be performed. ABC gives visibility to how effectively resources are being used and how
all relevant activities contribute to the cost of a product or service. Such information
may be key to making decisions about whether to resticture or privatize an activity. See
en e cesses (GAO/GGD-97-121, July,

1997).

11


28

with you and this committee to enact this good government, common sense reform.


94

nor disprove that Federal agency contracting decisions have been
beneficial and cost effective.

The bottom line, Mr. Chairman, is that although we have our
own point of view, AFGE is ready to work with you and address
the concerns that were raised at today’s hearing. ‘Thank you for the
opportunity to testify this morning, and I would gladly attempt to
answer any questions you might have.

[The prepared statement of Mr. Harnage follows:]


8
Activities and Privatization within the Office of
Management and Budget.
(2) RESPONSIBILITIES.—The Center—

(A) shall be responsible for the implemen-
tation of and compliance with the policies,
standards, and procedures that are set forth in
this Act or are prescribed to carry out this Act;
and :

(B) shall provide agencies and private sec-
tor entities with guidance, information, and
other assistance appropriate for facilitating con-
versions to use of private sector entities for pro-
viding goods and services on behalf of the Fed-
eral Government.

SEC. 5. STUDY AND REPORT ON COMMERCIAL ACTIVITIES
OF THE GOVERNMENT. :
(a) ANNUAL PERFORMANCE PLAN.—Section 1115(a)
of title 31, United States Code, is amended—
(1) by striking “and” at the end of paragraph
(5);
(2) by striking the period at the end of para-
graph (6) and inserting “; and”; and
(3) by adding at the end the following:
“(7) inelude—

HR 716


7

LR. 716 Requires © 4 Past P Inf ,
in Making Privatization Deciei

A notable feature of the draft legislation is the provision describing the criteria that
are to be used in contracting for goods and services. The legislation requires OMB to
prescribe standards and procedures that are to include the analyses of all direct and
indireet costs, and to be performed in a manner consistent with generally accepted
cost accounting principles as well as with past performance of sources. We have
found in the past that the widespread absence of this type of information has
compromised effective public-private comparisons. This provision of the bill is
consistent with current efforts aimed at improving federal financial management.

In the past, when competitive contracting has been done at the federal level under
the provisions of Circular A-76, the absence of workload data and adequate cost
accounting systems has made the task all the more difficult. Given that most
agencies do not have cost accounting systems in place at this point, the bill's
requirement to use past performance and cost data will be difficult for many federal
activities to meet.

Efforts are under way to develop the type of cost and performance data that would be
necessary to compare public versus private proposals, as could occur under the
provisions of H.R. 716. The Federal Accounting Standards Advisory Board (FASAB)
has developed standards that are designed to provide information on the costs,
management, and effectiveness of federal agencies. These standards require agencies
to develop measures of the full costs of carrying out a mission or of producing
products and services. Such information, when available, would allow for comparing
the costs of various programs and activities with their performance outputs and
results. To help agencies meet these standards, the Joint Financial Management

12


83

Mr. Horn. We now ask Mr. Ed DeSeve, the Acting Director—
Deputy Director for Management, Office of Management and Budg-
et. Thank you.

Mr. DESEVE. Thank you very much, Mr. Chairman, for inviting
me to appear before you today to discuss the provisions of the pro-
posed Freedom From Government Competition Act of 1997. With
your permission, I'll make a few summ: remarks and ask that
my full statement be included in the record.

Mr. Horn. Without objection, they're automatically included for
everybody once we introduce you.

Mr. DESEVE. Thank you very much.

Today we face the challenge of managing in the new balanced
budget environment. The challenge is to provide a Government
that empowers its employees, adopts better business practices, and
costs less. The National Performance Review [NPR] has laid the
necessary groundwork for bringing the Federal Government into
this new era.

Over the last 4 years, the NPR has encouraged agencies to de-
velop a range of management tools—techniques and strategies that
agencies have been encouraged to use to redirect and extend budg-
etary resources.

In addition to outsourcing, which is what we're really talking
about today, we're encow aging agencies to examine privatization
and exiting business lines. We’re downsizing, consolidating, and
taking advantage of new technologies. We're incorporating competi-
tion into our budgets, into our financial and accounting systems,
and into our other management approaches. Governmentwide ac-
quisition reform initiatives are enabling us to take more effective
advantage of competition among private sector offerers and to bet-
ter leverage the Government’s buying power.

In fact, I think you and Mr. Davis were referring to that earlier
in terms of GWAC contracts, delivery in indefinite quantity con-
tracts. We don’t believe those contracts are affected by this legisla-
tion, but we do think they're an important tool for better manage-
ment.

We support outsourcing. We also believe in reinvention, in com-
petition, and in the ability to choose the alternative that is the
most cost-effective and in the best interest of the taxpayers. By
issuing the March 1996 OMB Circular A-76 Revised Supplemental
Handbook, we have committed to a broader range of competition
and encouraged new public and private sector competitors to enter
these competitions. The revised Tandbook provides the needed or-
ganizational and analytic structure, such as the one Mr. Nye Ste-
vens referred to earlier.

Under this structure, new opportunities, including certain inter-
agency agreements that were not previously subject to competition,
we made available to both public and private sector offerers. Man-
dates such as those found in H.R. 716, that require performance by
in-house or contract employees, are not helpful. Having said that,
we certainly appreciate that public offerers should not be receivii
work in instances where they would not provide a cost-effective al-
ternative to the private sector.

But such a result need not and should not, as suggested in H.R.
716, be achieved by prohibiting viable public offerers the right to


4
1 SEC. 3, RELIANCE ON THE PRIVATE SECTOR.

2 (a) GENERAL PoLicy.—Notwithstanding any other
3 provision of law, except as provided in subsection (c), each
4 agency shall procure from sources in the private sector all
5 goods and services that are necessary for or beneficial to
6 the accomplishment of authorized functions of the agency.
7 (b). PROHIBITIONS REGARDING TRANSACTIONS IN
8 GooDs AND SERVICES.—

9 (1) PROVISION BY GOVERNMENT GEN-
10 ERALLY.—No agency may begin or carry out any ac-
1 tivity to provide any products or services that can be
12 provided by the private sector.

13 (2) TRANSACTIONS BETWEEN GOVERNMENTAL
14 ENTITIES.—No agency may obtain any goods or
15 services from or provide any goods or services to any
16 other governmental entity.

17 (c) EXCEPTIONS.—Subsections (a) and (b) do not
18 apply to goods or services necessary for or beneficial to
19 the accomplishment of authorized functions of an agency
20 under the following conditions:

21 (1) Either—

22 (A) the goods or services are inherently
23 governmental in nature within the meaning of
24 section 6(b); or

25 (B) the Director of the Office of Manage-
26 ment and Budget determines that the provision

BR 716 1B


111

is somehow blased against contractors.

Finally, such knowledge would help lawmakers make more informed decisions
about how to achieve real and lasting deficit reduction. As | mentioned earlier, meticulous
statistics are kept about federal employees. That's why, when Administration officials or
lawmakers want to provide tax relief or ensure deficit reduction, they can always help to
generate much of the necessary savings by cutting the compensation and the size of the
federal government's in-house workforce.

As you may know, the Administration has consistently asked the Congress to
provide federal employees with significantly smaller pay raises than those recommended
by the Federal Employees Pay Comparability Act, thus causing them to fall farther and
farther behind their counterparts in the private sector. The deficit reduction package most
recently enacted by the Congress requires federal employees to contribute even more
towards their retirement plans. Since 1980, incidentally, federal employees and federal
retirees have contributed more than $175 billion towards deficit reduction in the form of
lost compensation. Further, the federal government's in-house workforce has been cut
by approximately 300,000 over the last four years, resulting in even more savings.

Clearly, lawmakers know where to look when savings are needed. If data similar
to that compiled for the federal government's in-house workforce was kept for the federal
government's contractor workforce, lawmakers would have more information available
when they needed to make important decisions about how to spend precious taxpayer
dollars. Representative Norton has introduced legislation (H.R. 887) which would require
OMB to develop a government-wide system for determining and reporting the number

18


81

management.” Some federal agencies have recognized the problem and have taken
actions intended to improve their contract management capacity. The Department of
Energy (DOE) and The National Aeronautics and Space Administration (NASA)

provide examples of the challenges agencies face in overseeing contractors.

DOE-the largest civilian contracting agency in the federal government--contracted
out about 91 percent of its $19.2 billion in fiscal year 1995 obligations. We
designated DOE contracting in 1990 as a high-risk area, vulnerable to waste, fraud,
abuse, and mismanagement, because DOE's missions rely heavily on contractors and
DOE has a history of weak contractor oversight; however, it has been working to
improve its contract management practices. As we recently reported in our high-risk
report on DOE," changing the way DOE does business has not come easily or
quickly. DOE has taken various actions in the past to improve its contracting, and a
recent contract reform effort that has received high priority and visibility appears
promising; however, much remains to be done to ensure effective oversight of
contractors.

NASA's contracting reforms demonstrate what can be accomplished when an agency
places high priority on contractor oversight. NASA spends about 90 percent of its

budget on contracts with businesses and other organizations. NASA's procurement

budget is one of the largest among federal civilian agencies, totaling about $13 billion
annually in recent years. NASA first identified its contract management as

vulnerable to waste and mismanagement in the late 1980s. Since then, it has

“Govemment ams ow Matson Proper Us of Const (GAOFPCD 8048 June 16,
1980); Civilian Ag nt; _Improvements Nee

Administration (GAO/GGD-89-108, Sept. 5, 1989); and Federal Contracting: Cost-Effective
Contract Management Requires Sustained Commitment (GAO/T-RCED-93-2, Dec. 3, 1992).

“Department of Energy Contract Management (GAO/HR-97-13 Feb. 1997).
16


188

Panel members

Eaward David Char President, EED, ln: former Science Advisor othe President, Drea, Office of Science and
‘Technology, Executive Direcior, Research, Bell Telephone Labs; Viee President, Exxon Corporat

Gerald Riso Co-Chair Vice Booz Allen and ite Director
Of hd Bulges ‘Secretary for ‘Aden US.
Department ofthe interior.

Manage, City of Des Moines, wa: Manager, City of Evanston IN; City Manager,

ly Sie hi We i Manager, Manat IN Aol oom Mags, Wor, CM, Ait Dre
and Developmen, ecmaisal Cay Manager! Asso

ery Aspland® - ifomia Maritime Academy; Vice Chairman of the Marine Board, National Academy of

Seite reted Predens ARCO Mate Ine

La Avent - Viee Corporation; former Civilian Director, Defense Mappi
‘Agsuay: Ley parcipat Chater fo conecidte BE Ary, Navy nd Aw Fors as ino he Defense Mapp

Jack Dangermond" - President and CEO, Environmental Systems Research Insite, Ine, Redlands, CA.

Jooathan Howes - Secretary, Department of Environment, Health and Natural Resources, State of North Carolina;
{former Research Professor and Director, ae fer tant Ragu Sho, Unvyo Norh Cavin gor
‘Town of Chapel Hil; Dies, Utes Poy cen, Ute Amer,

Bradford Hi ze Chief Flamcial Offi, Pant and Trademar, Office, forex

‘Assistant Ce “Assistat Ci Depury
‘Operations, Patent and Trademark Office

‘Terrence Keatiny in marketing and issues;

former owner

Lawrence Korb - Director, Center for Public Policy Brookings Inpinton; Adiunct Profesor
former Assisant ot Beteae for Manpower iaslscons and us.
Gecsartows Univesity, ‘Assistant Secreary Manpowe ogists,

Wendy Lath of ie Search Charles, fessional and surveyor,
ndy Lathrop* - Manta of Googe Services, Charles Jones, lnc registered pro surveyor

* Not an Academy fellow; nominated by one or more of the sponsoring agencies.

Project staff

Arnold Donahue, Proje Co-Director, President, Pcrade, ne; Former Senior Exeouve Service, Chief, Command,
iano and tntligence, Office of Management and Budge Ineligene officer and cconows
‘Central ‘intelligence Agency.

Roger Sperry, Projet Co Diver. Deer of Management Sri, Nations of Public Administration:
‘Senate Cé ‘on Gor I Affairs; Sealor Group Director and
Spec Asisatte te Conpoote General he US Catal Aces Othe.
ey Ea fre of Public Administration; former
Boley abavee US Advisory Conatasion ou lxeporcmnencl Reaions
Emily ce ‘Academy of Public former Research A:
Economic ‘Service, USDA

Brace McDowell, Seior Research Associ, Former Director of Goverment Policy Research and Asian wo the
Executive Director, US. Advisory Commission on intergovernmental Relations; Director of Governmental Studies,
‘Naonal Counelon Public Werks improve

BEG Se tae ms oe oe
ls Sr ae nen oat oe ert Meee
‘of [ntergovernmental Programs, General Accounting Office. ‘pment Spee

Lis Wares, Senn Roe) nacia,Auta fe Ste Geoprap Iforatin Aces Compe:
founder of the Seges Geographic (nfon Counc ri ‘Say of on



107

Sadly, our concerns about this problem have been repeatedly dismissed by the
Administration. Earlier this year, | was provided a copy of the attached correspondence
between General George Fisher, the Commander, Army Forces Command at Fort
McPherson, GA, and the Commander, Ill Corps and Fort Hood, Killeen, TX. (We have
obtained a copy of a similar letter which was sent to the Commander, Fort Riley, KS.)
In his letter, General Fisher informs the Commander of Fort Hood that the installation's
FTE elimination-in—favor-of-privatization quota has been increased from 645 to 767
‘spaces. To soften the biow a bit, General Fisher added a handwritten note at the bottom
of the letter:

“Tom, We're required to meet the Army's assigned requirement. For each function

you select, a study leading to a contract-out decision. You're ahead of most

everyone; just need a few more in ‘98. George”

Obviously, Mr. Chairman, the outcome of any competition at Fort Hood or
elsewhere within Forces Command for that matter has already been decided in advance.
Contracts won't be awarded because contractors provided more effective, more efficient,
and more reliable services. Rather, they will be awarded because there aren't enough
federal employees available to do the work. Administration officials took a look at the
‘same letter and said this wasn't a clear case of management-by-FTE ceilings; rather, the
General simply wasn't a very artful writer. Mr. Chairman, you be the judge.

Here's another example. In this attached letter, a senior Defense Information
Services Agency (DISA) manager clearly instructs his subordinates not to exceed
established FTE ceilings. The manager also instructs his managers to backfill positions

14


92

CONCLUSION

As a group, Federal employees are some of the nation's most highly trained and dedicated
employees. They respond to a vast array of concerns and requirements. It has been said that
HLR. 716 was introduced to inject more vigorous market competition into Government. It does
not. We are fundamentally reorganizing the way the Federal Government conducts its business.
HR. 716, in our view, fails to take into consideration the flexibilities that exist and need to exist
in making the outsourcing decision, ongoing initiatives to privatize and outsource in a reasoned
and responsible manner and our concerns regarding judicial review and appeal. Rather we would
ask your assistance in eliminating existing barriers to competition, such as those found in 10 USC
2461- 2469 and applicable to the Department of Defense.

Competition has made the American economy the envy of the world. We support the
provision of Government services by those best able to do so, whether in the private sector or
within the Government. Rather than open up existing markets or enhance the dynamics of
competition, H.R. 716 restricts the number of competitors and skews the level playing field. We
are concerned that H.R. 716 will spawn a whole new level of compliance litigation, resulting in
higher costs to the taxpayer. Finally, as noted above, the bill is simply not needed and may result
in more harm than good.

Mr. Chairman, that concludes my prepared statement. I would be happy to
address any questions that you might have.


180

ACSM Statement on H.R. 716, Freedom From Government Competition Act
September 29, 1997
Page 3

On April 10, 1997, ACSM’s Board of Direction adopted a position statement expressing
opposition to the Freedom From Government Competition Act as currently drafted. A
copy of that statement is appended to our testimony.

Surveying and Mapping Agencies and Private Firms Are Interdependent

‘As a national society with both public- and private-based members, ACSM believes it can
take a balanced view of the issue of government competition. On the one hand, we
strongly support an outcome that provides increased opportunities for our private sector
members to contract with government agencies. Technological advances in the last twenty
years have given private firms the ability to perform surveying and mapping tasks that
previously only government agencies could complete. It is also true that many of the
technical advances in the profession, particularly in the field of GIS, or geographic
information systems, are occurring in the private sector. There is no question that private
surveying and mapping firms can complete many tasks that government agencies
traditionally have performed in-house.

On the other hand, ACSM members who work in surveying and mapping agencies such as
the Bureau of Land Management, the U.S. Forest Service, the U.S. Geological Survey,
and the National Ocean Service raise important cautions about the need to retain core
capabilities. Private firms may be able to perform most production under contract, but
agencies must retain in-house technical expertise and some production to ensure that
contractors’ products meet quality standards. In-house staff also are needed for contract
negotiation and administration, preparation of government-supplied materials, and quality
assurance.

ACSM does not know how other professions or industries view their relationship with
government agencies, but for the surveying and mapping profession, the operative word is
“interdependence.”

Looking first at the private side, it is clear that private sector surveying and mapping
professionals depend on government agencies for accurate base data that serve as the
foundation for geospatial products. For example:

Professional land surveyors depend on the National Geodetic Survey (NGS) for
accurate, consistent positioning data (coordinates and elevations) upon which a variety
of surveying products and services are based, including property surveys that are part
of GIS mapping projects based on a common coordinate system, and engineering
projects such as the placement of highways and the construction of bridges and water
delivery systems. NGS develops survey standards and specifications and provides local
baseline standards by which professional surveyors check or calibrate electronic


183

ACSM Statement on H.R. 716, Freedom From Government Competition Act
September 29, 1997 y
Page 6

standards; structure and organization; intellectual property rights; pricing; partnerships;
technology; and domestic-national security relationships.

ACSM identified the need for a study in 1995 when Congress considered three different
Broposls ta had major implications for bth public: and privaiebased survey and

mapping professionals. One would have abolished the U.S. Geological Survey.
‘Another proposal would have abolished the Commerce Department and moved certain,
fanctions, including surveying and mapping activities, to other federal departments. A.
third proposal would have required the Department of the Interior to contract out all of its
surveying and mapping activities within six months.

Although none of these proposals became law, their consideration by Congress provided a
wake-up call to our profession. We concluded that any decisions Congress and the
administration make to alter the balance between public and private sector responsibility
for surveying and mapping should be guided by current, comprehensive information about
the profession and the respective capabilities of public and private entities. ACSM
identified NAPA, a nonpartisan, Congressionally chartered policy analysis organization, as
the appropriate entity to conduct the study. Four federal agencies that play major roles in
surveying and mapping agreed to sponsor the study. The sponsoring agencies are the
Bureau of Land Management, the National Ocean Service, the U.S. Forest Service, and the
U.S. Geological Survey.

NAPA’s study will be completed this fall, ACSM believes the study’s findings will prove
helpful as the subcommittee considers H.R. 716’s potential impact on technical

such as surveying and mapping. We recommend that the subcommittee not approve H.R.
716 until it examines the findings of the forthcoming study, "U.S. Geographic Information
Resources.” Background materials on the study are appended to our statement for the
subcommittee’s information.

ISSAs Create Work for Private Firms

ACSM also urges the subcommittee to carefully consider the impact of H.R. 716 on
interservice support agreements (ISSAs). Subsection 3(b}(2) of the bill would prohibit
agencies from obtaining goods or services from, or providing goods and services to, any
other government entity. Although interagency arrangements are allowed under the
exceptions contained in Section 3(c), some supporters of H.R. 716 have made it clear that
they would like to completely prohibit ISAs.

Opposition to ISSAs is based on the assumption that agencies that perform work for other
agencies clearly are competing inappropriately with the private sector. ACSM cannot
speak to the government-wide impact of ISSAs on private firms, but in surveying and


60

Mr. GoLDSMiTH. The great thing about competition, as illustrated
by your question, is that it tends to measure performance and out-
comes. And until you compete internally in government, you do not
recognize your failures, because you are not measuring outcomes.
The process of competition is one where you buy outcomes.

We have had a bus contract that has been terrible. We
outsourced part of our bus system, not maintenance side, but some
of the delivery system—and it was not done very well.

Generally, when we find a failure, the failure is related to lack
of clarity in terms of what the outcomes would be and lack of
vigilence in terms of our monitoring those outcomes. I think if we
have done 75 competitions; we have had a handful of failures. The
more we do, the more failures we are going to have, but also the
more successes. But we are able to do that on the public and the
private side.

