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NEW CENTURY, NEW PROCESS: A PREVIEW OF

COMPETITIVE SOURCING FOR THE 21ST CENTURY

HEARING

BEFORE THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JUNE 26, 2003

Serial No. 108–42

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

WILLIAM J. JANKLOW, South Dakota

MARSHA BLACKBURN, Tennessee

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

CHRIS BELL, Texas

———

BERNARD SANDERS, Vermont

(Independent)

PETER SIRH, Staff Director

MELISSA WOJCIAK, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHILIP M. SCHILIRO, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on June 26, 2003 ............................................................................... 1

Statement of:

Harnage, Bobby L., Sr., national president, American Federation of Government Employees; Colleen M. Kelley, president, National Treasury

Employees Union; David D. Dilks, president, DDD Co., Landover, MD,

on behalf of the Contract Services Association of America; and Stan

Z. Soloway, president, Professional Services Council ................................ 79

Walker, David M., Comptroller General, U.S. General Accounting Office;

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

of Management and Budget; Philip Grone, Principal Assistant Deputy

Under Secretary of Defense for Installations and Environment, Department of Defense; and Scott J. Cameron, Deputy Assistant Secretary

for Performance and Management, Department of the Interior ............... 6

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

Cameron, Scott J., Deputy Assistant Secretary for Performance and Management, Department of the Interior, prepared statement of ................... 54

Davis, Chairman Tom, a Representative in Congress from the State of

Virginia, prepared statement of ................................................................... 3

Dilks, David D., president, DDD Co., Landover, MD, on behalf of the

Contract Services Association of America, prepared statement of ........... 120

Grone, Philip, Principal Assistant Deputy Under Secretary of Defense

for Installations and Environment, Department of Defense, prepared

statement of ................................................................................................... 44

Harnage, Bobby L., Sr., national president, American Federation of Government Employees, prepared statement of ............................................... 81

Kelley, Colleen M., president, National Treasury Employees Union, prepared statement of ........................................................................................ 109

Ose, Hon. Doug, a Representative in Congress from the State of California, prepared statement of ........................................................................... 22

Shays, Hon. Christopher, a Representative in Congress from the State

of Connecticut, prepared statement of Elwood Hampton, ITPE vice

president ........................................................................................................ 24

Soloway, Stan Z., president, Professional Services Council:

Information concerning revisions to OMB Circular A–76 ...................... 132

Prepared statement of ............................................................................... 140

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

of Management and Budget, prepared statement of .................................. 30

Walker, David M., Comptroller General, U.S. General Accounting Office,

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

(1)

NEW CENTURY, NEW PROCESS: A PREVIEW

OF COMPETITIVE SOURCING FOR THE 21ST

CENTURY

THURSDAY, JUNE 26, 2003

HOUSE OF REPRESENTATIVES,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 9:35 a.m., in room

2154, Rayburn House Office Building, Hon. Tom Davis (chairman

of the committee) presiding.

Present: Representatives Tom Davis of Virginia, Shays, Ose, Jo

Ann Davis of Virginia, Duncan, Waxman, Maloney, Kucinich,

Tierney, Watson, Van Hollen, Ruppersberger, Norton and Cooper.

Staff present: Melissa Wojciak, deputy staff director; Keith

Ausbrook, chief counsel; Ellen Brown, legislative director and senior policy counsel; Randall Kaplan, counsel; Robert Borden, counsel/parliamentarian; David Marin, director of communications;

Scott Kopple, deputy director of communications; Mason Alinger,

professional staff member; John Brosnan, GAO detailee; Teresa

Austin, chief clerk; Joshua E. Gillespie, deputy clerk; Corrine

Zacagnini, chief information officer; Phil Barnett, minority chief

counsel; Michelle Ash, minority counsel; Mark Stephenson, minority professional staff member; Earley Green, minority chief clerk;

Jean Gosa, minority assistant clerk; and Cecelia Morton, minority

office manager.

Mr. SHAYS [presiding]. Good morning.