Mr. Davis. We ended up savings millions of private taxes with
bus service instead of going to Metro, which was sold, and could
get more routes covered. And we would have done more except for
some sections in Federal labor law that made it difficult for us to
do that, and we would have had better outcomes for the taxpayers.
So it’s a mix, back and forth.

But government’s bottom line, it seems to me, should be to get.
for our taxpayers the best value for their tax dollars. And when you
move away from that as your objective, when you look at protecting
jobs, or privatizing, as objectives in themselves, you lose focus of
what it’s all about.

Shirley, let me just ask you—in Virginia, we’ve had a number of
successes. Do our State’s process-for-privatization efforts allow pri-
vate sector and public input? I mean, how does that work as you’re
making those kinds of decisions?

Ms. YBARRA. On the transportation side of it, we have a whole
set of guidelines. And we had the process set up so that we would
have both the public and the private input. And certainly being
able to take unsolicited proposals, I mean, basically the private sec-
tor can come in and say, here is an idea we would like to suggest
to you, and submit a proposal. Frankly, again on the maintenance
contract, I don’t know that we could have ever written it the way;
on the asset management, outcome-based, or performance-based.

Mr. Davis. The way the proposal came in.

Ms. Yparra. I don’t know how we would have done it.

On the competition council, yes. We have not only had the public
hearings, but as we begin to focus on the specific areas of potential,
either contracting out—public-private partnership, or whatever, we
focus a lot more in getting both, the private sector coming in and
discussing and how to go about it, whether it be on the—if we’re
going to do it as a contractor, as an RFP. So we've spent a lot of
time in the dialog on both sides.

Mr. Davis. Now, in either case, did you have a significant dropoff
of public sector jobs, of people being laid off or——

Ms. YBARRA. No. But we had ad the general assembly pass
the—I can’t think of the name of it—act which allowed for the Vir-

inia Government employees to take their early outs, early
buyouts, if they met certain criteria. So we have not had anything
r ~


56

Indianapolis to place people where they can usefully do work,
what’s the thinking of how you can solve that problem?

Mr. GOLDSMITH. That——

Mr. Horn. Both of you, I’m interested, Virginia and Indianapolis.

Mr. GOLDSMITH. Well, health care is actually easier, because the
private sector health care is generally acceptable, and the barriers
to transferring are not that significant to employees; especially if
the employees go from public to private, they pick up health care.

The portability issue, I think, is a very Significant one, and I
would encourage the committee to spend considerable time on this.
When we privatized the Naval Air War Center in Indianapolis,
some of the better, more senior employees, who really wanted to
stay with the private operator, were penalized substantially be-
cause of the difficulty of taking their pensions with them.

What we have done is set up a system that is not only unfair to
the employee, it’s unfair to the taxpayer, because it actually would
have reduced long-term costs to the taxpayer if the pension had
been portable. But the way it is scored, it is very difficult for that
to occur. I would encourage portability of the pension.

We have been able to buy out most of those. But in the long run,
some of the most valuable employees are prohibited from partici-
pating in the private enterprise because of the difficulty and ex-
pense of potentially losing their pensions.

Mr. Horn. How about Virginia?

Ms. YBARRA. Well, over in the buyout that was done government-
wide, or the incentive, they remained in the pension and kept their
health care.

Now, in the case of ESOP, where we are still working through
what really—and you're right, the health care is the easy one. It’s
the pension and what you do with it, whether you allow them
somehow to stay with the State pension; and that really doesn’t
work either. Those are the issues that—and what we're struggling
with and hopefully we will have some answers presented to the
council next month.

So on the governmentwide one, that was all taken care of by the
general assembly on that. We have not found that to be a difficult
issue.

I will also—but let me come back at it another way.

In setting up some private child support offices in the health and
human services area, we found that the area had grown so fast in
Chesapeake and the Hampton Roads area that we needed two new
offices if you just looked at the number of people we were serving.
So. we contracted for the construction and the operation of these fa-
cilities.

In doing so—and everyone told us it was going to be very dif-
ficult; I mean, the employees were going to be concerned and so
on—one of our biggest problems right now is keeping the employ-
ees in the government, because they want to go work for the pri-
vate operator because they know that they have just great opportu-
nities over there.

So it almost worked the opposite way. They really didn’t want to
stay with State government once they figured out a way to take
their Pension, or they’d see that they would have another one just
as good.


18

Mrs. MALONEY. Thank you, Mr. Chairman.

First, I would like to welcome my former colleague, Senator
Thomas, from the great State of Wyoming. I look forward to hear-
ing his testimony today on H.R. 716, the Freedom from Govern-
ment Competition Act. That legislation goes to the heart of the de-
bate about the nature and proper role of government, determining
which functions should be performed by Government and which by
the private sector. It has been and will continue to be a central
component of that debate.

Privatization, or contracting out, is not a cure-all for government
problems, but if implemented wisely can be a useful tool in provid-
ing services for the American public more economically and effi-
ciently. However, we must remember it is just one tool. Empower-
ing workers through training, treating them as assets, and striving
to improve management techniques all also have a place in creat-
ing a government for the next century.

Contracting out raises a number of difficult and contentious

issues, which I am sure we will be discussing today. Cost account-
ing standards, contract management controls, job placement, and
training for displaced workers are but a few. We must also be cau-
tious that contracting out a service doesn’t end up costing us more
in the long run, because once turned over to the private sector, it
is often difficult and expensive for the government to regain con-
trol.
. Private hauling of sludge in New York City costs five times what
it does in San Francisco and neighboring New Jersey, or used to
before the contract was changed. The Los eles school district
wound up a few years ago with a $3 million bill for deficits run up
by a contractor hired to run the school food services. On the other
hand, New York City gave park service workers greater control
over their jobs and found they could operate more efficiently than
private contractors. In a 1992 experiment, the cost of tree removal
in Queens and the Bronx by city workers was thousands less than
a contractor would have charged.

Contracting out is a process which needs to be carefully scruti-
nized. First, we need accurate and complete information on what
is to be privatized and why. Second, we must insist on sound con-
tracts that incorporate incentives for cost savings and severe pen-
alties for failure to perform.

Finally, we should have a strong and effective job placement pro-
gram for displaced workers. H.R. 716 would provide a legislative
framework to analyze some of these issues, a framework currently
provided by OMB Circular A-76.

I welcome Senator Thomas, and I look forward to your testimony.
Thank you for coming.

Mr. Horn. We thank you.

[The prepared statement of Hon. Carolyn B. Maloney follows:]


47

&

COMMONWEALTH of VIRGINIA
Commonwealth Competition Council

George Allen
Governor
REMARKS TO THE
HOUSE COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY
WASHINGTON, DC
SEPTEMBER 239, 1997

BY
SHIRLEY J. YBARRA
DEPUTY SECRETARY OF TRANSPORTATION
COMMONWEALTH OF VIRGINIA

Mr. Chairman and members of the of the subcommittee, my name is Shirley
Ybarra, I am the Deputy Secretary of Transportation for the Commonwealth of
Virginia and I am also a member of the Virginia Commonwealth Competition
Council. I am pleased to be here today to briefly discuss with you the
privatization/competition initiatives being pursued and implemented in the
Commonwealth of Virgi Virginia is in the forefront of the
privatization/competition movement in state government and has been recognized
as a leader in the March 1997 privatization report by the General Accounting,
Office.

When Governor Allen came into office in 1994, he set out to look for
innovative ways to manage Virginia’s state government, placing high priority on
using privatization/competition efforts to streamline and reduce the costs of state

P.O. Bor 1475 # Richmond, Virginia 23228 + 1804) 786.0240 « FAX (804) 786-1594


51

Mr. Horn. I was impressed with the laws that Virginia has. Let
me just ask a general question to get the mayor included, did each
of you base your cost comparisons on a law, in the case of Indian-
apolis, an ordinance? Or was it merely executive policy as is cur-
rently the case in the Federal Government?

Now in Virginia you have cited about five different laws here, I
take it, but is there an overarching law that the government has
where they could authorize this type of cost comparison we are con-
sidering in Federal legislation? Or have you just done it piece by
piece in the case of Virginia?

Ms. YBaRRA. In Virginia, it really is sort of the policy, and it is
in the Competition Council. We have developed this procession, and
it is in the purview. It is not mandated by law. But we felt for our
agencies to make good decisions, they needed to have the kinds of
cost analysis. We have it on a disk and we have trained everyone
so they can literally plug in figures and take in not only the costs,
the direct costs for the ad, but the administrative costs, the costs
of administering the contract.

Mr. Horn. But is that under this law that you cite here, the Vir-
ginia Public-Private Transportation Act of 1995?

Ms. YBARRA. No, sir. No, it is part of the policy in the act that
set up the Competition Council.

Mr. Horn. I see. So it is the Virginia Government Competition

t.

Ms. YBARRA. Right.

Mr. Horn. That is overarching.

Then you have the Virginia Corrections Private Management Act
allows use of private prisons only if it provides a cost-benefit to the
Commonwealth.

Ms. YBARRA. That one required the cost-benefit analysis, al-
though not detailed in the act.

Mr. Horn. That was a law passed by the legislation and signed
by the Governor.

Then you have the Virginia Education Loan Authority, and that
is strictly for student loans I take it, or does it include construc-
tion?

Ms. YBARRA. No, that is just student loans.

Mr. Horn. I was on such an authority for private universities in
California as a public member, and as I recall, a few States had
copied what was done. At least for 15 years now, where the private
institution comes in and submits its bond proposal to us, the State
doesn’t issue the bonds, but it certifies there is enough there if a
default occurs. Then the result is we save them a few points of in-
terest. That was the attempt to help the private sector.

Then you had, as you say, the overarching one, if any, is the Vir-
ginia Government Competition Act. Conceivably, you can spread
this around the rest of the government, the executive branch; is
that correct?

Ms. YBARRA. The Competition Act was for all of government. The
Public-Private Transportation Act is strictly for the transportation
facilities and services. That was really slightly ahead, or actually
about the same time, but it was really designed to help us analyze
public-private partnerships in the road construction area.


EFFECTIVE MONITORING AND OVERSIGHT.
OF CONTRACTOR PERFORMANCE ARE ESSENTIAL

When a government's direct role in the delivery of services is reduced through
privatization, we found that, at least among the state and local governments we
visited, the need for aggressive monitoring and oversight grew. Oversight was
needed not only to evaluate compliance with the terms of the privatization
agreement, but also to evaluate performance in delivering goods and services in order
to ensure that the government's interests were fully protected. Indianapolis officials
said their efforts to develop performance measures for activities enhanced their
monitoring efforts. However, officials from most governments said that monitoring

contractors’ performance was the weakest link in their privatization processes.

‘The essential foundation for effective oversight is good cost and performance data.
HLR. 716's analytical requirements call for the consideration of all direct and indirect
costs, qualifications, and past performance as well as other technical considerations.
‘These requirements, along with the authority and flexibility given to OMB in
implementing the legislation, provide the necessary foundation for effective

performance monitoring and oversight, but they do not resolve capacity problems.

Converting government activities to private-sector performance will increase the
contracting workload on federal agencies. Conversion to contract performance
requires considerable contract management capability. An agency must have
adequate capacity and expertise to successfully carry out the solicitation process and
effectively administer, monitor, and audit contracts once they are awarded. In past
reports on governmentwide contract management, we identified major problem areas,
such as ineffective contract administration, insufficient oversight of contract auditing,

and lack of high-level management attention to and accountability for contract

15


142

I also think we would agree that almost everyone would like us to
reduce the size of the federal government.

Tf this bill were enacted, I think we could do just that. In addition, 1
believe we would see small businesses continue to grow, and this would
provide jobs to many more people.

Mr. Chairman, I want thank you again for giving me the opportunity to
come here today to explain why I believe it is imperative that the
Congress pass this legislation.


135

Mr. STEVENS. I don’t disagree with anything Mr. DeSeve said. I
would note that it also worked very well in the General Services
Administration over the years. That is an agency that is less than
a third the size it was when they started a very aggressive con-
tracting out or A-76 program, and OMB had a major part in that
by holding down the employment ceilings that they were allowed.
I know that is not something that you would recommend, but it
was very effective in their case.

Another area was one that the State and local governments men-
tioned, and that was political leadership. I think the leaders of
GSA, going back to Gerald Carmen back in the 1970’s, right up
through Mr. Roger Johnson in the Clinton administration, have
really promoted using the private sector capability for those busi-
ness-like functions that GSA does very effectively. I think it is a
better agency now for it.

Mr. Davis of Virginia. The reason I don’t like the FTE positions
is you have to be driven by dollars and not by people. many
times there is the assumption if you lose employees, somehow you
are saving money, and that is not always the case. You also lose
your perspective of mission, you lose your perspective of what are
the appropriate lines of business we should be in versus shouldn’t
be in, and that is why.

It can have some utility, but I think we put way too much. It is
also a great political sound bite, we got rid of so many employees,
and that has mixed reactions. At a time when your employees are
the strongest asset of any organization, and that is true of a lot of
private companies and we recognize it is‘true in government too for
recruiting and retention purposes.

Mr. STEVENS. There are some functions. Mr. Harnage mentioned
the GAO report which pointed to nine service functions where they
could have been done more cheaply by Federal employees. We did
find some of those and that was not reflective of the whole thing,
but they are there. The reason they didn’t was they couldn’t get the
ceilings from OMB.

Mr. Davis of Virginia. Mr. Harnage points out correctly that at
least the AFGE is learning. They follow their employees. If they get
privatized, the union follows them. So they are adapting to the new
realities.

Mr. Harnage, do you want to add anything?

Mr. HaRNAGE. Yes. Just to pick up on your comment about us
following the work, I think that makes us a more fair-minded par-
ticipant in this deliberation. But in following that work, some of
the questions of the previous panel concerning employees, health
benelits, pension and pay, and I really appreciate those probing

uestions in the interests of the employees that are affected. But
that contractor, the initial proposal was to cut the pay to 50 per-
cent of what it was, so they would have lost half of their income
had it not been a unionized shop to start with, and not even talk-
ing about their pension or their health benefits.

that was a positive story, but it also had a special spin on it
in that it was a unionized shop.

With your question concerning this one person being in charge
of privatization studies and why is it more effective in DOD or has
been more effective in DOD than other agencies, I think there are


oo YN AH PB WN =

See Be Be Be ee me ee
BSeriaankrBupeas

21

8

13

12
regulation, authorization, order, or other-
wise;

(ii) determine, protect, and advance
its economic, political, territorial, property,
or other interests by military or diplomatic
action, civil or criminal judicial proceed-
ings, contract management, or otherwise;

(iii) significantly affect the life, lib-
erty, or property of private persons;

(iv) commission, appoint, direct, or
control officers or employees of the United
States; or

(v) exert ultimate control over the ac-
quisition, use, or disposition of the prop-
erty, real or personal, tangible or intangi-
ble, of the United States, including the
control or disbursement of appropriated
and other Federal funds.

(B) FUNCTIONS EXCLUDED.—For the pur-

poses of paragraph (1), inherently governmental
functions do not normally inelude—

HR 716 1H

(i) gathering information for or pro-

_ viding advice, opinions, recommendations,

or ideas to Federal Government officials;


137

think the base closure process was very good, and those are the
ones at the Long Beach Naval Shipyard that just closed finally this
last week.

They competed. They were the only shipyard in the United
States returning money to the Treasury and the Navy. They were
ranked ahead of Portsmouth, et cetera, even though they dummied
the figures and tried to figure out a way to rank them behind. They
just lied, let us put it that way, to be charitable.

The fact was that the President of the United States knew there
would be a primary in New Hampshire, and he didn’t want to do
anything to hurt New Hampshire. The boys in the Navy under-
stood that. The fact was that the Chief of Naval Operations, who
later committed suicide, wanted to get the nuclear yards preserved,
and that was the only non-nuclear yard they could work on nuclear
ships.

Then, when you look at the autocratic process by which the Base
Closure Commission operated under the ex-Senator from Illinois,
you find a new number of reasons why I don’t have much faith in
the base closure process. But I will tell you one thing, since there
is not one single Naval installation left within my district, I can
certainly be objective about the defense budget, and I plan to be.

Anyhow, so much for the base closure process. I just had to get
that in the record, because I don’t want—maybe it has done some
good somewhere, and heaven knows we need more base closure
processes, if they work honestly. Because as everybody will tell you,
the Pentagon still has too much infrastructure that they are paying
maintenance bills on. It is sad. Many of those are connected to
some very wonderful people, just like the 3,000 I know.

Now, they were helpful in placing maybe 1,000 of them. Some re-
tired. But some of them have had their challenges and their oppor-
tunities cut very short by strange forces for strange reasons.

So let me finish with a few questions here, starting with Mr.
Harnage. I think we have probably explored some of the pension
health care issue a bit, but that certainly is a major concern of
mine, when you think about how this system works or doesn’t
work. You are affecting real human beings, most of whom have
spent a lot of their life in the public service, and we have got to
figure out what we do under those circumstances.

As I say, I am all for cleaning out a lot of places in a lot of parts
of government, be it Capitol Hill or the executive branch, and I
think we found when we get at that middle management staff that
seems to have grown up over the last 30 years, much more than
Eisenhower had. You know, somebody said, I think the Speaker
did, that Franklin Roosevelt ran the Second World War with six as-
sistants. Those were the anonymous six of the Brownlow Commis-
sion, and, of course, no assistant in the White House has ever been
anonymous ever since that report came out. They are running for
office or they are getting TV jobs or whatever, but they are not
anonymous. Then the Presidents are ill-served when they are not
anonymous.

As the union that has represented a number of Federal agencies
undergoing competition, Mr. Harnage, I would like to focus on the
one-half of the competitions that the Federal employees lose.


55

We had the best accounting firms in the country study our waste
water treatment plant and they determined it was one of the most
efficient in the country. Then, when it was privatized, we saved 44
percent off our operating costs and what will be $250 million.

I would encourage the committee, as it considers this, to suggest
that there are billions of dollars at your level available out there
that can be reinvested. But you do not know about them until you
nominate Services for competition. To the extent that we study
them and try to determine the conclusion inherently does not take
advantage of the free market.

Mr. Horn. Let me ask you a few questions. And you mentioned,
Secretary Ybarra, about one employee. I’m interested in the ques-
tion of separation packages if part of a governmental group is dis-
banded when it goes into the private sector. And what about pen-
sion portability, and how the workers in general responded to these
efforts? I would just be curious, wanting to hear from both of you
since you're a little different in what you’re doing.

Ms. YBARRA. We, in Virginia in 1995, also had an incentive for
early retirement that was passed by the general assembly. In doing
so, we had just within the Virginia Department of Transportation,
for example, nearly 1,400 employees elected to choose that package,
and that was about 8 percent.

When you have that kind of change going on, you now need to
find efficient ways to manage. And we were not unusual across Vir-
ginia. I mean, we had one of the higher percentages, but we now
need to find ways to manage a streamlined work force.

And so when I say, not one lost their job because of the mainte-
nance contract, it is because we had taken a hit in that. This was
an opportunity to bring in a contractor who is an asset manager,
who would utilize the small businesses and effectively provide the
maintenance where I could then utilize the people in the mainte-
nance area without moving them, but utilize them in areas nearby,
and use them in the maintenance that they did best. So for us, that
all worked out about the same time.

Now, in the ESOP study that we’re looking at, that is something
totally different, but we have not finalized it. But we are looking
at some opportunities where there would be opportunities for the
State employees to take something out private, and what we need
to do to support that. We’re still drawing those conclusions.

Mr. Horn. In other words, that would be the pension situation.
How about the health care?

Ms. YBARRA. Yes.

Mr. Horn. How about the health care plan?

Ms. YBarRA. In terms of —

Mr. Horn. You've got an operation that’s been in government.
And you’ve contracted it out now to a private sector. It seems to
me that two things that disturb most people, including me, are,
one, what happens to the pension rights? Can you follow them? Or
can they continue to buy into a pension plan and get the same ben-
efits?

No. 2 is the health care coverage. If there’s something set up, so
they can buy into that if they want to go with the operation, and
you don’t have another place in the State of Virginia or the city of


105TH CONGRESS
nae WLR. 71

To require that the Federal Government procure from the private sector
the goods and services necessary for the operations and management
of certain Government agencies, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

Fepruary 12, 1997

Mr. Duncan (for himself, Mr. SHays, Mr. HavworTH, Mr. ROHRABACHER,
Mr. Porter, Mr. Stearns, Mr. CaNaby of Florida, and Mr. HERGER)
introduced the following bill; which was referred to the Committee on
Government Reform and Oversight, and in addition to the Committee on
the Budget, for a period to be subsequently determined by the Speaker,
in each case for consideration of such provisions as fall within the juris-
diction of the committee concerned

A BILL

To require that the Federal Government procure from the
private sector the goods and services necessary for the
operations and management of certain Government agen-
cies, and for other purposes.

1 Be tt enacted by the Senate and. House of Representa-
2 tives of the United States of America in Congress assembled,
3. SECTION 1. SHORT TITLE.

4 This Act may be cited as the “Freedom From Gov-
5S ernment Competition Act of 1997”.


174

billion) and the Department of Commerce ($4.3 billion).
3. Historical Data from the A-76 Proves that Outsourcing Saves 30%

Opponents of privatization claim that the savings from privatization are inflated.
Historical data, however, disproves their assertion. For instance, the data from the
implementation of the OMB's Circular A-76 indicates that when public-private competitions
are conducted, savings from the original in-house government cost are approximately 30%.
‘The OMB found that 40% of competitions resulted in the government retaining the work in-
house. A 20% savings resulted when the government won the A-76 competition. A 35%
savings was achieved when the private sector won the competition.

In 1987, OMB reported that the federal government spent more than $21 billion on
commercial services, such as automated data processing, aircraft repair, and food preparation.
Based upon the limited number of A-76 competitions performed between 1981 and 1986,
OMB reported $2.8 billion in cumulative savings and annual savings for the federal agencies of
$696 million. The $2.8 billion in savings represents approximately 13% of the total $21
billion spent on commercial services in 1987. ‘The $696 million in annual savings was derived
from A-76 studies conducted on approximately 72,000 positions. The savings were achieved
by studying only 9% of the 800,000 FTE positions targeted by the agency for review under A-
16.

Opponents of privatization may criticize the data from the A-76 studies, however, most
of the problems have been attributed to an agency's inability to collect or analyze cost
information. Recent testimony by the GAO cited improper contract administration, including

poorly worded performance work statements, as reasons leading to unnecessary cost


163

did not do is retroactively apply this new and more formal cost comparison requirement to
agencies that are currently obtaining a commercial support service from another Department or
agency, in accordance with the Economy Act, the Federal Property and Administrative Services
Act or the Government Management Reform Act.

‘The decision to not require cost comparisons for existing ISSA workload has been all too
often misunderstood. Two factors were involved in this decision. First, we believe that the
budgetary and other reinvention incentives noted above will encourage customer agencies to seek
lower cost and best value support service offerors. As they do, A-76 cost comparisons for new or
expanded ISSA relationships will increasingly be conducted for existing ISSA workload. It also
makes little sense to delay significant reinvention opportunities, in order to conduct an A-76 cost.
comparison, if the function, its mission or the general approach to meeting service requirements
could be fundamentally changed. Second, as existing ISSA service providers face more and
more direct competition from other public and private sector offerors, they too will test and
improve their in-house and contract mix to reduce costs and to improve their competitive
Position, in order to preserve their workloads. In effect, the Circular does not need to directly
require cost comparisons for existing ISSA workload. The forces of the market will require that
these cost comparisons will be appropriately conducted.

7. “How often are commercial activities that stay within the government after an A-76
recompeted? How many activities have actually been recompeted in the past 10
years?”

Part 1, Chapter 1, paragraph c.1.c. of the August 1983 Supplemental Handbook refers to
the need to review each commercial activity retained in-house once every 5 years. These reviews «
are not, however, synonymous with a requirement to conduct a cost comparison. They were
simply a review of the agency's commercial activity inventory designation, to determine whether
or not the function continued to be subject to possible outsourcing or cost comparison. Today,
workload that is retained in-house, as a result of a cost comparison, is subject to audit and
possible recompetition, under the Post-MEO Performance Review requirements of Part 1,

Chapter 3, paragraph L. of the March 1996 Revision.

‘Asa general matter, the decision to submit in-house performance to cost comparison has
been left to the discretion of the agency. The incentives generated by the Balanced Budget Act
and the other incentives noted above will continue to put pressure on agencies to consider
‘outsourcing and to identify the lowest cost, best value providers of support services.

8. “How does OMB enforce A-76, In other words, how does OMB compel agencies to
conduct A-76 reviews?”

While OMB exercises oversight of agency compliance with its policies and procedures,
OMB does not compel agencies to conduct A-76 cost comparisons. As provided by the Circular
and the March 1996 Revision, these decisions are discretionary, unless an agency decides to

5


72

implementation of the Results Act; the Act focuses on what activities the government
should or should not be performing from the perspective of overall contributions to
missions and goals, while the bill addresses how and by whom those activites should
be performed. Under the provisions of the Results Act, agencies are required to set
their strategic direction through multiyear strategic plans, develop annual goals, and
report on performance against those goals. Agency strategic plans and performance
measures are intended to provide Congress with a vehicle for asking fundamental
questions about federal functions and their performance. In our recent reports on the
implementation of the act, we have found that many agencies are not yet well
positioned to specify their plans and strategies in terms of tangible results.>

If enacted, the bill's implementation will occur as agencies are going through their
first cycle of planning, measuring, and reporting on program performance, as called
for under the Results Act. The bill would amend the Results Act by requiring, among
other things, that agencies include in the annual performance plans and reports that
they submit to Congress (1) inventories of functions that are and are not subject to
the Freedom From Government Competition Act's provisions and (2) a schedule for
converting to private sector performance those functions capable of, but not currently,
being performed by the private sector. Requiring agencies to specify the activities
they would perform directly, and those they would convert to private sector
performance, is consistent with the Result Act's strategic planning requirements.

If Congress chooses to enact H.R. 716, an opportunity exists to further integrate
implementation of the bill's provisions with the Results Act. A key provision of H.R.
716 requires OMB to create a methodology for making determinations on what types

Managing For Results: Cri es
(GAO/GGD-97-180, Sept. 16, 1997);
: ion Wi

(GAO/GGD-97-109, Jun. 2, 1997).

7


27

the legislation recognizes its importance and encourages the federal government to support
policies that will facilitate employee transition. Wholesale displacement of government
workers is neither the intent nor the possible outcome of my legislation. Clearly, given their
knowledge and skill base, direct dismissal of federal employees would be counterproductive to
successful transfer of commercial functions to the private sector.

This June, the Subcommittee on Government Management of the U.S. Senate Goveramental
Affairs Committee held a hearing on this legislation. It clearly demonstrated that outsourcing
works at the state and local level and it can work for the federal government too. I am
hopeful the full Senate committee will act on the bill in the near future.

Tam certain that we will hear from OMB today that this bill is not needed. However, a
review of OMB’s most recent A-76 commercial inventory reveals that many agencies don’t
take the A-76 process seriously. For example, the U.S. Environmental Protection Agency
(EPA) claims that all 18,000 of its employees are doing inherently governmental work.
‘Among the commercial activities EPA provides for itself include environmental laboratory
testing, engineering and mapping services. Another problem with OMB's commercial
inventory is that several major departments aren’t included, such as the Commerce
Department. It is obvious OMB does little oversight on this important issue and doesn't have
any enforcement authority 10 make A-76 work. That is why a statutory provision is needed to
solve this problem.

In fact, at the June hearing, Senator Brownback and I asked several questions of OMB Deputy
Director John Koskinen that he was unable to answer. However, Mr. Koskinen said he would
get that information to us quickly. After a month of receiving no answers, Senator
Brownback followed up with a letter. As of yet, Senator Brownback and I have not received
any information from OMB. If OMB’s management of A-76 and outsourcing was as good as
‘Mr. Koskinen claimed it was, we would have had those answers in 24 hours. Therefore I
suggest this subcommittee ask the same questions, which I have attached to my testimony, of
OMB and perhaps we will get some answers this time. This lack of oversight and
enforcement of the A-76 process is making unfair government competition with the private
sector worse and leads me to the conclusion that a legislative solution to this problem is
necessary.

Another objection OMB will make today is that passing this legislation will invite lawsuits
from private sector businesses and labor unions that will tie up the process indefinitely.

While I share OMB's dislike for lawsuits, I do not share the belief that a tax paying citizen
should lose his job because the federal government ran him out of business without the option
of judicial recourse. The fact is that judicial review has been a part of several recently
enacted laws like the Regulatory Flexibility Act and there haven't been any problems.

Mr. Chairman, this legislation will create jobs, help small businesses, save taxpayers’ money
and bring about a federal government that works better and costs less. It will create a
statutory provision to provide the best value commercial goods and services to American
taxpayers. It will ensure that the federal government utilizes the expertise available in the
competitive private sector to provide for its commercial needs. I look forward to working


10

Responding to the need for such a centralized structure, H.R. 716 requires OMB to
issue regulations and to establish a new "Center for Commercial Activities," which is

given responsibility for

+ implementing the requirements of the legislation;

* ensuring compliance by agencies; and

* providing guidance, information, and assistance to both private and public
sectors.

OMB is given wide latitude as to what regulations it will issue and what they will
contain. This grant of broad authority affords OMB flexibility in implementing the
legislation. However, given the wide latitude that OMB is afforded by the bill, issues
will inevitably arise during implementation that will have to be dealt with by OMB.

These issues could include such questions as

© Whether government corporations, federally funded research and development
centers, state governments, or even the U.S. Postal Service should be included
within the definition of "private sector sources" and thus eligible to compete for
the government's contracts.

* Whether public buildings would need to be sold to the private sector in order to
house federal employees.

© How OMB will incorporate congressional views when significant or highly

sensitive conversions are proposed.

Given concerns such as these, Congress will need to oversee OMB's performance of its
responsibilities. The strategic and annual performance plans and annual report that
OMB is to produce under the Government Performance and Results Act, provide a

mechanism for such accountability. OMB could include in its strategic plan an

5


146

ENCLOSURE

OMB RESPONSES
TO
SENATOR BRGWNBACK'S QUESTIONS OF AUGUST 21 AND AUGUST 28, 1997,
IN RESPONSE TO THE SENATE SUBCOMMITTEE ON THE OVERSIGHT OF
GOVERNMENT MANAGEMENT HEARING OF JUNE 18, 1997,
ON
S. 314, "THE FREEDOM FROM GOVERNMENT COMPETITION ACT OF 1997."
OCTOBER 10, 1997

From Senator Brownback’s letter of August 21, 1997,

1. “During the question and answer period Deputy Director Koskinen agreed with me that
the NOAA fleet offered a good opportunity for contracting out... For example,
‘Commerce CFO Ray Kammer and NOAA Admiral William Stubblefield informed us that
it was NOAA's intention to contract out 50 percent of NOAA's charting and mapping
work by way of the A-76 process. What progress is being made in that area by
Commerce, what milestones are scheduled and when will they be met?”

Response

In his letter 10 you dated August 28, 1997, Secretary Daley stated that "significant
progress has been made toward contracting for at least 50 percent of mapping and charting
activities." Secretary Daley noted that NOAA has deactivated two NOAA hydrographic survey
vessels and has contracted for hydrographic surveys in several locations. The A-76 cost
comparison of the NOAA ship KA'IMINOANA is scheduled for completion in January 1998.
‘We support the Department's efforts and believe that these and other efforts will result in
significant savings as we expand our capacity to meet hydrographic survey requirements.

Our goal is to optimize the use of both public and private sector resources by selecting the
highest quality, most cost-effective sources to meet current and future requirements. We are
using best value techniques to evaluate both the public and the private sector offers. We are
changing our buying behavior in ways that significantly reduce risk on the taxpayer and ensure
that contractors are providing products and services with the best overall value for the dollars
mn Streamlining Act, the Clinger-Cohen Act and other
Administration reform initiatives are better enabling us to make more efficient and effective use
of marketplace competition and financial incentives, This, in turn, is putting us in a stronger
Position to get more from our in-house and contract dollars.



63

We will begin this with Mr. Stevens, the Director of the Federal
Management—well, I think what we want to do is get a dialog
here, No. 1. And I would like the General Accounting Office to lay
out what they have found, and then we will have Mr. DeSeve, or
OMB, and we will also have then Mr. Harnage for the American
Federation of Government Employees. At that point, we should
have most of the issues on the table and be able to deal with them
in a dialog, which is what I would like to do.

I want to say to Mr. DeSeve, I thank you in advance for your tes-
timony next Monday on the Results Act and your help in securing
Director Raines’s participation. So thank you.

Mr. DESEVE. Thank you, Mr. Chairman.

Mr. Horn. Now, Mr. Stevens is the Director for Federal Manage-
ment and Workforce Issues in the U.S. General Accounting Office,
which, as most of you know, is the audit arm programmatically, as
well as fiscally, for the legislative branch to look at the executive
branch. So what good tidings do you have today?

STATEMENTS OF L. NYE STEVENS, DIRECTOR, FEDERAL MAN-
AGEMENT AND WORKFORCE, U.S. GENERAL ACCOUNTING
OFFICE; G. EDWARD DeSEVE, ACTING DEPUTY DIRECTOR
FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET;
AND BOBBY L. HARNAGE, SR., NATIONAL SECRETARY-TREAS-
URER, AMERICAN FEDERATION OF GOVERNMENT EMPLOY-
EES, AFL-CIO

Mr. STEVENS. I'll be very brief, Mr. Chairman, in part because
two of the six entities that we looked at in Virginia and Indianap-
olis you have discussed at some length here already.

Congressman Klug asked us a couple of years ago to look at the
privatization experiences of State and local governments, and we
zeroed in on five States—Georgia, Massachusetts, Michigan, New
York, and Virginia—as well as the city of Indianapolis, which real-
ly, in our consultations, turned out to be No. 1 in the estimation
of most of the analysts throughout the country. In general, we
found that those entities had learned six fairly common lessons to
all of them in their privatization initiatives or in the competition
initiatives that many of them turned into.

First, that they needed to have committed political leaders to
champion the initiative, and you saw Mayor Goldsmith here was
certainly one of those. They needed to establish an organizational
and analytical structure to implement the initiative, as you saw in
the example of Virginia and their competition council. They needed
to enact legislative changes or to reduce the resources that are
available to government agencies in order to encourage the greater
use of privatization. They needed to develop reliable and complete
cost data on government activities to support informed decisions
and to make these decisions both easier to implement and to justify
for potential critics—and there are critics out there.

They needed to develop strategies to help their work forces make
a transition to the private sector environment. And last, and per-
haps very importantly from GAO’s point of view, they found they
needed to enhance the monitoring and the oversight and the audit-
ing of these functions once they were privatized or contracted out
to ensure that the government’s interests were fully protected.


20

Mr. Horn. Does the gentleman from Virginia, Mr. Davis, have a
statement?

Mr. Davis of Virginia. Let me be very brief.

Mr. Chairman, you spoke in your remarks about examining sev-
eral key issues. Let me go through each of them.

First, what are the benefits and costs to the taxpayers. That
should drive this situation. We sometimes get caught up in set-
asides and protecting employees or privatizing that we forget the
bottom line that should drive this, are the taxpayers for their
money getting the best value at the cheapest cost? That is what we
ought to be asking. If we move away from that criteria in determin-
ing how government operates, I think we really get lost.

Second, should the government perform commercial tasks when
they are the most efficient provider. I think that goes back to the
first question. As we ask government to be more like a business,
we are finding more and more of these conflicts, where they start
taking inherently private sector business practices, and the private
sector says, gee, we can do that as well, that has to be sorted out.

Finally, I just want to say we are finding in an information age
today that in my district and in others across the country, as the
information age moves on, the largest asset and most important
asset of major employers in this country is not the patents they
hold, it is not the machinery or equipment, it is their people. We
at the Federal level have to recognize the investment we have in
our people, and the ying and yang that Federal Government work-
ers have faced over the last decade as they take a look at the insta-
bility in terms of: Are they going to have a job, or if they have a
job, what is the benefit structure going to be? The shutdowns and
everything else, has made it very difficult to recruit and retain
quality people. Whatever happens, we want to maintain a good
solid professional work force to get the job done.

But as government needs change and as our mission needs, we
need to look for partnerships with the private sector. I think we
can have an interesting discussion with what H.R. 716 has sug-
gested today, and I look forward to hearing from all parties. Thank

you.

Mr. Horn. I thank the gentleman.

I welcome the Senator from Wyoming, who used to be my next
door neighbor in Longworth. We are glad you went to a place
where you can speak any time you want as long as you want. We
will not impose the 5-minute rule on you, out of courtesy and def-
erence for your position, but we probably should if one has had now
2 years’ experience or so in the Senate. But welcome, Craig. We are
delighted to have you.

Since I was in town all weekend, I read every word you said as
well as every word everybody else is going to say around here.

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

Senator THOMAS. Wonderful. Thank you, Mr. Chairman. It is a
pleasure to be here. I will try to contain myself. We are, of course,
going ahead at breakneck speed over in the Senate to try to stay
ahead of you.


37

government employees as a valuable resource. When we moved
from a privatization model to a competition model, we did it with
our unions. We said no, we are not going to allow you to continue
to have a monopoly, but we will be far in allowing you to partici-
pate in competing. Many good ideas bubbled up through our union
workers.

In fact, what happened is that our workers are now spendii
more time in the core activities of government where they are goo
and less time in areas of government where they are not good. Rec.
ognizing the power of their ideas and the need for them to be em-
powered in the work force has been very valuable as well.

Fifth, I think we should look at outcomes—not only measuring
outcomes, but how we invest our dollars. For example, by
privatizing our wastewater treatment plant on a long-term con-
tract, we are going to end up saving approximately $250 million.
Well, EPA is now in a complicated conversation about how much
of that money would need to be repaid.

The question from the Federal Government ought to be, how
should we use those dollars to maximize the mission of the agency
involved? How can we have cleaner water? How can we have better
roads? The benefits of privatization and competition need to have
a face to them, and the face should be better infrastructure and
better quality of services, for less in terms of tax dollars.

Finally, and let me close on this, Mr. Chairman, it seems in
Washington the discussion ends up being the only way we can save
money is by cutting somebody's service; the only way we save
money is, some suggest, by hurting some constituent.

It is very important, I think, to point out that for every one of
the activities that we have competed out, the price has gone down
and the quality and quantity of the service has gone up. In fact,
these are connected. By using the market force and the value of
competition, we are able to save money and enhance services at the
same time. Our water is cleaner; our roads are better; our parks
are more neatly mowed; and the services put on at our community
centers involve and benefit more people.

As you look at this piece of legislation, I think even more impor-
tant than preventing the government from intruding in the private
marketplace—even more important than saving money—is the fact
that we are able to improve the quality of services for American
taxpayers and reduce their bottom line at the same time.

ank you very much, Mr. Chairman.

Mr. Horn. We thank you. That is an excellent statement that
you have made. Do you have time to wait for the questions? I
would like to get the State perspective here.

[The prepared statement of Mr. Goldsmith follows:]


157

Bureau of Reclamation, Pacific Northwest Regional Office*

Formal A-76 cost comparison study was performed which supported Bureau decision to
contimue to provide in-house aircraft services with Government-owned aircraft. As 2
result, the cost study justified the bureau's decision to purchase the aircraft.

Office of Aircraft Services, Boise, Idaho

Interior’s Office of the Inspector General performed a follow-up review of the 1993 A-76
study performed on aircraft use and acquisition of 5 types of aircraft. The review
‘confirmed the decision that government use and ownership of aircraft was more cost
‘National Park Service, Southeast Regional Office*

Formal A-76 cost comparison study was performed to justify aircraft replacement and
retained in-house use by the Park Service.

EDSCAL YEAR 1996:

Office of Aircraft Services, Aircraft Maintenance, Anchorage, AK

Number of cost comparisons initiated. One
‘Number of FTE included. Tea
‘Number of cost comparisons and direct conversions completed. One
Number of FTE outsourced or retained in-house.
Ten FTE retained in-house after uo commercial responses were received.

EISCAL YEAR 1997:

/

Office of Aircraft Services

Formal A-76 cost comparison study was performed to determine whether a specific type
of replacement aircraft would be a suitable replacement to perform mission
requirements, Cost study replacement aircraft acquisition was justified. Action to obtain
the aircraft is subject to the availability of a surplused aircraft.

Denotes technical assistance was provided by the Office of Aircraft Services in accordance with
OMB Circular A-126, “Improving the management and Use of Government Aircraft” guidelines,


57

Mr. Horn. I yield to Mrs. Maloney.

Mrs. MALONEY. Just very briefly, I would like to ask the mayor:
You state in your testimony that the number of city workers, ex-
cluding police officers and fire fighters, has dropped by nearly 45
percent in Indianapolis. And just two brief questions: What is the
percentage, including police and fire fighters? Have you ever con-
sidered privatizing police and fire fighters? If you haven’t, why not?
Just your comments.

Mr. GOLDsMITH. I have considered it momentarily.

Let me first put in context the 45 percent reduction. We have
had no involuntary layoffs of union workers. Our unions have been
willing to participate and compete. We have had attrition, some
moderate layoffs, and some outplacement of middle managers.