We are here today to examine recently issued revisions to Office

of Management and Budget’s Circular A–76, the Federal Government’s competitive sourcing process. The administration promulgated these revisions on May 29, 2003.

This is the first major overhaul of the A–76 process in 20 years.

These revisions are the product of a 2-year effort that included discussions and negotiations with all stakeholders as well as a formal

public notice and comment period.

For almost 50 years it has been the policy of the Federal Government to look to the private sector to supply products and services

whenever possible. The A–76 Circular was first adopted in 1966 to

formalize the policy requiring government purchasers to compare

the cost of in-house performance by an agency with the cost of performance by the private sector.

Despite this Circular’s long history, A–76 cost comparisons have

not been widely used by Federal departments and agencies. While

the Department of Defense has used the guidelines to compete

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functions ranging from computer services to commissary operations, few other agencies have used the process. Circular A–76 has

been criticized over the years as being time-consuming, expensive,

and unnecessarily complicated, which has discouraged Federal

managers from using it.

Recognizing that the A–76 process was flawed, Congress created

the Commercial Activities Panel, chaired by the Comptroller General, to study the government’s competitive sourcing policies. The

panel included representatives from government agencies, Federal

labor unions, private industry and academia.

The revised Circular under discussion today extensively modifies

the old process, following some but not all Commercial Activities

Panel recommendations.

Under the old rules, commercial activities for which contractors

and Federal employees competed were awarded to the entity that

offered the lowest cost to the government to perform the work. The

comparison involved a two-step process in which the private sector

price to perform the work was determined by competition. Then the

winning bid was compared to an estimate of the cost of in-house

performance by the government.

The new rules, by contrast, provide for a one-step process in

which all sources, including Federal employee units, can submit offers and compete for commercial activities at the same time. Although in most instances the work will be awarded to the lowestcost provider, in some limited cases agencies may award a contract

using a best-value methodology which allows a contract award to

be decided on factors other than cost alone.

The revised Circular also eliminates most direct conversions, a

process in which Federal tasks performed by 10 or fewer employees

could be outsourced to private companies without competition. Instead, the revised Circular A–76 permits a streamlined competition

process for jobs involving 65 or fewer Federal employees.

The new guidelines also set strict timeframes for completion of

competitions. Streamlined competitions must be completed within

90 days, while standard competitions will normally take 12

months.

The bottom line when it comes to public-private competitions is

get the best value for taxpayers. The revisions to the A–76 process

are a positive change that will result in real savings and greater

efficiencies in government operations. The revisions are also central to the administration’s Competitive Sourcing Initiative, a key

element of the President’s Management Agenda.

We have assembled excellent panels of witnesses who will discuss these important issues. On behalf of Chairman Davis, I thank

each of them for appearing today.

[The prepared statement of Chairman Tom Davis follows:]

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Mr. SHAYS. We will I think introduce the witnesses, and I think

Mr. Waxman will be on his way. So let me at this point recognize

our panel and swear them in.

The Honorable David Walker, Comptroller General of the United

States and head of the General Accounting Office; the Honorable

Angela Styles, Director of the Office of Federal Procurement Policy

at the Office of Management and Budget; Mr. Philip Grone, the

Principal Assistant Deputy Under Secretary of Defense for Installations and Environment at the Department of Defense; and Mr.

Scott Cameron, Deputy Assistant Secretary for Performance and

Management at the Department of Interior.

I think, as you know, it is the policy of the committee that all

witnesses be sworn in before they testify. So we’ll have you stand

up, and we’ll swear you in. Raising your right hands, please.

[Witnesses sworn.]

Mr. SHAYS. Note for the record our witnesses have responded in

the affirmative.

I think what we’ll do is start with you, Mr. Walker. If Mr. Waxman arrives, then I think, before we go into the next, we’ll make

sure we hear from him.

So you have the floor.