And what's happened, in government in particular, is that man-
agers tend to make the workers less efficient, not more efficient. So
you are not only raising their cost, you are reducing their produc-
tivity.

As we have been able to attrit and outplace the managers, the
union workers have more empowerment, more pay, better perform-
ance, and lower costs at the same time. So the figure is a bit mis-
leading, although it is true.

As for police and fire, because they inherently affect the public
safety, we have turned to outsourcing their support services, rather
than the police officer on the street. Now, as a practical matter, as
you know, whether it is in Indianapolis or New York City, there
are tens of thousands of private police officers just hired by private
companies. But our perspective has been to outsource the support.
services. The good news has been that it has allowed us to drive
more money into street officers because we are more efficient in the
noncore activities.

Mrs. MALONEY. Very briefly, Ms. Ybarra, you mentioned that
Virginia is studying employee stock ownership plans as a potential
way of privatizing selected State services. Could you give us a pre-
view of the study’s results? And I would love to see a copy of it or
maybe submit it to the committee when it’s completed in Decem-

r.

Ms. YBARRA. It’s very close to being complete. I would be de-
lighted to submit it to the committee. It will be formally presented
in about 2 weeks. So I think the record will still be open.

[NoTE.—The information referred to may be found in subcommit-
tee files.]

Mrs. MALONEY. And could you give us a preview of what the re-
sults are in the study?

Ms. YBarRA. I think I would rather hold on to that.

Mrs. MALONEY. Thank you.

Mr. Chairman, I have no further questions. I yield back the bal-
ance uf my time.

Mr. Horn. I thank you very much. I have a few more questions
to go here.

‘ou’ve answered the one on the absorption of union employees.
Now, Virginia is a right-to-work State; is that correct?
Ms. YBARRA. That’s correct.
Mr. Horn. Do you have any unionized State employees?


23

Employee transition has been a major factor of every major pri-
vatization and outsourcing determination. That is why the legisla-
tion recognizes its importance and encourages the Federal Govern-
ment to support policies that will facilitate the employee transition.
Wholesale displacement of government workers is neither the in-
tent nor the possible outcome of this legislation.

Clearly, with their knowledge and skill base, the direct dismissal
of Federal employees would be counterproductive. The bottom line,
of course, is having said that, we have to understand that it is not
the role of the Federal Government to provide jobs, but it is to pro-
vide efficient services and we ought to Keep that in mind.

This past June the Subcommittee on Government Management
of the U.S. Senate Governmental Affairs Committee held a hearing.
It clearly demonstrated that outsourcing works at the State and
local level; it can work for the Federal Government, too. I am hope-
ful the same full Senate committee will act on the bill in the near

ture.

I am certain we will hear today from OMB that this bill is not
needed. However, a review of OMB’s most recent A-76 commercial
inventory reveals that many agencies don’t take the A-76 process
seriously. For example, the U.S. Environmental Protection Agency
claims that all 18,000 of its employees are doing inherently govern-
ment work. However, among the commercial activities EPA pro-
vides for itself include environmental laboratory testing, engineer-
ing, and mapping services.

Another problem with OMB’s commercial inventory is that sev-
eral major Departments are not included, such as the Commerce
Department. It is obvious OMB does little oversight on this impor-
tant issue and doesn’t have any enforcement authority to make A—
76 work. That is why statutory provision is necessary.

In fact, in the June hearings, Senator Brownback and I asked
several questions of OMB Deputy Director John Koskinen that he
was unable to answer. However, he said he would get the informa-
tion for us quickly. After a month of receiving no answers, Senator
Brownback followed up with a letter. As of yet, Senator Brownback
and I have not received anything from OMB. If OMB’s manage-
ment of A-76 and outsourcing is as good as it is claimed to be, we
would have had those answers in 24 hours.

Therefore, I suggest to this subcommittee, ask the same ques-
tions which I have attached to my testimony of OMB and perhaps
we will get some answers. This lack of oversight and enforcement
of A-76 is making unfair government competition with the private
sector worse and leads me to the conclusion that a legislative solu-
tion is necessary.

Another objection OMB will make today is that passing the bill
will invite lawsuits from the private sector business and labor
unions that will tie up progress indefinitely. While I share the dis-
like for lawsuits, I don’t share the belief that a taxpaying citizen
should lose his job because the Federal Government ran him out
of business without giving him the option of judicial recourse. The
fact is that judicial review has been a part of several recently en-
acted laws like the Regulatory Flexibility Act, and there hasn’t
been great problems.


144

Mr. DESEVE. It has also been testified to here today that approxi-
mately 40,000 jobs at DOD, that number may be a little high, are
in the midst of undergoing the A-76 process. So, as a percentage,
that is a good start, but it is not the end of the day. So I think
where there is a focus on A-76, it is working. Your question I think
is a good one: why isn’t there more of a focus within the agencies?

I am going to ask that question more directly myself, because
this hearing has prompted me to review the data more thoroughly.
We have currently asked, at the request of Senator Brownback, for
an inventory. It is in the letter that you discussed. The material
for the inventory is in. It was supposed to come in 2 weeks ago;
but it is now in. We are compiling that information. I would like
to, if the record stays open long enough, supply that for the record,
because I think it will begin to shine a spotlight on this issue.

Mr. HorRN. Without objection, it will go at this point in the
record. Can you do it in 2 weeks?

Mr. DESEVE. Let me ask the guy who is really going to do it, who
is a civil servant. He tells me we can.

Mr. Horn. Thank God there are a few still down there.

{Note.—The USDA's inventory of commercial activity may be
found in subcommittee files.]

[The information referred to follows:]


90

in-house resources. The Federal Procurement Data System provides information regarding that
work which is currently performed by contract. This information is available to the public upon
request and private sector companies are free to make offers to perform commercial work. Taken
in combination with the work we are doing to improve Federal financial management and the
implementation of FASAB requirements, we believe that this process, in combination with the
cost comparison process itself, will become more complete and easier to implement. A legislative
mandate for this information is not required.

We are very concerned that H.R. 716 may give the private sector and the employee unions
new statutory rights to review agency inventories, schedules and other information and to seek
judicial or other reviews of agency determinations with respect to whether a function is inherently
governmental, commercial or has otherwise met the cost effectiveness standards of the statute.
These reviews will delay, not expedite, the needed competitions.

We are concerned that the statute provides very limited exemptions from the requirements
to rely on the private sector, including limiting the Government's existing flexibility to convert to
or from in-house or contract performance, without cost comparison. The exemptions from full
reliance on the private sector are limited to: (1) inherently governmental functions, (2) functions
related to national security, (3) when a best value cost comparison determines that in-house
performance is more cost effective, or (4) there is no private sector offeror to perform the work.
Ironically, cost comparisons would be required under H.R. 716 that are NOT required under
OMB Circular A-76 to award to predominately small businesses, including provisions for
conversions of: (1) procurement preference eligibles, (2) functions involving 10 or fewer FTE, (3)
functions involving 10 or more FTE with placement, (4) military positions and (5) functions
covered by agency waivers. Concer for core agency functions, the need to retain a minimum
level of technical and engineering competencies, flexibility to meet research and development
needs, emergency capabilities and related workloads are not addressed by the legislation and
could be read to preclude these considerations

We are, in fact, concerned that H.R. 716 may adversely affect our ability to expand
contracting with small businesses. In many cases, it is only because of our current mix of
technical in-house, reimbursable and contract resources that small businesses are eligible to
participate as direct prime contractors to the Federal Government. The H.R. 716 requirement to
convert all work to contract performance, unless otherwise justified on the basis of a best
value/past performance competition, could result in fewer and fewer opportunities for small
business participation.

Finally, we are concerned that H.R. 716 would mandate specific cost comparison
requirements, Indeed, it specifically amends the March 1996 Supplemental Handbook by
changing the costing and bid evaluation rules that were so carefully set out through public review

5


172

services in a variety of jurisdictions around the country. The study found that of the 2,213
government workers affected over a five-year period by the privatizations, only 7 percent were
laid off. Over half of the workers (58 percent) went to work for the private contractor; 24
percent of the workers were transferred to other government jobs; and 7 percent of workers
retired.

‘These findings are similar to those of other studies examining job displacement from
Privatization. A 1985 General Accounting Office (GAO) study found that of the 9,650 defense
employees affected by contracting out, 94 percent were placed in other government jobs or
retired voluntarily from their positions. Of the 6 percent of displaced employees, half obtained
jobs with the private contractor.

COST SAVINGS

Outsourcing by the private sector has proven to be successful. On average, the private
sector records savings between 10-30% when it outsources commercial activities. Data
illustrates similar savings potential within the Federal government. In fact, the Office of
Management and Budget, the Grace Commission and the President's Council on Management
Improvement all indicate that current government service contracting is already saving the
American taxpayer $3-5 billion annually, with the potential savings of $15 billion, or more,
per year.

1. Conservative Extrapolation of OMB Numbers Reveals H.R. 716 Saves

Approximately $10.4 Billion

‘A 1987 report by the Office of Management and Budget (OMB) estimated that
approximately forty percent of the two million full time employee (FTE) positions in the


44

1LR. 716 is a start in the process of improving the quality of government services while at
the same time lowering the cost. As a companion effort, I suggest that it is important to
identify the myriad legal, systemic, cultural, and organizational barriers that exist to
improving further governmental efficiency. These barriers exist not only at the federal
level, but also at many state and local levels. ‘To that end, I have suggested to Speaker
Gingrich that a commission be formed specifically to identify obstacles 1o rcal
competition and, where appropriate, privatization. That commission would then
recommend specific solutions to those barriers. 1 sec that commission serving as a focal
point for the good work that the caucus has already undertaken under the outstanding

leadership of Congressman Klug.

Thank you for the opportunity to be here today.


85

Mr. Chairman, that concludes my statement. I would be happy
to address any questions.

Mr. Horn. We thank you for your statement.

[The prepared statement of Mr. DeSeve follows:]


176

an agency can bid on contracts that are unrelated to its core mission especially when it does not
have to consider cost and past performance.

Because of the prevalence of unfair competition, all three sessions of the White House
Conference on Small Business (1980, 1986, and 1994) have identified unfair government
competition as one of the top issues impacting small business. The commercial activities of the
federal government that are in direct competition with the private sector run from the mundane
to very hi-tech. Some of the industry examples where government competition is occurring
include: training and education, office supply sales, laboratory testing and analysis, motels,
campgrounds, janitorial services, landscaping, flag making, furniture making, architecture-
‘engineering, helicopter and fixed-wing aircraft operation, campgrounds, audio/visual services,
food preparation and serving, real estate appraisals, bill collection, photo processing and
warehousing. The list of examples of government competition with private firms goes on.

IMPROVEMENTS IN THIS VERSION

‘This year’s version of the Freedom From Government Competition Act is practical and
adequately addresses previous concerns. The major changes include the following: (1) The
creation of a Center for Commercial Activities under OMB; (2) The addition of managed
competition through “best value” language; and (3) The inclusion of the outsourcing reporting
requirements under the Government Performance and Results Act (GPRA).

‘The creation of the Center for Commercial Activities was an important addition to this
year’s legislation because it provides information to agencies and the private sector entities and
facilitates conversions from the federal government to the private sector. The addition of


62

last—I don’t know, what was it—Wednesday, with the District
manager up here, of things that Virginia could do to improve ac-
cess, egress, and movement to the 14th Street Bridge, and some
suggestions that we would make in working with the District, of
things we could do. We understand the issue very well.

Mr. Horn. Well, just let me repeat the issue to make sure we
understand it, because I think I mentioned this a year ago in the
Committee on Transportation, on which I serve, when you ap-
peared, or the Secretary, at the time. And it is that connection be-
tween the George Washington Memorial Parkway and that bridge
is a killer connection. I don’t know how many have died there al-
ready. But it isn’t for anything that we did to prevent it, because
those cars are coming 55 miles an hour down that hill across that
bridge, and here comes the George Washington Parkway lane when
you're going toward Mount Vernon, and you want to connect to the
District of Columbia. Try it sometime; I think you——

Ms. YBARRA. I know exactly.

Mr. Horn [continuing]. You or the Governor would authorize it
if you had to drive it 10 times a day or whatever. That needs fix-
ing. I say to my colleague and we get the lousy tea, whatever,
ISTEA, we're going to get that in if I have anything to say to it.

Mr. Davis. Since the gentleman is on the Transportation Com-
mittee with me——

Mr. Horn. I am.

Mr. Davis [continuing]. He will work with me.

Mr. Horn. And I’m on the right subcommittee, too.

Ms. YBarrRA. And, Congressman Davis, we might want to provide
the chairman with a copy of that report that we presented to you.

Mr. Davis. He’s also on our District Subcommittee, as well.

Mr. Horn. I'll get you one way or the other to get that bridge
built, or that link; it’s a link there. Sorry to get parochial, but I
want to save a few lives here, including my own.

Now, that would be the last point I have on that. And I just want
to thank you both, because you both have given a terrific perspec-
tive here as to what can be done in State government and what can
be done in the city of Indianapolis.

I’m delighted to see you, mayor. You’re a dynamic person, and
the previous mayor, that I thought 30 years ago should have been
a national figure, was one, Ric! Lugar, who President Nixon
kept saying was his favorite mayor. And if he had put him on the
ticket, history would have been different.

Mr. GOLDSMITH. Thank you very much.

Mr. Horn. Hang in there.

Mr. GOLDSMITH. Thanks for your courtesy.

Mr. Horn. You’re welcome.

Ms. YBARRA. Thank you.

Mr. Horn. OK.

What we're going to do now is combine the last two panels—the
GAO, OMB, and the employee union.

OK, gentlemen, as you know, if you’ll stand and raise your right

s.
[Witnesses sworn.]
Mr. Horw. All three affirm, the clerk will note.


86

STATEMENT OF
G. EDWARD DESEVE
ACTING DEPUTY DIRECTOR FOR MANAGEMENT
OFFICE OF MANAGEMENT AND BUDGET

BEFORE THE
HOUSE SUBCOMMITTEE ON
GOVERNMENT MANAGEMENT, INFORMATION AND TECHNOLOGY
REGARDING
H.R. 716, “THE FREEDOM FROM GOVERNMENT COMPETITION ACT”

INTRODUCTION

Mr. Chairman, I am pleased to discuss with you today the provisions of the proposed
“Freedom from Government Competition Act of 1997," HLR. 716, “a bill to require that the
Federal Government procure from the private sector the goods and services necessary for the
operations and management of certain Government agencies, and for other purposes."

The challenge of managing in a balanced budget world is to provide a Government that
‘empowers its employees, works better and costs less. Other institutions around the world, in the
public and in the private sector, have risen to this challenge. Governments and corporations have
found that it is possible to improve the level and quality of services and at the same lower their
costs through competition. The Vice President’s National Performance Review (NPR) has laid
the groundwork for bringing the Federal Government into this new era. Over the last four years,
the NPR has developed a range of management “tools,” techniques and strategies that agencies
have been encouraged to use to save, redirect and extend current budgetary resources to protect
the priorities of the American people.

We too are anxious to ensure that the Government improves its performance and operates
as efficiently as possible. Our guiding principle for determining when the Government engages in
‘commercial activities and when it considers outsourcing, privatization or competition is to ensure
that we get the best deal possible for the American taxpayer. The Federal Government is a big
operation and agencies provide a vast array of services to internal and external customers as well
as directly to the public at large. In providing these services, agencies should accelerate the use of
competition by cross-servicing with other Federal agencies or by purchasing directly from the
private sector. :

Mandates that require performance by in-house or contract employees are not helpful.
Competition encourages and empowers employees to reinvent themselves to become competitive,
reduce costs and meet generally recognized performance standards. This effort alone results in


121

Biography of Bobby L Harnage
National Secretary-Treasurer of the American Federation of Government
Employees, AFL-CIO

Bobby L. Harnage is the seventh National Secretary-Treasurer of the American
Federation of Government Employees, AFL-CIO, the largest union for federal workers,
representing over 700,000 government employees in some 1,200 locals in the United
‘States and overseas, as well as the District of Columbia.

Hamage was elected National Secretary-Treasurer at the AFGE National
Convention on August 28, 1991, and was overwhelmingly re-elected to serve another
three-year term in 1994. Prior to his election as National Secretary-Treasurer, Hamage
served as District 5 National Vice President in Atlanta, Georgia. During that 13-year
period, from 1978 to 1991, he represented federal workers in the states of Alabama,
Georgia, Florida, South Carolina and Tennessee. He was a member of the Labor
Advisory Board, Center for Labor Education and Research at the University of Alabama
in Birmingham and served on the Board of Directors of the Atlanta Metropolitan Area
American Red Cross. Harnage is currently the senior member of the Federation's
National Executive Council (NEC) and serves as Chair of the NEC's Privatization
Committee.

28


124

fe, DEPARI MEN OT 15 nun i .
[1 Puseoyeres te Stacie wees |

| eae !

W ae .
S: 26 June 1996 WO

III Corps and Fort Hood,
TX 76544-5000
me

1 is receiving increased emphasis as the Army
amliine support activities and achieve cost savings
nirlg services in an environment of greatly reduced
resources/ The CA program provides an approach to achieve these
savings whether the work remains in-house or is contracted.

2. The Army hag been tasked to study CA functions totaling
16,000 spaces. ‘Forces Cammand’s share (DA directed) is 4700
spaces (1500 in'FY 96 and a total of 3200 in FYs 97 and 98).
Installation input to date is only 33 percent of our share.

3. To ensure support of the Army’s privatization effort, we have
established installation quotas. Based on a review of the FY 95
CA inventory, your fair share’ is 767 spaces. You have currently
identified 645 spaces for study. We need you to increase the
number of spaces identified for study by 122 in FY 98 {encl).
Submit the functions you select and associated spaces to this

_— ;
‘informed the services and agencies that *séed_
fmoney” will become available beginning in FY 97. These funds ~
Ga be distributed in the amount of $1000 per space based on !
fficial notification of FY 96 studies. -

5. For more information, contact Mr. David Mayes, DSN 367-6254.

FOR THE COMMANDER:
lon, | Ly
se Wile igund € nat Loewe Dob
Ke Bamgs assigned Lieutenant General, USA,
aequitenl for each
mein goer 202, x atoat, Lhaatlg B a coiboct at
decaim. Yout alead f mee? eompme ; past need
a few mene on FF. Lge 2 1.



31

Mr. Horn. If you have some time for questions, there are a few
things we would like to clarify for the record.

The first one you answered for me, but I am going to put it just
to get it in the record. Your bill requires agencies to use the private
sector unless best value is provided by a Federal agency source.
This seems to establish a process to ensure public-private competi-
tion, rather than prohibiting. Is this characterization correct?

Senator THOMAS. Yes, sir, Mr. Chairman, it is correct. It is really
the point. The point is not to ensure that the private sector gets
it regardless of their performance, but to set up a system where
you look not only at the cost, but in this case also prior experience,
history, and what we are looking for is a better value for the tax-
payers.

Mr. Horn. I am putting the light system on for me, not you.

Let me ask you. This is the hard question I think to illustrate
a point. Currently, the Federal agencies purchase air fares through
a central government contract negotiated by the General Services
Administration, GSA. They are flexible, they are at a fixed price,
and heaven knows they are cheap. Now, do you use those air travel
contracts to get back to Wyoming, or do they have one for Wyo-
ming?

Senator THOMAS. Well, I will tell you what, I am glad you men-
tioned that. I happen to be hung up about it at the moment. The
contracts, yes, I do use them, and something I don’t understand,
which is irrelevant, is somehow I can’t fly direct from Dulles to
Denver. I have to go through Chicago in order to get the better
price. Nevertheless, the answer to your question is yes.

Mr. Horn. Yes. The obvious question, then, is do these General
Services Administration contracts compete with what a travel
agent could provide?

Senator THOMAS. They do, of course. Travel agencies, travel, if
there was ever a commercial enterprise, I should say that would
certainly be it.

Mr. Horn. You admitted it is a good deal and we save the tax-
payers money?

Senator THOMAS. But I don’t say it couldn’t be done better.

Mr. Horn. If somebody wants to try, great?

Senator THOMAS. Absolutely.

Mr. Horn. That is what your bill provides?

Senator THOMAS. Sure.

Mr. Horn. Take the best deal.

Senator THOMAS. If the way it is being done now is the better
way to do it, all we are asking for is the private sector to have a
chance on a fair, level playing field to compete.

Mr. Davis of Virginia. Could you yield on that? I think that the
contract you are talking about, just like FTS 2000 and some of
these, are governmentwide competitive contracts. Would they be
exempted under your bill? FTS 2000 was competed government-
wide. It is a lot of private sector groups and GSA administering it.
How would this legislation affect that?