STATEMENTS OF DAVID M. WALKER, COMPTROLLER GENERAL, U.S. GENERAL ACCOUNTING OFFICE; ANGELA STYLES,

DIRECTOR, OFFICE OF FEDERAL PROCUREMENT POLICY,

OFFICE OF MANAGEMENT AND BUDGET; PHILIP GRONE,

PRINCIPAL ASSISTANT DEPUTY UNDER SECRETARY OF DEFENSE FOR INSTALLATIONS AND ENVIRONMENT, DEPARTMENT OF DEFENSE; AND SCOTT J. CAMERON, DEPUTY ASSISTANT SECRETARY FOR PERFORMANCE AND MANAGEMENT, DEPARTMENT OF THE INTERIOR

Mr. WALKER. Thank you very much for the opportunity to appear

today to discuss the Office of Management and Budget’s revised

Circular A–76. If I can, Mr. Chairman, I would like for my entire

statement to be included in the record. It’s fairly extensive, and I’d

like to make just a few highlight comments now if I can.

Mr. SHAYS. Yes, please do that.

Mr. WALKER. Thank you very much.

This is an important, complex and somewhat controversial topic.

As you pointed out, Mr. Chairman, because of the importance complexity, and controversy associated with the entire issue of sourcing

strategy in general and competitive sourcing in particular, including A–76, the Congress by law enacted legislation that required the

creation of a Commercial Activities Panel, which I had the—I don’t

know if it is the privilege, but I had the obligation to chair and

took it very seriously.

It was an extensive effort. It involved a number of public hearings, a diverse group of—and highly qualified parties as members

of the panel, including several witnesses here today.

After that extensive process, the panel unanimously agreed, as

you know, to 10 sourcing principles that should guide all sourcing

policy. That was unanimous. Furthermore, a supermajority—but

not unanimous by any means—a supermajority of the panel also

agreed to certain other supplemental recommendations dealing

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with the proposal to create a streamlined, FAR-based process as a

supplement to, not a substitute for, A–76 and also the need to look

at how we can promote high-performing organizations throughout

government and not rely on competitive sourcing as our primary

means of trying to achieve economy, efficiency and effectiveness,

given that a vast majority of the Federal Government will never be

subject to competitive sourcing.

I think it’s important to note that while we’re still reviewing the

final A–76 Circular, that in general GAO’s view is that it is generally consistent with the Commercial Activities Panel sourcing

principles and recommendations. We do have certain concerns.

For example, as anything goes, you can have a perfect policy, but

how it is implemented is absolutely key. We’re particularly interested in trying to get a sense as to how these streamlined cost comparisons for under 65 might be handled in actual practice. The

panel did talk about having to restrict direct conversions to a de

minimus amount of 10 FTEs or less. Time will tell whether these

streamlined cost comparisons will end up occurring.

We had some concerns about the reasonableness of the timeframes. I know that OMB was responsive to note that they are not

hard and fast timeframes, but I think in that regard it is going to

be critically important that Federal agencies have adequate financial and technical resources available in order to assure that Federal employees will be able to compete fairly and effectively in connection with any competitions.

We continue to have concerns with the need for enhanced cost

data for both the winners that might be in the public sector as well

as the private sector, and we’re concerned about more details being

needed for high-performing organizations, if you will.

But, in general, as I said, it appears in design that what OMB

has done is generally consistent with the Commercial Activities

Panel recommendations subject to those comments.

I would also like to, if I can for the record, Mr. Chairman, be able

to refer to a couple of things that one of the subsequent panel

members will be testifying to, namely, it is true that the Commercial Activities Panel did talk about retaining a 10 percent cost differential on A–76 competitions as well as major competitions.

Second, it is untrue that GAO is the biggest booster of best

value.

And, third, for the record, what I would like to state is that

about a year ago I received a call from several Senators and Members of Congress on both sides of the aisle who asked my view

about a legislative provision that was being considered by the Congress at that point in time. I provided my views to those Members,

basically stating that I did not believe that arbitrary goals or

quotas were appropriate. I felt that the initial 15 percent and 50

percent targets for the administration were arbitrary and therefore

not appropriate.

However, I also felt that it was possible to be able to come up

with a considered approach by reviewing past activity, by looking

at, on a more considered basis, to come up with some type of a

number that would be based upon a considered review and analysis, and I didn’t believe that it would be appropriate to say that

was per se improper by law. And so, as a result, I stand by what

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I did, and Congress evidently felt that it was valuable and acted

accordingly.

So, with that, Mr. Chairman, I think this is an important topic.

I look forward to respond to any questions that you and other

members of the committee may have subsequent to hearing from

the other panel members. Thank you.

Mr. SHAYS. Thank you.

[The prepared statement of Mr. Walker follows:]

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Mr. SHAYS. Ms. Styles, before recognizing you, we’ve been joined

by two Members. They may have opening statements. Mr. Ose and

Mr. Ruppersberger. Mr. Ose, do you have an opening statement?

Mr. OSE. I do, Mr. Chairman.

Mr. SHAYS. If you don’t mind, we’re going to kind of go to Members now. Mr. Ose.

Mr. OSE. Thank you, Mr. Chairman.

As a member of this committee and a former owner of various

small businesses, I am happy to be participating today in this hearing on the administration’s new competitive sourcing policy, which

was issued by OMB on May 29, 2003.

Mr. Chairman, in the interest of time, I’m going to abbreviate my

remarks and submit my full statement for the record. I will say

that, subsequent to the November issuance of the proposed policy

change, I’ve had my staff looking at any number of things, not the

least of which was the impact on identifying the number of jobs,

if you will, that would fall in the commercial inventory focused on

California.

We focused on the seven functions, with over 1,000 employees

each in California and we’ve analyzed six of them. We have used

the threshold of 100, as opposed to 65 positions. In sum, the analysis indicates that, in California alone, in those six function areas,

there’s about 3,500 slots available for commercial consideration in

nursing services at the Department of Veterans Affairs; 1,704 in

medical services at DVA, Department of Veterans Affairs; 1,582 in

the Defense storage and warehousing function; 1,240 in the Agriculture Department’s fire prevention and protection function; 1,168

in the Defense commissary operations; and 1,019 in the Treasury

Department data processing services.

This just gives you some sense of the scope of what this particular proposal may envision. In total, there were 32,284 commercial

jobs performed by Federal employees at nine Federal agencies in

California, according to the analysis my staff did. This is an opportunity for us to take a hard look at what these positions offer and

to try on focus government’s role.

I look forward to the testimony from our witnesses today. I think

this is a great step in the right direction. I appreciate the time.

Mr. SHAYS. Thank you, Mr. Ose.

[The prepared statement of Hon. Doug Ose follows:]

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Mr. SHAYS. Mr. Ruppersberger.

Mr. RUPPERSBERGER. I have no statement.

Mr. SHAYS. Mr. Van Hollen, do you have any——

Mr. VAN HOLLEN. No.

Mr. SHAYS. Thank you both for being here.

Let me just deal with unanimous consent before we get to you,

Ms. Styles. I ask unanimous consent that members and witnesses

shall have 5 days to submit written statements for the record; and

obviously any abbreviations of your own statements will be submitted in the record if you choose to speak orally. That will obviously

be a part of the record as well.

Also, I ask unanimous consent to insert into the record a statement from Elwood Hampton, ITPE vice president, and without objection, so ordered.

[The prepared statement of Mr. Hampton follows:]

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Mr. SHAYS. Ms. Styles, you have the floor.

Ms. STYLES. Thank you, Chairman Shays and members of the

committee. I appreciate the opportunity to be here today to update

you on the administration’s Competitive Sourcing Initiative and

our recent overhaul of OMB Circular A–76. I am pleased to report

that we are making significant progress toward public-private competition being an accepted management practice at our departments and agencies. Our initiative requires a transformation of culture and mind-set from one that resists competition to one that

welcomes the value that competition generates.

The administration’s Competitive Sourcing Initiative asks people

to make very hard management choices, choices that affect real

jobs held by very real and dedicated, loyal career civil servants.