Senator THOMAS. We don’t go specifically into each of these situa-
tions, but we say there needs to be a process of competing them.
You indicate they have already been through a competitive process


156

Attachment
A-76 COST COMPARISON AND DIRECT CONVERSION DATA.

EISCAL YEAR 1992:
Bureau of Land Management, Oregon State Office
‘A-76 cost comparison study was performed to determine the most cost effective
acquisition alternative for providing aircraft services for the Oregon State Office. Based
on the study results, BLM awarded a lease/purchase agreement to satisfy its aircraft
‘operational needs.
EISCAL YEAR 1993:
Office of Aircraft Services, Boise, Idaho
Formal A-76 cost comparison study was performed to determine whether it was more cost
effective to use and acquire 5 different types of aircraft than to lease the same aircraft to
accomplish mission requirements. The acquisition option selected was deemed to be the
most economical and cost efficient approach.
EISCAL YEAR 1994:
Bureau of Land Management*
Formal A-76 cost comparison study was performed to determine and support justification
of government use and ownership of existing aircraft. Bureau aircraft use justified.
EISCAL YEAR 1995:
Bureau of Reclamation, Aviation Support Activity
‘Number of cost comparisons initiated. One
‘Number of FTE included. Two

Number of cost comparisons and direct conversions completed. One
Number of FTE outsourced or retained in-house. Two FTE retained in-house


179

ACSM Statement on H.R. 716, Freedom From Government Competition Act
September 29, 1997
Page 2

agencies, ACSM also can contribute to the debate from its experience over the past two
years in generating a nonpartisan study of the appropriate future roles of government and
the private sector in surveying and mapping. Scheduled for completion this fall, the study
on "U.S. Geographic Information Resources” is being conducted by the National Academy
of Public Administration (NAPA), a policy analysis organization chartered by

The study will include a discussion of outsourcing that ACSM believes will prove helpful
to the subcommittee as it examines H.R. 716.

H.R. 716 provides a framework for determining whether a given service or product should
be supplied by agency staff or outsourced to a private firm. Essentially, all goods and
services are to be outsourced unless they are inherently governmental or should be
provided in-house for reasons of national security, best value, or because private sector
sources are inadequate to satisfy an agency’s requirements. While the bill’s framework is
helpful, ACSM believes it is impossible to determine H.R. 716’s real-world impact,
particularly on services provided to the public by technical professions such as surveying
and mapping. For technical fields, H.R. 716 raises important questions about agencies’
roles as providers of base data, ownership of data, maintenance of agencies’ core
capabilities, and other issues.

ACSM Opposes Enactment of H.R. 716

ACSM supports having increased opportunities for its private sector members to contract
with government agencies to perform surveying and mapping. ACSM opposes enactment
of H.R. 716, however, because the potential impact of the measure is largely unknown.
We are concerned that enactment of H.R. 716, without further assessment of its potential
impact, could disturb the interdependent relationship that exists between government
surveying and mapping agencies and private sector professionals, perhaps disrupting the
nation’s access to timely, accurate geospatial data. We also believe that H.R. 716
proposes a broad-based solution to procurement situations that are best addressed on a
targeted basis.

Before enactment of H.R. 716 is pursued, ACSM believes Congress needs:

‘= More information on the appropriate roles of government and the private sector in
technical fields such as surveying and mapping;

= A better understanding of procurement decisions at the individual agency level. If
agencies are inappropriately competing with the private sector, whether through
interservice support agreements (ISSAs) of in-house procurements, ACSM believes
those practices should be examined on an agency-by-agency basis.


CoN AH PR WN

BBESsSeriSArsSExS

6
(B) FAIRNESS FOR FEDERAL EMPLOY-

EES.—In order to ensure the fair treatment of

Federal Government employees, the regula-

tions—

oBR 716 1H

(i) shall not contravene any law or
regulation regarding Federal Government
employees; and

(ii) shall provide for the Director of
the Office of Management and Budget, in
consultation with the Director of the Office
of Personnel Management, to furnish in-
formation on relevant available benefits
and assistance to Federal Government ein-
ployees adversely affected by conversions to
use of private sector entities for providing
goods and services.

(C) BEST VALUE SOURCES.—

(i) STANDARDS AND PROCEDURES.—
The regulations shall include standards
and procedures for determining whether it
is a private sector source or an agency that
provides certain goods or services for the
best value.


139

Mr. Chairman,

I would like to simply thank you and the Members of the Subcommittee
for holding this hearing today. I would also like to thank Senator
Thomas for all his hard work on this issue.

As you know, I have introduced H.R. 716, the Freedom From
Government Competition Act. Senator Thomas has introduced the
companion bill in the Senate, $.314.

This legislation has bipartisan support with 55 cosponsors in the House
and 13 in the Senate.

It has been endorsed by a number of organizations including the U.S.
Chamber of Commerce, the National Federation of Independent
Business, the Business Coalition for Fair Competition, the Contract
Services Association and thirty other organizations. I have attached a
list of these associations to my statement.

In addition, the last time the White House Conference on Small Business
met, it listed unfair competition with government agencies as one of its
top concerns.

I think this legislation that I have introduced with Senator Thomas is a
very modest proposal.

It does not require the federal government to contract everything out.
We recognize that there are things that government does best and that
there are functions that only government should do.

This bill would not require agencies to contract out functions that are
related to national security or those things that are related to the core
mission of an agency.


147

2. "What is the status of the reports required by Section 3515 of the Government
Management and Reform Act of 1994? Have they been completed?”

Response, (Also provided in OMB letter dated September 24, 1997)

In accordance with Section 3515 of Title 31 of the United States Code, Federal agencies
submitted the financial statements for the fiscal years ended September 30, 1994 and 1995. As
required by Section 3512(a\5), OMB submitted these reports to the Chair and Ranking Minority
Members Committee on Governmental Affairs of the Senate and the Committee on Government
Reform and Oversight of the House of Representatives. For the fiscal year ended September 30,
1996, agencies prepared consolidated agency-wide financial statements covering all accounts and
associated activities of each office, bureau, and activity of the agency. OMB transmitted the
financial statements on 15 of the 24 agencies, is preparing to submit the financial statements
received from five agencies, and has not received the required financial statements from four
agencies. OMB expects to receive these four statements in the near future and will transmit
them to Congress within 30 days thereafter.

3. "What is the agency composition of the estimated 300,000 FTE reduction achieved by the
Clinton Administration?"

Response. (Also provided in OMB letter dated September 24, 1997)

A break down by agency is provided in the 1998 Budget, Analytic Perspectives, Chapter
10 (Federal Employment) page 206, provided as Attachment 1. A summary chart outlining the
Change in Federal Civilian Employment (Jan 1993 to March 1997) is also provided at
Attachment 2.

4, "Senator Thomas asked Mr. Koskinen to provide him with the number of A-76
competitions conducted in 1996. Please provide that information, as well as the
estimated number of FTE that these competitions covered, and the distribution of these
studies (and FTE) among the agencies and departments.”

Response,

In response to your request, OMB staff contacted the agencies and requested information
‘on the number of A-76 competitions conducted in 1996, including the estimated number of FTE
that these competitions covered by agency. Attachment 3 is a summary of the data reported by
‘the agencies. As noted below, the information requested in Question’7 has also been incorporated
into Attachment 3.


153

ATTACHMENT 2

Change in Federal Civilian Employment
Executive Branch, Excluding U.S, Postal Service and Postal Rate Commission

Percent Changes in Employment from January 1993 to March 1997
i a en a ee a a

20

T T T T T T T

aRMyE
* DEPT OF THE NAVY [-

DEPT OF THE AIR FORCEL-
DEFENSE LOGISTICS AGENCY -
(OTHER DEFENSE ACTIVITIES -
susTICE-

INTERIOR -

AGRICULTUREL-

COMMERCE

LABORE

HHS (net. SSA)

HOUSING & URBAN DEVELOPMENT}
‘TRANSPORTATION

ENERGY

EpucaTiont-

VETERANS AFFAIRS}
ENVIRONMNTL PROTECTION AGCYL-
EQUAL EMPLOY OPP. COMM

FDIC Qe, RTC)

FEDERAL EMERGENCY MGMT AGC-
GENERAL SERVICES ADMINE-
NATIONAL AERO & SPACE ADMIN [-
NATL LABOR RELATIONS BD |
NUCLEAR REGULATORY COMM|-
OFFICE OF PERSONNEL MGMT L-
PANAMA CANAL COMMISSION
‘SMALL BUSINESS ADMINL-
SMITHSONIAN, SUMMARY [-
‘TENNESSEE VALLEY AUTHORITY -
U.S. INFORMATION AGENCY [-
‘AGENCY FOR INTERNATL DEVEL [-
ALL OTHER AGENCIESL-

U.S. OFFICE OF PERSONNEL MANAGEMENT, Office of Werkferce Information
May 21, 1997


46

ing some of the details in the proposal. On a road construction
project, if you had not been working on a proposal of this mag-
nitude, the amount of time, you may not have time to go Xerox it
and resubmit it and put your name on it.

The first contract that we signed was, in fact, was a service con-
tract. It was a maintenance service, and it was awarded, negotiated
with Virginia Maintenance Services. It is a Virginia company, and
it sounds very easy, it is a takeover. It is an asset management
maintenance contract for 250 miles of the interstate in Virginia. It
is a fixed price. The Virginia Maintenance Services assumes part
of the risk.

One of the issues that we had to work through was what it was
costing us at a fixed price versus what our costs would be. So we
were doing a 5-year pilot program on 250 miles of the interstate,
and we, at this point, estimate we are going to save over $20 mil-
lion in 5 years, or an estimated 18 percent.

I will say not one person from VDOT lost their job because of
this. We have lots of places where we can use—in Virginia we
maintain all of our roads. The interstate is the easiest kind of road
to have contractors on, and so we can utilize our people on the pri-
mary and secondary roads in Virginia where it is more difficult to
plow or maintain those roads.

At DMV, another one where you would think, gee, easy things
to contract out or grounds maintenance and so on. But we passed
a bill also in 1995 that authorized the department to use the driver
improvement, to set up or contract for qualified driver improve-
ment programs. Instead of the limited number of places that we
could provide the service at DMV, we have 105 providers at 209
locations. We are saving about half a million dollars a year in net
cost to Department of Motor Vehicles. It is amazing the kinds of
ways that we have found to privatize.

T have noted in my testimony, and I will not go through these,
Mr. Chairman, correction was, as well as the Department of Edu-
cation, where we have privatized the Virginia Education Loan Au-
thority. Not only did we get that privatized, we brought in $61 mil-
lion in net revenues on that.

I think you really need the effort from the top. You need good
analyses, you need to think about not only what the bottom line
costs are, but what are the services you are going to get, and set
what is the standard you are going to receive.

The legislation enacted in Virginia, I know that you have taken
a look at that, and I would be happy to answer any questions on
any of the privatization efforts in Virginia.

Mr. Horn. Well, thank you. I appreciate that helpful statement.

{The prepared statement of Ms. Ybarra follows:]


a

ee
ns So

13

5

of the goods or services is otherwise an inher-

ently governmental function.

(2) The head of the agency determines that the
goods or services should be produced, provided, or
manufactured by the Federal Government for rea-
sons of national security.

(3) The Federal Government is determined to
be the best value source of the goods or services in
accordance with regulations prescribed pursuant to
section 4(a)(2)(C).

(4) The private sector sources of the goods or
services, or the practices of such sources, are not

adequate to satisfy the agency’s requirements.

14 SEC. 4. ADMINISTRATIVE PROVISIONS.

15
16
17
18
19

(a) REGULATIONS.—

(1) OMB RESPONSIBILITY.—The Director of
the Office of Management and Budget shall pre-
scribe regulations to carry out this Act.

(2) ConTENT.—

(A) PRIVATE SECTOR PREFERENCE.—Con-
sistent with the policy and prohibitions set forth

in section 3, the regulations shall emphasize a

preference for the provision of goods and serv-

ices by private sector sources.

BR 716


40

cities from reforming urban mass transit into systems that can effectively serve low-
income, {ransit-dependent citizens, Although there has been some improvement, we also
ran into barriers with LR.S. revenue rulings when we originally examined options for
privatizing, selling, or contracting out the management of our wastcwatcr treatment plants
and our sewer collection system, At the same time that cities and states arc being asked
to spend billions of dollars on critical environmental and infrastructure needs, the existing
rules retain strong structural incentives to usc public capital rather than using available,

plentiful, and oftentimes more effectively managed private capital,

Notwithstanding these barriers, as well as other stale and local barriers, we have had
some modest success in Indianapolis in moving government services into the competitive
marketplace. In Indianapolis, our mode! actually mandated head-to-head competition
between the public and the private scctor, As part of that mandate, we created real
competition with actual cost and performance data and open markets. In addition, we
separated governmental production efforts from govemmental procurement efforts. Wc
also created real financial and career advancement incentives for employees to make
sound business decisions and to find the highest quality and lowest priced goods and
services. Finally, our starting point for head-to-head competition was not the range of
services then provided by the private sector, but the scrvices then provided by
government employees. Services subjected to competition included the Indianapolis
Intemational Airport, wastewater treatment and collection systems, fleet service

operations, printing, copying, pothole filling and solid waste collection. After ncarly


120

As you consider H.R. 716, | ask you to keep several principles in mind:

Just because a service has always been provided by the federal government
doesn't mean that federal employees must do that work in perpetuity.

Just because contractors are hard-working taxpayers, as we're often reminded,
doesn't mean that they have some entitlement to funds in the public purse. After

all, federal employees are also hard-working taxpayers.

Just because agencies--with managers and rank-and-file employees often
working together in partnership--are more successful competitors in the A-76

process doesn't necessarily mean that the system has suddenly become defective.

And just because contractors aren't winning as many A-76 competitions now as
they had in years past doesn't necessarily mean that they are being victimized by
biased public-private competitions.

We also ask you to seriously consider the suggestions we have made for
improving the competition process and generating savings for taxpayers.

The bottom line, Mr. Chairman, is that although we have our own point of view,
AFGE is ready to work with you to address the concerns we have raised at today's

hearing.

27


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Sate Wasnnaron, OC 20515-6149

19

sa senor =
ee Congress of the United States Ee eg
a House of Representatives ead
Poa ‘COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT Sa

Rep. Caroln Maloney ~ Opening Starement
Hearing on HR 716. the “Freedom from Government Competition Act”

September 29. 1997
‘Thank you Mr. Chairman, And welcome Representative Duncan and Senator Thomas

{ook forward to today’s hearing on HR 716, the “Freedom from Government Competition
Act” That legislation goes to the hear of the debate about the nature and proper role of government
Determining which functions should be performed by goverment. and which by the private sector, has
been, and will continue to be. a central component of that debate

Privatization. or contracting out. is not a cure-all for government problems. But if
implemented wisely. can be a useful tool in providing services for the American public more
economically and efficiently, However. we must remember that its just one tool. Empowenng,
workers through training, treating them as assets. and striving to improve management techniques all
also have there place im creating a government for the next century

Contracting out raises 2 number of difficult and contentious issues. which f°m sure we will be
discussing today. Cost accounting standards. contract management controls and job placement and
{raining for displaced workers are but a few. We rust also be cautious that contracting oul a service
doesn’t end up costing us more in the long run, because once tumed over to the private sector. itis
“often difficult and expensive for the government to regain control. Private trash hauling in New Yoth
City costs five times what it does in San Francisco. The Los Angeles school district wound up a few
years ago with a $3 million bill for deficits cun up by a contractor hired to run the school food services.
‘On the other hand. New York Citv gave park service workers greater control over their jobs and found
that they could operate more efficiently than private contractors. tna 1992 experiment. the cost of tree
removal in Queens and the Bronx by city workers was thousands less than a contractor would have
charged

‘Contracting out isa process which needs to be carefully scrutinized, First, we need accurate
and complete information on what is to be privatized and why. Second. we must insist on sound
Contracts that incorporate incentives for cost savings can severe penalties for failure to perform.
Finally. we should have a strong and effective job placement program for displaced workers HR 716
would provide a legislative framework to analyze some of these issues. a framework currently
provided by OMB Circular A-76.

‘Thank vou Mr, Chairman. 1 look forward to heanng from our witnesses,


SEES

Coad AH eke wn

HR 716 1

14

13
(ii) any function that is primarily
ministerial or internal in nature (such as
building security, mail operations, oper-
ation of cafeterias, laundry and house-
keeping, facilities operations and mainte-
nance, warehouse operations, motor vehicle
fleet management and operations, or other
routine electrical or mechanical services);
or
(iii) any good or service which is cur-
rently or could reasonably be produced or
performed, respectively, by an entity in the
private sector.
fe)


2
1 ‘SEC. 2, FINDINGS.
2 Congress finds and declares that—
3 (1) private sector business concerns, which are
4 free to respond to the private or public demands of
5 the marketplace, constitute the strength of the
6 American economic system;
7 (2) competitive private sector enterprises are
8 the most productive, efficient, and effective sources
9 of goods and services;
10 (3) government competition with the private
i sector of the economy is detrimental to all busi-
12 nesses and the American economic system;
13 (4) government competition with the private
14° sector of the economy is at an unacceptably high
15 level, both in scope and in dollar volume;
16 (5) when a government engages in entre-
17 preneurial activities that are beyond its core mission
18 and compete with the private sector—
19 (A) the focus and attention of the govern-
20 ment are diverted from executing the basic mis-
21 sion and work of that government; and
22 (B) those activities constitute unfair gov-
23 ernment competition with the private sector;
24 (6) current laws and policies have failed to ad-
25 dress adequately the problem of government com-
26 petition with the private sector of the economy;

HR 716 1H


132

Mr. Stevens, your testimony advised agencies to integrate com-
petition into their strategic and performance plans, and I agree
that this is natural and should be done. How should this be done?
Has GAO had a chance to look at some of the executive branch re-
sults or strategic plans?

Mr. STEVENS. We certainly have, Mr. Chairman. We've analyzed
80 of them, I believe, for various committees and task forces of the
House in particular. While I say that the Results Act could be a
mechanism for agencies to examine how best to perform their mis-
sions, I don’t think anybody would claim that is now taking place
yet. It’s an aspiration. We’re making some progress. But we put out
an overall report on the Government Performance and Results
Act—in fact, I testified here on it—that shows they still have a
long way to go for that to happen.

The reason why it is particularly advantageous in this context is
that it does encourage agencies, as Mayor Goldsmith said, to focus
on the outcomes, what they are trying to secure, and then ask
themselves the strategies for best getting there. Very often those
strategies will be something quite different from what they are now
doing, which is devoting Federal employees to carry out tasks di-
rectly.

Mr. Horn. One more question for you, Mr. Stevens. The testi-
mony noted incentives, which we were just talking about obviously.
If you integrate the Results Act with the competition process, that
might be a place for an incentive to go. Allowing agencies to use
the savings to fund other programs might be one approach, and we
have encouraged that on the Debt Collection Improvement Act that
is now law.

However, when Congress has this annual appropriations process,
how can we really provide an incentive for agencies to reduce costs
so they can keep the savings, when the next Congress could come
in, duly elected every 2 years, in the case of the House, and cut
their budget? How do we deal with that? We cannot bind the next

ongress.

Mr. STEVENS. It is a difficult problem conceptually, Mr. Chair-
man, and Congresses do change. We have revolving funds, how-
ever, that allow inputs from user fees and that sort of thing. It is
something that can be done.

The problem, in our view, has been more of a conceptual one. Is
Congress willing to give up the kind of control over the expendi-
tures of the executive branch to allow them to do things more or
less on their own discretion? Matters of executive bonuses, for ex-
ample, have come up in the past as something very sensitive.

It is perfectly within the realm of possibility to think some of
these savings might be devoted to rewarding the employees who
achieve them. This can be stated in the press as a $20,000 give-
away or something. There are some problems here.

Mr. Horn. I now yield to the ranking member, Mrs. Maloney of
New York, for any questions she might have.

Mrs. MALONEY. I would just like to ask OMB, it was testified
earlier that the legislation was put in response to an OMB direc-
tive. I would like to know whether or not you feel the legislation
is necessary or whether or not OMB is appropriately handling the
problem.


110

reinvention initiative.

Developing A Better Understanding Of The Contractor Workforce

Many lawmakers have bragged to their constituents about how drastically they
have reduced the federal workforce. But as we know, much of the work that used to be
performed by federal employees has simply been transferred to the federal government's
"shadow workforce’ in the private sector. The federal government's actual workforce
hasn't gotten any smaller. It's just that the people who now do the work are not directly
on the pubiic payroll--although their salaries are paid for out of the same revenues that
pay the salaries of federal employees.