But the fact that our initiative requires hard choices and a lot of

hard work makes it one that can and is affecting fundamental, real

and lasting changes to the way we manage the Federal Government.

The clincher here is the taxpayer. This initiative, competitive

sourcing, strives to focus the Federal Government on its mission,

delivering high-quality services to our citizens at the lowest possible cost. It’s a hard pill for a lot of people to swallow or to believe,

but we really don’t care whether it is the public or the private sector that is delivering those services. Competitive sourcing is a commitment to better management. It is a commitment to ensuring

that our citizens are receiving the highest quality service from

their government without regard to whether that job is being done

by dedicated Federal employees or the private sector. What we care

about is the provision of government service by those best able to

do so, be that the private sector or the government itself.

Our recent revisions to OMB Circular A–76 could not make this

commitment any more clear. Each policy change was made with

three questions in mind: What is the right answer for the taxpayer? How can we provide the best service to our citizens at the

lowest possible cost? And do we have a reasonable expectation that

we can implement this policy?

As we discuss these changes today, many of you are going to ask

why particular decisions were made. My answer will probably always be the same, that after extensive discussion we decided that

the policy was in the best interest of the taxpayer and providing

exceptional service to our citizen at the lowest possible cost. This

decisionmaking process applied to many of the difficult decisions,

including the elimination of direct conversions, the elimination of

policy guidance on Inter-Service Support Agreements, the elimination of the minimum cost differential for a streamlined competition and the elimination of the 50-year-old policy statement that

presumed that the private sector was better than the public sector

at providing commercial services.

The steps we have taken to improve the process for determining

whether a commercial activity will be performed by a public or private source are significant. We committed to a complete overhaul

of a broken process, to creating something that was streamlined,

transparent and easy to understand. But, most importantly, we

committed to creating a process that was fundamentally fair to all

parties participating, including our Federal work force.

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We also committed to holding our service provider, be they public

or private, accountable for results. We have followed through on

each and every one of these commitments, and while these changes

to the Circular are significant, we recognize that better guidance

is only one ingredient for success. Agencies need a knowledgeable

and committed management support structure to implement these

changes. For these reasons, we are taking a number of actions to

make sure agencies have the necessary support structures in place.

First, we are requiring agencies to establish a program office

that will be responsible for the daily implementation and enforcement of the Circular. Effective oversight will serve to enhance communications and facilitate sharing of experiences within the agencies and among agencies. This type of a communication may be especially helpful to government providers, many of whom have told

us they have the capability to be highly competitive, but they lack

the private sector’s insight and experience in competing for work.

Second, the Federal Acquisition Council has created a working

group to discuss common needs among agencies. This group is

being ably led by Scott Cameron from the Department of Interior,

who is here today. The working group’s efforts should help agencies

to better understand and successfully implement the administration’s vision for a market-based government.

Third, OMB intends to meet with managers at the scorecard

agencies, the 26 CFO agencies, over the coming months to understand what, if any, agency-unique challenges they face and how we

at OMB can help them in meeting these challenges. The faster

challenges are identified and addressed, the sooner agencies will be

in a position to routinely use the competition processes.

While there is a certain level of comfort in maintaining the status quo, our taxpayers cannot afford this, nor should they be asked

to support a system that operates at unnecessarily high cost, because many of our commercial activities are performed by agencies

without the benefit of competition. For this reason, the administration has called upon agencies to transform their business practices.

We have provided tools for meeting this objective in a responsible

and fair manner.

This concludes my prepared statement, but I’m pleased to answer any questions you may have.

Mr. SHAYS. Thank you, Ms. Styles.

[The prepared statement of Ms. Styles follows:]

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Mr. SHAYS. Mr. Grone.

Mr. GRONE. Thank you, Chairman Shays.

Mr. Shays and distinguished members of the committee, I am

pleased to have this opportunity to appear before you today to discuss the revision to OMB Circular A–76 and its expected impact on

the Department of Defense.