Taxpayers are still paying for the services now provided by contractors. Often,
they are paying even more, based on the reports discussed elsewhere in my testimony.
Just how big is the contractor workforce, Mr. Chairman? | wish | could tell you, sir, but
‘such statistics aren't even kept. Strange, isn't it? We keep such meticulous statistics
about the government's in-house workforce, but know so little about the government's
contractor workforce. But if the federal government spends $120 billion annually on
highly labor-intensive service contracting and the federal government's yearly in-house
payroll is less than $80 billion, the contractor workforce must be quite large, indeed.

Clearly, lawmakers like yourself would benefit from knowing more about the federal
government's shadow workforce, particularly its size. Such information would help
lawmakers to better assess the Administration's claims for downsizing the federal
workforce, public and private sector. It would also help lawmakers to better understand
the growth in service contracting and better assess the claims made by some that A-76

7


69

These leaders built internal and external support for privatization, sustained
momentum for their privatization initiatives, and adjusted implementation strategies
when barriers to privatization arose.

HLR. 716 does not, and probably cannot, provide for effective political leadership. It
has been executive branch policy for more than 30 years to encourage competition
between the federal workforce and the private sector for providing commercial goods
and services. However, this policy has been embodied only in an administrative
directive, Office of Management and Budget (OMB) Circular A-76. While we have
consistently endorsed the concept of encouraging such competition, its effectiveness in
practice has been questioned both in the executive branch and in dozens of
congressional hearings.

H.R. 716 would give the force of law to general reliance on the private sector for
commercial goods and services, and thus would provide a stronger foundation, but not
a substitute, for political leadership.

HLB._216 WOULD ESTABLISH A FLEXIBLE
IMPLEMENTATION STRUCTURE

To implement their privatization initiatives, the governments we visited reported the
need to establish an organizational and analytical structure. A key aspect of this
structure is an office to guide and support the privatization initiative and provide the
analytical framework to evaluate the costs, benefits, and risks of privatizing a
particular activity. Many of the frameworks established by the six governments
shared common elements, such as criteria for selecting activities to privatize, methods
for cost comparisons, and procedures for monitoring the performance of privatized
activities.

4


24

Mr. Chairman, this legislation will create jobs, help small busi-
nesses, save taxpayers’ money, and bring about a Federal Govern-
ment that works better and costs less. It will create a statutory
provision to provide the best value commercial goods and service to
the American taxpayers. It will ensure that the Federal Govern-
ment utilizes the expertise available in the competitive private sec-
tor to provide for its commercial needs.

I look forward to working with this committee to enact this good
government, commonsense reform. I thank you, Mr. Chairman, and
the committee, for your time.

(The prepared statement of Hon. Craig Thomas follows:]}


143

Oreanizations th Freedom From G Competiti

American Bus Association

‘American Consulting Engineers Council

American Council of Independent Laboratories
American Electronics Association

American Society of Travel Agents

Association of Management Consulting Firms
Building Services Contractors Association

Business Coalition for Fair Competition

Colorado Coalition for Fair Competition

Contract Services Association

Design Professionals Coalition

Dredging Contractors of America

Electronic Industries Association

Helicopter Association International

International Health, Racquet and Sportsclub Association
Indiana Chamber of Commerce

International Association of Environmental Testing Labs |
International Hearing Society

Information Technology Association of America
Management Association for Private Photogrammetric Surveyors
National Association of RV Parks and Campgrounds
National Federation of Independent Business
‘National Burglar and Fire Alarm Association
National Child Care Association

National Community Pharmacy Association

National Tour Association

Professional Services Council

Small Business Legislative Council

Society of Travel Agents in Government

Society of Professional Engineers

Textile Rental Services Association

United Motor Coach Association

Untied States Chamber of Commerce


10

9
1 “(A) the identity of each program activity
"2 that is performed for the agency by a private
3 sector entity in accordance with the Freedom
4 From Government Competition Act of 1997;
5 and
6 “(B) the identity of each program activity
7 that is not subject to the Freedom From Gov-
8 ernment Competition Act of 1997 by reason of
9 an exception set forth in that Act, together with
10 a discussion specifying why the activity is deter-
i mined to be covered by the exception.”.
12 (b) ANNUAL PERFORMANCE REPORT.—Section
13 1116(d)(3) of title 31, United States Code, is amended—
14 (1) by striking “explain and describe,” in the
15 matter preceding subparagraph (A);
16 (2) in subparagraph (A), by inserting “explain
7 and describe” after “(A)”;
18 (3) in subparagraph (B)—
19 (A) by inserting “explain and describe”
20 after ““(B)”; and
21 (B) by striking “and” at the end;
22 (4) in subparagraph (C)—
23 (A) by inserting “explain and describe”
24 after “infeasible,”; and
25 (B) by inserting “and” at the end; and

BR 716


141

A report released by the Commission on the Roles and Missions of the
Armed Forces, known as the "White Commission," stated that in the
Department of Defense:

"at least 250,000 civilian employees are performing commercial-
type activities that do not need to be performed by government
personnel."

Numerous organizations have conducted studies on contracting out and
have found that the federal government could save a huge amount of
money by relying on the private sector.

In fact, just last year, the Defense Science Board found that $30 billion
could be saved annually if the Department of Defense did more
contracting out.

$30 billion a year is a lot of money even in Washington terms. This is
$30 billion that we would not have to ask the American public to send
to Washington every year.

Mr. Chairman, in a free-market society, businesses must compete with
each other to provide the best possible product or service in a cost-
efficient way. However, we only have one government, and it has no
competition. Therefore, when it provides goods or services, it has no
incentive to do so in a cost-effective manner. I believe the government
should only provide those goods or services which private industry
cannot.

I think all of us would agree that the American public wants the federal
government to improve the services it provides without increasing taxes.


184

ACSM Statement on H.R. 716, Freedom From Government Competition Act
September 29, 1997
Page 7

mapping the reality is that ISSAs frequently create opportunities for private firms to
contract with agencies for the production of surveys or maps. Examples include the
National Aerial Photography Program, Digital Orthophoto Quadrangles, Department of the
Interior High Priority Program, and the National Digital Orthophoto Program.

ACSM supports the use of ISSAs that provide opportunities for its private sector members
to contract with government agencies. In surveying and mapping ISSAs can provide
effective, cooperative funding mechanisms and often are the most cost effective approach
through which agencies can obtain base data and related services needed to carry out their
missions. For example, development of the GPS Continuously Operating Reference
Stations (CORS) network would not have been possible without interagency agreements.
Development of CORS involved the cooperation of five federal and seven state and local
agencies that pooled their resources and avoided duplication of activities.

Elimination of ISSAs would force Federal agencies to create redundancies and incur
increased costs, thereby reducing opportunities for outsourcing. H.R. 716 would force data
users to become, in effect, data producers. Agencies that currently use data provided by
other agencies would have to develop in-house expertise on the production of data. They
would have to conduct studies of the production methodologies of their sister agencies and
of the private sector firms that claim to be able to produce the same data. To conduct an
effective and accurate study, every requesting agency would have to become as
knowledgeable about the data as those agencies and firms they would be comparing. This
‘would require additional effort and personnel on the part of the requesting agencies, most
likely outside of their missions. If the studies found that private sector contracts are more
cost effective than obtaining the data from producing federal agencies, the requesting
agencies would incur significant additional costs to manage and operate a contracting
process.

Before the subcommittee approves a blanket prohibition on ISSAs, we recommend that the
panel examine ISSAs on an agency-by-agency basis to determine the extent to which such
arrangements inhibit contracting or, in fact, create work for private firms.

Congress Needs More Information Before H.R. 716 Becomes Law

ACSM commends the sponsors of H.R. 716 for throwing a spotlight on the important
issue of government competition and for revising the proposal in response to concerns
raised at hearings in 1996. We oppose enactment of H.R. 716, however, because the bill's
impact on the provision of technical goods and services remains unknown. Before the bill
moves forward, ACSM believes Congress needs more information on the appropriate roles
of government and the private sector in technical fields such as surveying and mapping.
The forthcoming NAPA study, "U.S. Geographic Resources” will provide information that


sac9 WOURION, ome coum

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Fooanne

SS SS —wnited States Senate

saves. rane. 840 OngcTOR cout COMMITTEE ON
TEohsvo weak moeowrY S00 ScTon GOVERNMENTAL AFFAIRS,

WASHINGTON, DC 20510-6250
August 21, 1997

Mr. G. Edward DeSeve

Acting Deputy Director

Office of Management and Budget
Old Executive Office Building
Washington, DC 20503

Dear Ed

On June 18, 1997 Deputy Director John Koskinen testified before the Subcommittee
on the Oversight of Government Management and provided us with the Administration's
views on S. 314, The Freedom From Government Competition Act. During the question and
answer period Deputy Director Koskinen promised to provide the committee with additional
information on the federal government's recent experience with competitive contracting for
services and agency use of the contracting process as described in OMB Circular A-76.
Listed below are the questions asked at the hearing as well as a few others related to the
subject.

1. During the question and answer period Deputy Director Koskinen agreed with me that the
NOAA fleet offered a good opportunity for contracting out, a view that was confirmed at
sevéral earlier hearings by witnesses from Commerce. For example, Commerce CFO Ray
Kammer stated that all NOAA charting activities in the lower 48 states could be contracted
out, and NOAA Admiral William Stubblefield informed us that it was NOAA's intention to
contract out 50 percent of NOAA’s charting and mapping work by way of the A-76 process.
What progress is being made in that area by Commerce, what milestones are scheduled and
when will they be met?

2. Senator Thomas asked about OMB's failure to meet the reporting requirements of Section
3515 of the Government Management and Reform Act of 1994, Mr. Koskinen responded that
those reports are nearly completed. Have they been completed? If not, when? Why the
delay? The first series of required reports are now more than two years late,

3. In response to a question from Senator Thomas, Mr. Koskinen agreed to send him
information on the agency composition of the estimated 300,000 reduction in FTE achieved
by the Clinton administration. When will he receive this?

4, Senator Thomas asked Mr. Koskinen to provide him with the number of A-76 competitions
conducted in 1996. Please provide us with that information, as well as the estimated number
of FTE that these competitions covered, and the distribution of these studies (and FTE)
among the agencies and departments,


166

(Federal Register, September 30, 1992, page 45096), provides detailed guidance on the
identification of inherently governmental activities, Common administrative support services —
to the extent that they are available in and through the private sector -- are considered
commercial in nature and subject to the provisions of the Circular.

‘The decision that a particular function is inherently governmental or commercial rests on
a number of factors, including: the level of Federal control required, the ministerial nature of the
function, certain statutory provisions, and distinguishing between recurring operations and
oversight. Statutory authority to perform a function is not, itself, sufficient to warrant continued
in-house performance as an inherently governmental function. The full range of issues addressed
by the OFPP Policy Letter 92-1 must be considered. As provided by the Policy Letter, OMB
remains available to resolve agency concerns in this determination.

13, “The franchise fund pilot program provision in the Government Management Reform
Act requires that “services shall be provided by such funds on a competitive basis.”
Does this require an A-76 competition before the franchise fund activity can be
performed for the agency or other agencies?”

Unless otherwise exempted by the Circular itself and beginning October 1, 1997, new or
expanded commercial support services that could be provided by the franchise fund pilots, or any
other revolving, working capital or industrial fund, are generally subject to the cost comparison
requirements of the Circular. There are certain and appropriate exceptions to these cost
comparison requirements that include, for example, national defense requirements, direct patient
care, and other exemptions provided by the Circular where the decision to seek services from one
public provider or another is not cost-based. The cost comparison requirements of the
Supplement also do not apply to existing ISSAs or to the consolidation of commercial or other
services within a Department or agency, unless that consolidation includes the conversion of
work to or from in-house or contract performance and such conversion is not otherwise
authorized by the Supplement.

14. “Has OMB conducted a recent, comprehensive inventory of employees (FTEs and part
time positions) in the Federal government that are considered “commercial” in
nature? If so, how many are there, where are these employees located, and what
function or occupations do they perform?

Agencies maintain a baseline inventory of all in-house commercial activities performed
by the agency on an annual basis, The March 1996 Revision requires that agencies maintain an
inventory which identifies those commercial activities that are exempt from cost comparison and
the status of activities that are subject to cost comparison. Agencies are required to maintain an
annual inventory of all commercial activities performed by in-house FTE, including, at a
minimum, the following information:



186

‘Adopted by ACSM’s Board of Direction: April 10, 1997

‘The Freedom From Government Competition Act
. 314, LR. 716)

‘The Freedom From Government Competition Act (FFGCA) has been reintroduced in the 105th Congress as
S. 314 by Sen, Craig Thomas (R-WY) and as H.R. 716 by Rep. John Duncan, Jr. (R-TN). Although some
‘exceptions are provided, the proposal would require the federal government to procure from the private
sector most of the goods and services it needs to carry out its functions. The legislation also would restrict
agencies’ ability to provide goods and services to other agencies through Interservice Support Agreements
(SSAs).

‘The bill is supported by a coalition of small business organizations. The FFGCA is controversial because
the long-term consequences of the government-wide reorganization and downsizing of agencies it would
require are unclear. For the surveying and mapping profession, the issues raised by FFGCA are closely
related to those generated by the contracting out debate, and the findings of the NAPA study will be
applicable t6 Congress’ 1997 debate on this proposal as well as to discussions of contracting out that will
arise during consideration of the FY98 budget.

ACSM Position Statement

‘ACSM is a professional society with members working in private surveying and mapping firms as well as
government agencies. In this position statement on the Freedom From Government Competition Act
(FFGCA), ACSM strives to represent the interests of public and private members, the profession as a
‘whole, and long-term national interests.

ACSM supports having increased opportunities for its private firm members to contract with government
agencies to perform surveying and mapping. However, ACSM is very concerned that FFGCA proposes a
broad-based solution to situations that are best addressed on a targeted basis. If agencies are inappropriately
competing with the private sector, ACSM believes those practices should be addressed on an agency-by-
agency basis.

‘The FFGCA's approach of requiring that all government functions that are not “inherently governmental”
be outsourced to the private sector would produce long-term effects that are largely unknown and potentially
disruptive to the nation’s need for accurate, accessible geospatial data. FFGCA's impact on the ownership
{public or private) of geospatial base data is unclear, but the proposal’s potential effect on this area is of
great concem to ACSM.

FFGCA also would sharply curtail the use of Interservice Support Agreements (ISSAs). In surveying and
mapping, ISSAs can provide effective, cooperative funding mechanisms and often are the most cost
effective approach through which agencies can obtain base data and related services needed (o carry out
their missions. ISSAs frequently create opportunities for private firms to contract with agencies for the
actual production of surveys or maps. Elimination of ISSAs would force Federal agencies to create
redundancies and incur increased costs, thereby reducing opportunities for outsourcing. ACSM supports the
use of ISSAs that provide opporrunities for its members to contract with government agencies.

RESOLVED,

For the reasons outlined above, ACSM opposes the Freedom from Government Competition Act as
‘currently drafied. ACSM further recommends that Congress take no action on this proposal until it has
information from the National Academy of Public Administration study of geospatial information that will
belp lawmakers make sound public policy with respect to FFGCA’s impact on surveying and mapping.


98

However, instead of expressing admiration for this remarkable transformation in
the federal workplace, some lawmakers can express only dismay. Instead of "Wow,
they're good," it's "Wow, they're good, they're too good." After being bashed for so many
years, usually very unfairly, for not measuring up to their private sector counterparts, Mr.
‘Chairman, you can't begin to imagine how bewildering and discouraging these attacks on
A-76 are for federal employees. Instead of giving us grudging credit for doing better
work, our private-sector competitors and their friends in Congress say that the system
has suddenly broken down. Just as good craftspersons whether in-house or contractor,
shouldn't blame their tools, contractors who are genuinely interested in real public-private
competition shouldn't blame A-76.

Let me make one final remark with respect to AFGE and contracting out. Some
lawmakers insist that AFGE's relentless determination to ensure full and fair public—
private competition for work that is not inherently governmental is nothing but
parochialism -~ that we are only concerned about saving federal jobs. This is not the
case. AFGE has a long-standing policy to follow outsourced work into the private sector
‘once a decision is made to contract out. We are adapting to the reality that the federal
in-house bid may not win every competition. For example, earlier this year, we signed
a contract with Hughes Aircraft, which allows AFGE to continue its representation of the
‘employees at the recently privatized-in-piace Naval Air Warfare Center, in Indianapolis,
IN. The fact that AFGE will retain its vigor and vitality--even in this era in which
privatization, often mindless, is all the rage--by organizing outsourced workers allows this
union to be a calm and constructive player in the debate over public-private competitions.


140

It requires only that federal agencies look at those things they do which
are commercial in nature.

If these commercial goods and services can be obtained from the private
sector in a more efficient and cost-effective manner, then, and only then,
would the agency be required to contract out that work.

Mr. Chairman, the history of government competition is a long one. It
was described by President Bush’s Administrator of the Office of
Procurement Policy, Dr. Allan Burman. In 1990, he testified before the
House Post Office and Civil Service Committee, He stated that:

"As far back as 1932, a Special Committee of the House of
Representatives expressed concern over the extent to which the
government engaged in activities that might be more appropriately
performed by the private sector.”

Since the Eisenhower Administration in 1955, it has been U.S. policy
that:

"the Federal Government will not start or carry on any
commercial activity to provide a service or product for its
own use if such product or service can be procured from
private enterprise through ordinary business channels."

Every Administration, Republican and Democrat, for the past 40 years,
has endorsed this policy, but unfortunately, it has never been
implemented.

In fact, the Congressional Budget Office estimated that 1.4 million
federal employees are now doing commercial activities that could and
should be done by the private sector. For this reason, I believe we need
a legislative solution to this problem.


91

and discussion. The inclusion of several items, including the use of all direct and indirect costs
and past performance, appear to have merit. However, information on the past performance of
work performed by Federal employees does not exist. How that performance would be
evaluated, when the Government itself is a vested interest in the outcome of the competition, is
also a concern. There is also no agreement on the allocation of all indirect costs. A-76 is based
upon the allocation of costs that can be expected to change as a result of a conversion to in-house
or contract performance. Indirect overhead related to the Government's regulatory, national
defense and other inherently governmental functions should not be included in these competitions.

OUR PRESENT SYSTEM IS WORKING

Unfortunately, many people still view A-76 as an impediment to outsourcing instead of an
aid to the evaluation of public and private alternatives, on a level playing field. Ultimately, the
question is whether H.R. 716 provides anything better than that already provided by Circular A-
76 and its Revised Supplemental Handbook. We do not believe that it does. Among other things,
the March 1996 A-76 Revised Supplemental Handbook provides a clear preference for private
sector performance of new and expanded work requirements, requires agencies to develop
inventories of commercial activities, establishes restrictions against the Government's entering into
non-Federal support markets, restricts the development of new or expanded interagency support
agreements to those competitively or otherwise justified and provides for independent
administrative oversight. ‘The Revision also provides that agencies may leave existing
reimbursable agreements and convert directly to contract, without cost comparison, at the
discretion of the customer agency. We believe that this process not only works, but is beginning
to encourage real competition for Government work.

Circular A-76 and its Revised Supplemental Handbook create the incentives to improve
performance and reduce cost by continuing to permit competition on a fair and level playing field
for commercial services. The rules also provide appropriate controls and administrative
assurances that agencies are competing on a level playing field and that agencies are not unduly
competing with or displacing the private sector. The Defense Department alone has announced
cost comparisons involving over 30,000 FTE, DOD is also actively engaged in reviews of its
‘operations, contracts and utilities. Taken together, these itives constitute the largest effort to
review our in-house and contract mix ever undertaken. Yes, more can and should be done in all
agencies, but we also need to move cautiously, recognizing our larger reinvention efforts.



iu

10

1 (5) by adding at the end the following:

2 “(D) in the case of an activity not performed
3 by a private sector entity—

4 “(i) explain and describe whether the activ-
5 ity could be performed for the Federal Govern-
6 ment by a private sector entity in accordance
7 with the Freedom From Government Competi-
8 tion Act of 1997; and

9 “(ii) if the activity could be performed by
10 a private sector entity, set forth a schedule for
1 converting to performance of the activity by a
12 private sector entity;”.
13. SEC. 6. DEFINITIONS.

14 (a) AGENCY.—As used in this Act, the term “agency”
15 means the following:

16 (1) EXECUTIVE DEPARTMENT.—An executive
17 department as defined by section 101 of title 5,
18 United States Code.

19 (2) MiuiraRY DEPARTMENT.—A military de-
20 partment as defined by section 102 of such title.
21 (3) INDEPENDENT ESTABLISHMENT.—An inde-
22 pendent establishment as defined by section 104(1)
23 of such title.
24 (b) INHERENTLY GOVERNMENTAL GOODS AND
25 SERVICES.—

HR 716 1H


97

That's why AFGE was the only federal employee union to work with the
Administration last year to reform OMB Circular A-76.? This effort resulted in a revised
Supplement that, while permitting more flexibility to contract out, also ensures federal
employees greater involvement in the competitive process, and makes contracting out a
“two-way street” by permitting work to return back in-house when it is more cost-
effective to do so.

‘The fact that OMB Circular A-76 is now under continuous attack is implicitly a
compliment of federal employees and their work. Several years ago, federal employees
were losing 70% of all A-76 competitions. As you might expect, contractors had
considerably fewer problems with the Circular then. However, agencies-—employees and
managers alike, often working in partnership--iearned from their defeats and looked to
the private sector for inspiration and guidance. With the reinvention of government and
partnership initiatives, agencies are now running their operations more like businesses.
In doing so, the public sector has pulled even with the contractors, winning every other
A-76 competition. Now, as you might expect, the contractors aren't so happy--even
though the federal government runs up service contracting bills of approximately $120
billion annually. | have to wonder if this dissatisfaction can be attributed more to the fact
that federal service contracts aren't quite so attractive to private sector firms now that

increased competition from federal employees has driven down costs so sharply.

? In fact, we are working with Pentagon officials on
implementing instructions for the new A-76 supplement.


187

RK-IN-PROGRESS

NATIONAL ACADEMY, Of PuBuc ADMINISTRATION

‘STUDY OF US. GEOGRAPHIC INFORMATION RESOURCES
Project description

Advances in surveying, mapping and other geographic information*® technol the
‘end tonard doyoaten of ede progadns tnd aces toward sate 2 ocd

governments and the impact of US. budget deficits on economic over the past
iptate the need for a comprehensive examination ‘by a non-partisan,
‘unbi ‘organization of current geographic information functions and how
these functions can be most structured and performed.
‘Congress. on Surveying and  (ACSM), end representatives of four federal
‘genie involved in geographic n asked the Academy to undertake this study.
‘Academy will address the following questions:

1. Is geographic information acquisition, analysis and distribution critical to
keeping the United States compettive ina global economy?” ‘What wr the most
important uses of this information on a national scale?

2 ‘What is the appropriate role of the federal government in civilian surveying,
mapping end tier information. given recent technological and
‘wends? ny largely federal a with state

and local and the private sector and academe’

AF some functions are deemed sumbe to be commercialized, privatized, of

transfered to noe-federal governments, what would be the effectiveness and

conome impor of thse Casters?

4. _Arethereopporaniies consolidate or oerwierestrctre federal surveying,
‘mapping and oer geosaphic information functions to achieve greater economy

metomnce if so, which functions should be brought together and how
they be structured?

| and other ie is the broad field of

seve moll nd sees teteing peers land and cadastral surveying,
land records, cartography, charting, remote sensing, photogrammetry, image processing,
{ geographic information systems, and generally all geospatial data,

‘About the Academy

‘The Academy was established in 19672 sauce of independent advice and counae on
making government y seeking the very best management practices in both the
| PIC ae ci, NAPA ave helped federal sate, and focal agenci
Is of, nique of the Academy is its
| membership, composed of more than 400. Fellows who represent a divert of

Se eta a Sri ae snp yeas eersted for ct

ington. DE: 20005 @ 2N2°S17-S LIM @ Fas 2
hitp:/eetm.tmi.wes/nay



102

‘engineering into MEO's, agencies and departments are realizing savings of 21% or more
if the work stays in-house. This creates a win-win situation for the taxpayer whether the

work remains in-house or is converted to contract. H.R. 716 has no similar provision.

H.R. 716 WILL RESULT IN CONSEQUENCES OPPOSITE THOSE INTENDED

The sponsors of this bill have been very clear in saying that the purpose of the bill
is to “change the role of government’; save money for the taxpayers; and ensure the
federal government is not competing against the private sector, especially small
businesses, in areas that are basically commercial in nature. | am concerned that, if
‘enacted, this bil! would have consequences quite the opposite of those intended. It would
delay reform, result in a government less responsive and accountable to the needs of its
citizens, cost taxpayers more, and restrict competition.

Let me begin by saying that the bill's provision for creating an “Outsourcing Czar"
with a supporting bureaucracy within OMB moves individual agencies further away from
their customers—-the ordinary Americans who depend upon the federal government for
important services. In criticizing this provision, | would ask the Subcommittee to keep in
mind one of the most important lessons leamed from the private sector: decentralization
of decision-making, not centralization, is the key to efficiency. The Pentagon's almost
irrational bias in favor of contracting out notwithstanding, it's better to charge those
agencies actually required to provide particular services with the responsibility of making
contracting out decisions, as A-76 does now. H.R. 716, however, would create an

“OMBundsman" in the Center for Commercial Activities who would likely be far more


118

level positions, resulting in substantial savings to the taxpayers.

*At Anniston Army Depot, AL, the base Commander warned that it productivity
problems could not be solved in the small arms facility, it would be necessary to
bring in forty-five new contract employees. A partnership studied the problem and
began to make changes in manufacturing and supply; and now the facility is
working better, more economically, and faster.

*At the Department of Veterans Affairs (OVA) Medical Center, in Des Moines, IA,
‘self-managed work teams established through partnership have cut overtime costs
from thousands of dollars every year to zero. These teams have also cut by more
than one-half the amount of time that veterans have to wait for treatment at the
hospital's clinic. One of the team members said that she used to work for a

‘supervisor; now she works for her rea! customers: the nation's veterans.

*At another DVA hospital, in Albuquerque, NM, AFGE and management have
jointly designed several new clinical programs to help care for veterans, including
a women's clinic, a new drug rehabilitation center, and a pain-management clinic.
Other quality improvements designed in partnership by the union and management
have reduced the waiting time for patients from four hours to thirty minutes.

25


65

man Davis, mentioned this as something that in Fairfax you had
learned through experience was necessary as well. Contract admin-
istration has been an endemic problem for the Federal Government
for many years. It’s nowhere more severe than in those agencies
that are very heavily dependent on contractors already, DOE and
NASA for example.

So, in conclusion, Mr. Chairman, we believe that striking a pro,
er balance between the public and private sector provision of goods
and services to the American people, is one of the most enduring
issues in American politics. The Freedom From Government Com-
petition Act would be a clearer statement of congressional policy on
this question than now exists anywhere, certainly in law. We be-
lieve that Congress is the appropriate forum to address such a fun-
damental question. I hope our dialog can contribute to that.

Mr. Horn. Very good.

{The prepared statement of Mr. Stevens follows:]


71

objective and strategy for implementing the bill's requirements.? The strategy could
be developed in consultation with Congress and could describe major priorities as well
as’ specific milestones for implementing the bill's provisions. In addition, OMB
through its annual performance plan could provide a schedule for changing current
policies and systems that would be necessary to accomplish the bill's purposes, Such
a schedule would provide greater direction for agencies as they go through the
process of identifying potential activities to be included in their annual performance
plans. It could also provide a firm basis for Congress to assess OMB and agency

activities as they relate to the bill's requirements.

To effectively carry out the role envisioned for it under the bill, OMB will require
additional resources or will need to reallocate existing resources from other mandated
responsibilities. We reported in 1995 that we were concerned about OMB's capacity
to carry out its already numerous management responsibilities, which have been
expanded significantly in recent years.‘ Such a plan might be an appropriate vehicle

for addressing such resource issues.

‘The experiences of other governments as well as of major private firms indicate that,
when the outsourcing of functions is contemplated, answers to fundamental questions
about the purpose and mission of an organization should precede any major
outsourcing activities. The bill has significant implications for the ongoing

he Results Act:

ations on the Office ement a
Draft Strategic Plan (GAO/AIMD/GGD-97-169R, Aug. 21, 1997).

gement a hanges Resulting From
(GAO/GGD/AIMD-96-50, Dec. 29, 1995).

of Ma
Reorganization
6


16

eo coment
Ere [ONE HUNDRED FIFTH CONGRESS. Soe
eae Congress of the United States a
Forte House of Representatives Ei
2 CCONMITTEE ON GOVERNMENT REFORM AND OVERSIGHT poe
Bemenene, 2157 Ravaunn House Orrice BUILDING Seer as Cane

pe eee ‘Wasencton, DC 20515-6143 aire
“Legislative Hearing on H.R. 716,
the Freedom from Government Competition Act of 1997”
September 29, 1997
OPENING STATEMENT

REPRESENTATIVE STEPHEN HORN (R-CA)

Chairman, Subcommittee on Government Management,
Information, and Technology

A quorum being present, the Subcommittee on Government Management,
Information, and Technology will come to order.

Tomorrow, the Government Performance and Results Act requires agencies
to submit strategic plans. This is one of the steps on the road to establishing
performance-based government. Ultimately, Congress, and the taxpayers of this
nation, want to be able to hold agencies accountable for results. Already, we have
seen improvements in agency performance. For example, boating accidents have
been dramatically reduced, as the Coast Guard has begun to focus on reducing
accidents rather than on counting the number of safety inspections performed.

Today, we are discussing H.R. 716, the Freedom from Government
Competition Act of 1997. This bill, and its Senate counterpart, would impact
every Federal agency. It holds the promise of changes for Federal employees,
taxpayers and citizens.

HLR. 716 would codify existing administrative policy embodied in OMB


160

We are working to reinvent the way Government meets its mission requirements and we
are asking managers three important questions: (1) do we need to keep doing this work at all; (2)
if the work needs to be done, could a contractor or another agency do it better; and (3) is the
work being performed in the most efficient manner possible or does it need to be fundamentally
re-engineered? Pursuant to the implementation of the Chief Financial Officers Act, the standards
recommended by the Federal Accounting Standards Advisory Board (FASAB) and issued by
OMB and the Government Performance and Results Act, we are holding managers more
accountable for results. We are asking managers to justify their decisions to perform work by in-
house, contract or interservice support agreement to achieve the best value to the taxpayer.

While these incentives are just now beginning to take effect, they are significant. We do
not believe that top down requirements to cost compare functions alone, without recognizing the
broader implications of our larger reinvention initiative are in the taxpayer's best interests. In the
past, A-76 itself became the target and, as a result, its implementation was resisted by the
agencies and, in some cases, prohibited by statute. Rather, we believe that A-76 must be viewed
as one of the many management tools available to seek efficiency and one that market tests those
decisions, when appropriate.

3. “In 1988, OMB estimated that if each of the 800,000 commercial positions were
competed under A-76, $7.5 billion in savings would be achieved each year. The
Federal Government has competed an average of 10,000 positions per year,
historically. Have we maximized the impact of A-762”

‘We cannot confirm that OMB ever estimated that there were 800,000 commercial
positions subject to A-76. This number is, however, reflective of the work done in the 1980s by
the Grace Commission, the Linowes Commission and, more recently, by the Defense Sciences
Board. The 1987 OMB Circular A-76 Inventory of Commercial Activities reported
approximately 250,000 FTE subject to A-76. Nevertheless, there is no question that the full
benefit of the A-76 program has not been realized. By the mid to late 1980s, the Circular had
become controversial. Legislation was introduced to end, delay, change or otherwise restrict the
conduct of cost comparisons for the conversion of work from in-house to contract performance.
As noted in our letter to Sen. Brownback (Enclosure 3) there are several provisions of law that
have inhibited the outsourcing efforts of DoD, GSA, Veterans, and Interior.

A-76 competitions encourage and empower employees to reinvent themselves to become
competitive, reduce costs and meet generally recognized performance standards. This effort
alone results in better contract offers as more viable, responsive and cost-effective competitors
come to the table. Experience here and abroad has shown that the use of public-public and
public-private competition can reduce costs by 30 percent and more of previous costs. In the
2,100 competitions conducted by the DOD since the early 1980s, involving over 80,000
positions, savings of approximately 30 percent were achieved - savings that have translated into
over $1.5 billion annually. It is important to note, however, that in approximately 50 percent of

2


After all, our members are taxpayers also.

AFGE'S CONCERNS ABOUT H.R. 716
Mr. Chairman, let me now express our concerns about the Freedom From
Government Competition Act. This bill is flawed for several reasons:
elt's not even needed. The !egislation fails to take into account the reforms and
initiatives which are radically altering the way the federal government does
business, as well as the manner by which it obtains goods and services.
elt would result in consequences quite the opposite of those which it intended.

elts underlying principles and rationale are not supported by the facts.

H.R. 716 IS NOT NEEDED

The legislation fails to take into consideration recent statutory and policy reforms
which provide the government greater flexibility to privatize and outsource its work to the
private sector. Nor does this bill acknowledge how downsizing is forcing federal agencies
to rely increasingly on the private sector for the goods and services its needs.

Last year, AFGE, contractor representatives, and officials from many federal
agencies worked with officials from the Office of Management and Budget (OMB) to
reform the regulatory framework governing the competitive process contained in OMB
Circular A-76's "Revised Supplemental Handbook." This Supplement, enacted in March
1996, provides federal managers with unprecedented latitude and flexibility to outsource
to the private sector:


21

Mr. Chairman, members of the committee, thank you so much
for the opportunity to testify today regarding the important issue
of direct Federal Government competition with the private sector.
As an alumnus of this committee, it is a pleasure to be back for
a brief visit. | am the primary Senate sponsor of the Freedom from
Government Competition Act and look forward to explaining why
a statutory provision is needed for this problem. I also thank Con-
gressman Duncan, I am sorry he isn’t ‘able to be here, the primary
sponsor of the legislation in the House, for his hard work on that
topic.

‘or the past four decades, it has been the administrative policy
of the Federal Government to rely on the private sector for its com-
mercial needs. This policy was originally issued in 1955 during the
Eisenhower administration in reaction to a bill very similar to
what Congressman Duncan and I have proposed. It was movil
through the Congress at the time, however, Co: SS relented
when President Eisenhower agreed to solve the problem adminis-
tratively. This policy is now found in the Office of Management and
Budget Circular A-76. Unfortunately, it is routinely ignored. For
example, the Defense Department completed 325 comparisons in
1983 during the Reagan administration. None were completed in
1994. In addition, recompeting commercial functions rarely if ever
happen. In fact, during a hearing on this issue in the U.S. Senate
in June 1997, OMB was unable to document if any Federal agency
had ever recompeted a commercial-function.

An estimated 1.4 million Federal employees are engaged in “com-
mercial” activities, goods, and services that could be provided from
the private sector. The net effect to the taxpayer is tens of billions
of dollars wasted each year. Activities ranging from the mundane
to high tech, from laundry service to information technology, are
performed by Government agencies, even when they can be ob-
tained more cost efficiently and effectively from the private sector
at equal or higher quality.

Studies by OMB and the General Accounting Office show the
government saves 30 percent or more when services are procured
from the private sector. Similar savings were found when the pri-
vate sector was utilized in several State and local governments in
the United States and throughout the world. Later today, Mayor
Goldsmith of Indianapolis will explain in detail the success he has
had in providing his constituents with better service at lower cost
by utilizing private sector expertise.

However, under the administration’s reinventing government ini-
tiatives, agencies not only engage in commercial activities for their
own use, or so-called insourcing, but they also have become entre-
preneurial and are marketing their sources to other Government
agencies and the commercial marketplace. In many cases, they are
displacing private sector firms, a number of which are small busi-
nesses. In fact, the problem has become so pervasive that all three
sessions of the White House Conference on Small Business ranked
unfair competition from government and government-supported en-
tities as one of the biggest concerns to small business entre-
preneurs.

To inject market competition into government monopolies in
Washington, I introduced the Senate version of the Freedom from


50

Administration, in cooperation with the Commonwealth Competition Council, is
currently studying employee stock ownership plans (ESOPs) as a potential method
of privatization of selected state services. Our research indicates that we are the
only state government entity that has undertaken a study of this nature. The final
report on this study will be presented to the Governor and the General Assembly
in December 1997.

Conclusion

There are many promising opportunities associated = with
privatization/competition and public-private partnerships. In Virgini:
legislators and the Governor have worked together to introduce new priv.
initiatives. The legislation enacted in Virginia and the Commonwealth
Competition Council will help ensure the continued successful applications of
sound business decisions in the future.

Thank you for the opportunity to provide information on Virginia’s program.
I'll be happy to answer any questions that you may have.
Yen


95

INTRODUCTION

Mr. Chairman and Subcommittee members, my name is Bobby L. Harnage. | am
the National Secretary-Treasurer of the American Federation of Government Employees
(AFGE)~-the largest federal employee union, representing 600,000 government workers
serving worldwide.

Although this is my first appearance before your panel; Mr. Chairman, | look
forward to working with you and your staff to ensure full and fair public-private
competition for work that is not inherently governmental as well as other issues of
concem to federal employees.

You are well aware that a version of the "Freedom From Government Competition
Act’ (H.R. 716) was introduced last year. From our standpoint, and that of many others,
last year's version was, to be candid, terrible. Essentially, it would have mandated that
all of the federal government's commercial activities be contracted out or devolved to
lower levels of government in five years~-even if federal employees could have
performed the work more effectively, more efficiently, and more reliably. While H.R. 716
is still profoundly-fiawed legislation, it must be acknowledged that it is an improvement
over its predecessor.


33

get the most cost-effective work done for the government, how do
you know it is the most cost effective unless you set up a system
where both the public and the private can compete together? In
other words, how do you make the decision who will be able to do
it in a more cost-effective way?

Senator THOMAS. Well, that is what the system would be de-
signed to do, and we create an office within OMB called “commer-
cial activities and privatization,” and that would be its task: to set
up a system where an agency would take a commercial activity and
then review it on a level playing field to see who can provide better
for the taxpayer.

Now, unfortunately in the past sometimes, I believe, there has
been some competition, but if you do not compete fairly and if you
do not have to take into account all the costs that go into it from
the government side, then you do not come out with a fair competi-
tion. But what you say, Mrs. Maloney, is exactly what we ought to
do, and that is why we call it competition. We do not say we are
going to privatize it irrespective of what the government can do,
but rather see which can do it and have the better value for tax-
payers.

Mrs. MALONEY. That is the main point, is to get the best value
and to allow the private sector to be part of the system, too.

Mr. Tuomas. Absolutely.

Mrs. MALONEY. Now, it is based on an OMB directive, I believe
in your testimony you said it was an OMB directive, and then you
legislated the OMB directive; is that correct?

Senator THOMAS. We have had an executive directive since Presi-
dent Eisenhower. What we are saying is it really hasn’t been im-
plemented and adhered to. It really hasn’t been developed. That is
why, if it had been, then there would be no need, I suppose, for a
statutory action. But our best view is that it hasn’t, A~76, OMB
will not agree with me, but I think the evidence is there, has not
been implemented and therefore we do need some statutory direc-
tion for it.

Mrs. MALONEY. Thank you very much. I yield back the balance
of my time. I assume OMB is testifying later, right?

Mr. Horn. That is correct.

You have named it and Mr. Duncan has named it, the Freedom
From Government Competition Act. Should it be really the “Free-
dom From Government Monopoly Act”?

Senator THOMAS. I suspect that comes closer to it. The reason it
is named what it is, and the name is not vital to it, is that the Fed-
eral Government is increasingly competing with the private sector
in some areas, basically forcing them out of business in those
areas. So you are probably right.

Mr. Horn. I remember having that argument when I was on
Capitol Hill on the Senate staff from 1960 to 1966, where I think
the name was Judson or something in Denver, that was making
maps, and there was no need for the government to make maps.
They were simply getting into competition with an already estab-
lished firm in the United States, on which the airlines depended
for maps.

I think you are right on that, that we need to, where we have
got private competition that is doing the job and doing it at a rea-


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133

Incidentally, I would like to thank publicly OMB for their help
on what I think is one of the finest pieces of legislation that the
chairman and I worked on, which was the Debt Collection Act. It
is working well. There was testimony in front of the Banking Com-
mittee last week on electronic transfers and how that was savil
money, and it could not have happened without the professional
support of your staff. I just wanted to publicly thank you.

ir. DESEVE. Thank you, Mrs. Maloney. The debt collection proc-
ess is a good analogy to what we are talking about here today. In
the Debt Collection Improvement Act, you and the chairman em-
powered agencies to better collect debt by gain-sharing, and then
told them that if gain-sharing does not work, we would like you to
turn the debt over to the Treasury at the appropriate time and
allow them to work the debt.