We know the forces of competition produce more efficient services

at reduced cost to the taxpayer, regardless of who performs these

services. We were successful at achieving savings under the old

Circular, and we believe the new Circular provides an opportunity

to strengthen the efforts of employees, industry and managers of

a competitive sourcing program to produce the best outcome that

meets the mission needs of the Department in the most cost-effective and efficient manner.

The administration through OMB has taken significant steps toward these objectives by providing a competitive framework that

promotes fairness, transparency and accountability. The Department’s initiatives support the President’s vision of a market-based

government used to achieve our President’s Management Agenda

goals for competitive sourcing. We intend to use the new Circular

to meet the Department’s competitive sourcing targets.

As we implement the new Circular, we will review our ongoing

programs to determine how best to comply with the Circular’s transition objectives. A smooth transition is absolutely essential. We believe the credibility of the new process depends upon the successful

execution of these initial competitions. As we start competitions

using the new procedures, we need to ensure responsible officials

are properly trained for new and expanded duties.

We will continue to work closely with our dedicated and resourceful work force to promote the fairness, transparency and accountability the Circular advocates as the Department implements

the new procedures. Employee involvement in our competitions has

been essential to successful results, and we will ensure their continued participation as we implement the new process. Clearly defined representatives of directly affected employees as outlined in

the Circular brings standardization to the process, ensuring the

ability of employees to participate fully while avoiding the appearance of conflicts of interest.

We believe there are significant positive elements of the new Circular: The designation of competitive sourcing officials and centralized management are crucial to spreading best practices and avoiding common pitfalls of competitions in the past.

Clear and unambiguous application of the Federal Acquisition

Regulations in combination with the Circular require contracting

officers to evaluate all prospective providers, private and public, in

a single evaluation process that will enhance transparency. The use

of a one-step process should help level the playing field for all participants, mitigating a common complaint about past competitions.

The new Circular’s emphasis on preliminary planning recognizes

a long-standing need for proper preparation. Proper preliminary

planning leads to better packaging of activities for competition and

avoids negatively impacting on Federal employees. Preliminary

planning is among the most important improvement to facilitate reducing the length of the process.

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OMB’s new tradeoff source selection process promotes best-value

competitions and is available to all agencies except the Department

of Defense. At the present time, we are limited to the lowest-cost

provider due to the statutory limitations imposed by section 2462

of title 10, United States Code. The Department continues to believe relief from this limitation would further encourage innovation

by both the public and private providers and significantly improve

the quality of services. We continue to urge the Congress to adopt

this part of the Secretary’s transformation legislative package to

put us on a par with our sister Federal agencies who are not limited in this fashion.

Mr. Chairman, the Department is pleased that the new Circular

recognizes DOD’s A–76 costing expertise and requires use of our A–

76 costing software known as COMPARE for all Federal agencies.

Costing the government will remain a challenging part of the public-private competition process, but standardization allows all parties to understand the rules that are used.

The knowledge management Web site developed by the Department known as SHARE A–76! will continue to promote the sharing

of best practices resulting from A–76 competitions conducted by all

Federal agencies.

In spite of all the anticipated positives of the new Circular, we

do anticipate for a period of time we will likely have a program operating under two sets of rules to some degree. The new Circular

will apply to a number of ongoing competitions while some inprogress competitions will need to be completed under the old Circular. We will make public announcements of competitions requiring transition by the Circular and ensure the requirements of the

new and old Circulars are not combined to the advantage of any

party.

Again, I want to emphasize it does not matter who wins publicprivate competitions as long as the decision delivers results, services at the best value for the taxpayer.

As of June 1, 2003, the Department of Defense has completed

competitions in excess of 71,000 positions; and this exceeds the 15

percent competitive sourcing target negotiated with OMB for this

fiscal year. By reaching this target, we hope to be among the first

Federal agencies to reach yellow status on the score card.

Mr. Chairman and committee members, thank you again for the

opportunity to address these important issues today; and I’m happy

to answer any questions you may have.

Mr. SHAYS. Thank you, Mr. Grone.