Here again, we have said that we would like to empower agen-
cies to make their own decisions with regard to competition. We
didn’t set up a centralized bureaucracy at OMB or Treasury to ad-
minister all debt collection. We said, “agencies, you do it right first.
If you don’t do it right, here are some guidelines by which you are
allowed to transfer that debt over to a central agency.”

A-76 is the guidance that we provide to agencies. We went
through a very extensive review process. I think it probably took
at least 18 months or 2 years, formal comment, hearings, and com-
ments in the Federal Register to try to find a mechanism for com-
petition. We didn’t go as far as some people would have liked us
to. I think H.R. 716 is a reaction to that.

Mrs. MALONEY. I have no further questions.

Mr. Horn. Does the gentleman from Virginia, Mr. Davis, have
some questions?

Mr. Davis of Virginia. I do. I thank you for your varied perspec-
tives on this bill.

Looking at the testimony, for example, Mr. Harnage, and I hope
you say “hi” to Mr. Sturdivent for me. I hope he is doing better.
‘You did an able job in his absence, you can tell him.

The issue of having an outsizing czar there gives me some con-
cern, because a lot of these decisions I think can be better made
at the local level. I think you make a good point on that, that you
spread these out in a decentralized fashion.

The A-76 circulars that we have now work decently at the DOD
level because managers have an incentive to utilize it because the;
get to keep some of that saved money. That is a good incentive. It
does not work for the other parts of the government. I just wonder
if there is a way to work with the A-76 formula and make these
changes as opposed to moving ahead with this legislation and
maybe having some unintended consequences, or if you think we
really need to continue to move in a more comprehensive manner.

I am not sure how you write a criteria for all procurements that
determine whether you will outsource or privatize. It is so varied,
there are so many variables, some of this stuff nobody has thought
about. That is what concerns me about having one person directing
it. But if there is no incentive for a manager to go out ant
outsource, they will never do it, because the first inclination is we
are going to protect our people. That is kind of the quandary we
are in.


17

Circular A-76, which requires agencies to subject their commercial functions to
cost comparison. H.R. 716 would go further, requiring agencies to determine the
best value provider for commercial functions,

In the private sector, competition has reduced costs and improved
performance and consumer choice. The most competitive sectors of the economy
are also the most innovative. Federal anti-trust policy is designed to ensure
competition, so that the customers do not get gouged. H.R. 716 has the potential
to be the anti-trust policy of the Federal Government.

However, before the bill can become law, we need to examine several key
issues:

~- what are the benefits and costs to taxpayers;

-- should government perform commercial tasks when they are the most

efficient provider;

~-should government perform commercial tasks when someone else could

do so cheaper and better, and

-- what are the effects on employees of such competition and potential for

outsourcing.

My own view is that some agencies have the most experienced people doing
the job already. Some agencies do not, especially as buyouts have removed some
of the most capable performers. Competition can be a spur to improve
performance in either case. According to the Congressional Budget Office,
competition can reduce the costs of government by an average of 20 to 35 percent.

Today, we will hear from the sponsors of the bill, Senator Thomas and Mr.
Duncan, Mr. Duncan was delayed in his district, and we hope will join us in the
latter half of the hearing. Our witnesses represent some of the best minds in this
area at the Federal, State and Local levels, and we look forward to their testimony.

I want to add that the Subcommittee staff has received several unsolicited
statements for the record of this hearing. The Subcommittee would like to
encourage additional thoughts on this issue, and we will hold open the testimony
for three weeks for any person to provide a statement. We do not mean to close
the door to any point of view, and we encourage healthy debate.


61

Mr. Davis. You’ve not had any RIF’s as a result of this?

Ms. YBARRA. No.

Mr. Davis. Mayor, how about you?

Mr. GOLDSMITH. We have had some moderate RIFs of mid-man-
agers. But generally we have had public employees going to the
private emplo er, public employees going to other public organiza-
tions, people deciding to retire or, in pretty robust economies, some
people deciding that they would like to take their incentives and
geta private job.

In the last several years, we have had virtually no involuntary
layoffs as part of this process. Yet, accommodation of the other ac-
tivities has given us this 45 percent reduction in nonpublic safety
employees.

ir. Davis. I like the way you have done it, as opposed to the
way Federal Government did it, Mr. Chairman, where they said,
we're going to cut so many Federal employees. That doesn’t affect
the bottom line necessarily. That drives the process, we’re going to
get rid of so many employees or whatever. That’s when you lose
sight of the bottom line, you lose the efficiencies that we're trying
to get.

So I congratulate you both. Thank you.

Mr. Horn. Let me just ask one question here and put two things
on the record.

One, those guidelines you mentioned, Madam Secretary, if you
wouldn’t mind giving them, we'll at this point, without objection,
put them in the record. I think that would be most helpful to us
in trying to develop legislation and see what makes sense ahead of
time. Because otherwise we never see the regulations made by var-
ious agencies.

(NoTE.—A copy of the Commonwealth of Virginia’s “Public-Pri-
vate Transportation Act of 1995, Implementation Guidelines,”
dated July 1, 1995, may be found in subcommittee files.]

Mr. Horn. And then I would also like to put in the record the
article in the Washington Post, Sunday, September 21, 1997, head-
lined, “A Winning Combination in Indianapolis: Competitive Bid-
ding For City Services Creates Public-Private Success Story.” And
they have a picture of the mayor, which unfortunately our people
can’t reproduce, because it looks even younger than you look, as I
look at you.

Usually we kid our Members around here that we put our high
school pictures in the Congressional Directory, but you truly would
look like you were just getting out of high school.

Now, let me ask one last question of the secretary. Does the De-
partment of Transportation of Virginia have any authority over the
ish Street Bridge that connects to Virginia and District of Colum-

ia?

Ms. YsarRA. Actually, no. It is the District of Columbia’s bridge.
However-—

Mr. Horn. You aren’t to the halfway mark of the Potomac? It’s
your side that I’m getting to.

Ms. YBARRA. No. It is the mean high watermark of 1928, which
happens to be over on the shore of Virginia. And with Co: ssmen
Davis, Wolf, and Moran, the Virginia Department of Transpor-
tation has recently completed a study which we presented to them


130

Mr. HaARNAGE. It doesn’t come to mind right now, but I'll be glad
to get that to you.

Mr. Horn. OK. Now, on page 15 you noted, and we would abide
by your wishes on that, that we wouldn’t put it in the record. But
you're talking about, “Some of the managers have been establishing
FTE bogies on some depot maintenance facilities.” This official in-
sisted that he was taking corrective action. And then you noted
you’d be glad to share this correspondence with ourselves or the
staff, if you could, with Mr. Brasher, just so we can—and then we'll
give them back to you, and it will not be part of the record because
you didn’t want to—correctly, I think—reform that.

Mr. HaRNAGE. I appreciate that, and we'll certainly do that.

Mr. Horn. I would just like to take a look at it because I was
interested on some of the scrawls that appeared on some of the ex-
hibits, which I enjoyed. And let’s see here, anything else I wasn’t
quite sure on? Just the simple things.

As I say, you did a very thorough statement here. Yeah, the
scrawl is Lieutenant General Fisher’s letter, which I found fas-
cinating. I think that’s about it on that.

Now let me just move to general questions for all of you, starting
with Mr. DeSeve.

Senator Thomas lists—is this a response that just came in? To
Mr. Brownback? OK, we'll look it over.

Senator Thomas mentioned there had been no response yet to
Mr. Brownback’s series of questions—and nothing like a hearing to
promote responses, I must say—September 24, 1997.

Why, there is an answer here, and we will go into it. But I guess
we didn’t see your testimony until 9 o’clock this morning, and we
have that. Make us a few copies. Mrs. Maloney enjoys reading
these things; so do I. So that will help us very much in answer to
some of these questions. We might have a few more follow-up ques-
tions.

In terms of the general testimony here, we won’t restate all the
ones here, I don’t think. We might—staff might furnish them to
you. But I guess—let’s just start with GAO and OMB, and AFGE
can get into it. The Congressional Budget Office has estimated that
savings of 25 to 35 percent are the average under competition.
Does GAO’s work at the Federal, State and local agencies confirm
that estimate?

Mr. STEVENS. We have looked at a great number of studies, Mr.
Chairman, over the years. And | think that’s in the ballpark. But
it does derive from competition. That quote is often used to say
that it arises from contracting out. In fact, the A-76 program, as
Mr. DeSeve can confirm, does lead to savings, but very often the
savings come from cutting the management, the government in-
house—

Mr. Horn. The middle management——

Mr. STEVENS. Exactly.

Mr. Horn [continuing]. That we're all aiming for.

Mr. STEVENS. Subjecting them to competition is certainly what
drives the savings, as Mayor Goldsmith said.

Mr. Horn. Yeah. Well, you heard my questions with the previous
panel in terms of the deputy secretary in Virginia and the mayor
of Indianapolis.


114

‘As OMB itself has reported, cost analyses and independent government estimates
are not performed by many agencies prior to renewal, extension, or recompetition of
existing contracts. And in far too many instances, OMB must admit, cost estimates are
not even prepared prior to entering into new contracts.”

As OMB itself has reported, agencies believe that they are contracting for mission—
essential services; as a result of this haste-makes-waste approach, most contract
administration efforts focus on ensuring that they receive the required services with costs
often becoming peripheral.”

As OMB itself has reported, agencies do not always review the effectiveness and
efficiency of the services performed by contractors prior to making payments."

As GAO has reported, agencies are bestowing "bonuses" on contractors who have
only just met contractual requirements, and even to some who have fallen short, often
grievously so.'?

As GAO has also reported, "(independent audits show millions of dollars in
unallowable and questionable costs have been charged that do not contribute directly to
the agency's intended mission."*

Mr. Chairman, | think you'd agree that gutting A-76's firm but fair requirement for

° qbid.

. pid.

* Ibid.

¥ GAO, FEDERAL CONTRACTING: Cost-Effective Contract
Management Requires Sustained Commitment (GAO/T-RCED-93-2)
(December 1992), p. 8.

3 GAO, Ibid., p. 11.
21


116

employees inadequate salaries or provides few if any health care and retirement benefits?

Mr. Chairman, contrary to a lot of propaganda, pay and benefits for federal
employees are not extravagant. It's well-documented that our pay lags behind
employees in the private sector who perform comparable work by anywhere from 13%
to 43%, Further, federal employees pay more than almost all of their counterparts in the
private sector for their health care and retirement benefits. Over 400,000 full-time federal
employees don't have health insurance because the premiums are prohibitively
expensive--even though our health care system, the Federal Employees Health Benefit
Pian, is often cited as a model for some form of national health care. And the average
before tax income of all U.S. retirees of $19,371 is in excess of the average before tax
annual annuity of federal retirees. Quite simply, federal employees are not living high off
the hog. Consequently, if work is being contracted out to firms that provide the
government with savings simply because they provide their employees with compensation
that is even more inadequate than that provided to federal employees, then | think
lawmakers like yourself need to look at this phenomenon very carefully.

itis undeniable that the federal government is not an employment agency and that
lawmakers are obligated to ensure that taxpayer dollars are spent wisely. But, at the
same time, the federal government, ostensibly the nation's model employer, should not
be providing incentives to contractors to provide their employees with inadequate

‘compensation.

23


3

(7) the level of government competition with the
private sector, especially with small businesses, has
been a priority issue of each White House Con-
ference on Small Business;

(8) reliance on the private sector is consistent
with the goals of the Government Performance and
Results Act of 1993 (Public Law 103-62);

(9) reliance on the private sector is necessary
and desirable for proper implementation of the Fed-
eral Workforce Restructuring Act of 1994 (Public
Law 103-226);

(10) it is in the public interest that the Federal
Government establish a consistent policy to rely on
the private sector of the economy to provide goods
and services that are necessary for or beneficial to
the operation and management of Federal Govern-
ment agencies and to avoid Federal Government
competition with the private sector of the economy;
and

(11) it is in the public interest for the private
sector to utilize employees who are adversely af-

. fected by conversions to use of private sector entities

for providing goods and services on behalf of the
Federal Government.

‘BR 116


93

Mr. Horn. Now, our last witness to get everything out on the
table is Bobby L. Harnage, Sr., national secretary-treasurer, Amer-
ican Federation of Government Employees, AFL-CIO. Congratula-
tions on your election.

Mr. HARNAGE. Thank you, sir.

Mr. Horn. Please proceed.

Mr. HarNaGE. Thank you you very much. Although this is my
first appearance before your panel, Mr. Chairman, I look forward
to working with you and your staff on issues of concern to Federal
employees. I thank you and the ranking minority member for this
invitation. ’'ve submitted my testimony for the record, and so this
morning. I will just summarize, if I may.

Mr. Chairman, AFGE is not reflexively opposed to each and
every instance of contracting out in these times; such a position is
as unrealistic as it is untenable. Because we are conscientious em-
ployees, patriotic Americans, and hard-working taxpayers, AFGE
members are determined to see that the Federal Government’s tax
dollars are spent wisely. Quite simply, Federal employees should
not perform work that is not inherently governmental if they can-
not do it more effectively, more efficiently, and more reliably than
contractors.

But we are also unreservedly procompetition for work that is not
inherently governmental, and it’s competition that is good for the
Nation’s taxpayers and the government’s customers.

Mr. Chairman, let me now express our concerns about H.R. 716.
This bill is flawed for several reasons. First, it is not needed. Last
year, AFGE contractors, representatives, and officials from many
Federal agencies worked with OMB officials to reform A-76. The
resulting supplement provides Federal managers with unprece-
dented latitude and flexibility to outsource to the private sector.

It requires agencies to annually determine which activities it will
consider for conversion to contract, as well as which inherently gov-
ernmental functions it will continue to perform in-house. It man-
dates primary reliance on the private sector if it is shown to be cost
effective. It provides agencies with unprecedented flexibility to
waive the circular’s cost comparison requirements in a wide variety
of situations. And, finally, the Federal Government is engaged in
the largest privatization and outsourcing effort ever undertaken.
Currently, over 40,000 AFGE positions are being examined for con-
tracting, and many thousands more are being identified for out-
right privatization. Moreover, let us never forget that taxpayers al-
ready foot a bill for more than $120 billion worth of service con-
tracting.

The rationale for this bill is flawed. The legislation’s proponents
claim that work currently performed by the Federal Government
would be better done and could be more cheaply done through
outsourcing. Since the notion that the private sector is always bet-
ter and cheaper is false, legislation based on such a notion is clear-
ly not in the best interest of the taxpayers.

For example, the GAO surveyed nine studies on service contract-
ing and concluded that in each case, substantial savings would
have been realized if the work had been retained in-house. GAO
also reported that even after years and years and billions and bil-
lions of dollars in contracting out, it could not convincingly prove


Mr. Chairman and Members of the Subcommittee:

Tam pleased to be here today to assist the Subcommittee in its consideration of H.R. 716,
the Freedom from Government Competition Act of 1997. As stated in the introductory
language to the bill, the purpose of H.R. 716 is to cause the “Federal Government [to]
procure from the private sector the goods and services necessary for the operations and
management of certain Government agencies, . . .” While there are exceptions, the bill
tilts the “makc-or-buy” decision for goods and scrvices in favor of buying goods and
scrvices in the private marketplace rather than having government produce them. This
sentiment was expressed previously, albeit more concisely, by Thomas Jefferson who
noted that “[i]t is better for the public to procure at the common market whatever the
market can supply; because there it is by competition kept up in its quality, and reduced

to its minimum price.”

In Indianapolis, we appreciate the focus of the bill and the important issucs that it
addresses. It is clear that sometimes when govemment competes with the private sector,
it does so to the detriment of not only private business but also to the detriment of
taxpayers. More often than not, however, the process by which government produces
goods and services itself rather than buying them has little to da with competition.

Competition, in its trucst sense, entails a fre and open marketplace where producers


158

Mr. DESEVE. This gentleman, David Childs, is the father of A—
76. I think what we want to do as we look at that data is to shine
a spotlight on some of the agencies and ask them that question. I
will be talking to the President's management council about the
data once it is compiled. Let me take a look at it, because we cer-
tainly have been challenging agencies in this area to contract out,
to exit functions, and to privatize where appropriate. I want to
know the answers to some of these questions myself.

Mr. Horn. We will be glad to work with you on it. As you know,
we had a successful marriage here, as Mrs. Maloney pointed out,
with the debt collection improvement bill. I think everybody was
working on the same team, whether it be GAO, OMB, or the agen-
cies, and we got something done. So I would like to see what we
can do on this to make some sense out of the policy and also recog-
nize what human beings are contributing.

I am a Henry Ford type. I believe you pay the workers a good
salary so they can go out and buy your car. He was smart on that.
He didn’t have a great college education, no Harvard MBA or any-
thing, but he had common sense, and he was right.

The staff might well send you some additional questions which
we would appreciate all of you answering for the record. They will
go in at this point.

(The information referred to follows:]


125

DEFENSE INFORMATION SYSTEMS ste
7015. COURTHOUSE ROAD

am DISA WESTHEM (WEO4) 12 February 1997

‘MEMORANDUM FOR DISTRIBUTION

SUBJECT: Results of the DMCs’ Revenue Based Staffing Plans

1. The outstanding effort you put forth in developing your
staffing plan is appreciated. The results show the bottom-line
objective was achieved to attain the targets for F¥9@: 2,116 A-
Goal staffing and an A-Goal Revenue per FTE of greater than
$230,000. Enclosure 1 contains the narrative results of each
DHC’s submission and the Resource Management Advisory Group
(RMAG) approved A- and C-Goal staffing levels for FY98.
Enclosure 2 is a spreadsheet synopsis showing the following
staffing breakouts: the original FY98 Staffing Projections from
the June 1996 model, the DMC requested staffing from their plans,
the FMAG approved staffing levels, and the DMC onboard staffing
as of 31 December 1996.

2. The attachment identifies each DMC's RMAG approved strength
for civilians, military, and contractor personnel. That strength
is your new ceiling and is not to be exceeded without exception
approval. These numbers will be used by RM during the build for’
the FY99 budget. In order to assist you in implementing your
plans, the following guidance is provided.

a. If your site is below target and you require filling a
position at the GS-12 and below level, you may utilize
contractors or reengineer the position for filling under the DISA
Bridge Position Program to meet your need. However, you are not
authorized to increase your civilian end strength.

b. Due to the variety of versions and overall age of many of
the exception requests currently submitted to WEl and the RMAG,
ALL pending requests for hiring exceptions are canceled effective
with receipt of this memo. If you determine that you have a
critical position that performs an inherently governmental
function such as supervision, technical COTR, senior security
specialist, contract management, senior financial management,

etc., a new request for exception hiring should be prepared and
forwarded to WEl.

Quality Information for a Strong Defense


100

‘elt requires agencies to annually determine which activities it will consider for
conversion to contract, as well as which inherently governmental functions it will
continue to perform in-house.

‘elt mandates primary reliance on the private sector when it is shown to be cost
effective.

‘elt provides agencies with unprecedented flexibility to waive the Circular's cost
comparison requirements.

*For example, activities with 10 or fewer Full-Time Equivalent (FTE)
employees may be directly converted to contract without a cost comparison.

“It allows waivers of cost comparisons for activities with 11 or more FTE's,
if fair and reasonable costs can be obtained from the private sector and
impacted workers are placed in comparable federal jobs.

*It allows agency heads to waive cost comparisons if, in their determination,
the conversion to private performance will result in significant improvements
in quality of service or cost savings, and the in-house bid has no
opportunity of winning the cost comparison.


41

eighty head-to-hcad competitions and six years of hard work, we have generated some
positive results. To date, the City has saved nearly $250 million. By the end of 1997,
that number will exceed $400 million. The number of City workers, excluding police
officers and firefighters, has dropped by nearly 45%. Nonctheless, no union employee
has lost a job as a result of our cfforts. Morcover, employcc grievances as well as
workplace injuries have fallen dramatically. The City’s fund balance has quadrupled, and

our third property tax rate reduction currently awaits legislative approval.

Now, Ict me tum my attention directly to H.R. 716 and make several observations,
comments, and recommendations. As noted above, J think this bill is probably
misnamed. It appears to me that the bill is attempting to eliminate the federal
government’s monopoly powcr, rather than to prohibit it from competing with the private
sector. In fact, the bill appears to exclude from its application a whole range of goods
and services, including when it is determined that the federal government is the “best
value source of the goods or services.” That appears to specifically contemplate price
competition between the government and the private sector. If the purpose of the H.R.
716 is to eliminate government’s monopoly power and, where appropriate, facilitate
competition, then it is closer to the Indianapolis model, described above, than the name of
the bill would suggest. There are, however, a few areas of the bill that may be morc

cumbersome than needed.