[The prepared statement of Mr. Grone follows:]

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Mr. SHAYS. Mr. Cameron.

Let me just say we’ve been joined by Ms. Norton from D.C.

Mr. CAMERON. Thank you very much, Mr. Chairman and members of the committee. I’m delighted to be with you today to talk

about the Interior Department’s competitive sourcing program and

Circular A–76.

We view the President’s Management Agenda as a set of tools to

help us improve the quality and cost-effectiveness of the services

we provide the American people. Competitive sourcing is one of

those tools to enhance value for our citizens. Interior’s competitive

sourcing program emphasizes competition as a tool for enhancing

performance. It also emphasizes the importance of periodic review

of how we deliver services to assess whether we can serve the public, our customers, better through reengineering, through

outsourcing or by maintaining existing structures. As we focus on

how to best meet the public’s needs, we are also focused on making

certain that our highly dedicated employees are treated fairly.

Our challenge as managers is to show our employees how competitive sourcing can be a tool to advance the agency mission to

which they are so very strongly committed. As we generate efficiencies, our bureaus can reinvest in mission delivery any savings

that they generate by competitive sourcing, and in this way competitive sourcing can provide resources that we can plow back into

our parks, back into our other programs, our other activities in the

Department, to increase the level of service to the American public.

We believe that changes made to this Circular will help the Federal Government become more results-oriented, citizen-centered

and efficient. The new Circular also reinforces employees’ ability to

compete by allowing them to reengineer functions with less than 65

FTEs and by removing the presumption that commercial functions

belong in the private sector.

One point of my testimony I think is very worth communicating

at this point, Mr. Chairman, is that Interior has analyzed approximately 1,600 FTEs through competitive sourcing, and I’m happy to

tell you that, while our employees have won some of those competitions and lost some of those competitions, in no case has a single

Interior employee been involuntarily separated from permanent

service as a result of those studies to date.

Our study plan for fiscal years 2002 through 2004 now equals approximately 25 percent of the FTEs listed as commercial in our

year 2000 FAIR Act inventory. That represents just 7 percent of

the Department’s total employment.

I would like to add that competitive sourcing has proven economically beneficial to some of our former employees. In a review

of Federal employee lifeguards in Florida, for instance, in the National Park Service, the winning contractor hired all our former

temporary and seasonal workers; and these employees report they

are now working more hours for the contractor than they did as

government employees. So they are bringing home more pay as a

result.

The Department communicates on a frequent basis with employees involved in ongoing and planned studies. We use town hall

meetings, e-mail, newsletters and other means. These efforts have

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Management Cooperation, which is a joint labor-management organization, informed about the changes that we’re making in competitive sourcing and the progress of studies within the Department.

If the committee would be interested, I brought half a dozen copies of a resolution that our Labor-Management Council adopted on

competitive sourcing which commits both labor and management to

pursuing competitive sourcing in a way that ensures employee

rights and provides best value to the taxpayer. So if the committee

is interested, we can provide that for you.

The Department’s guidance for developing the fiscal year 2004

competitive sourcing plan requested that each bureau reflect on the

Department’s strategic human capital management plan and its

implementation plan. The guidance further asks the bureaus to

consider for competitive sourcing functions areas where we have

high projected attrition rates, significant skill imbalances, recurring performance challenges, or chronic skills shortages.

Bureaus were also asked to consider studying functions where a

significant amount of contracting was already taking place in other

bureaus, as well as situations where competitive sourcing studies

were already well under way in other bureaus. In both cases, the

thought was we could learn from the work and experience of others.

We’ve invited our bureaus to resubmit their fiscal year 2004 competitive sourcing plans in light of the new Circular. We’re also consulting with Angela here about how to handle the 64 streamlined

studies that we already had under way at the time the new Circular came out; and we’re hopeful that we’ll be given permission

shortly to go ahead with those studies, essentially grandfather

them under the old Circular.

In closing, the Department fully supports the new Circular. We

think that it’s a tool to improve the delivery of services to the

American people. We believe we can conduct the program in a way

that’s fair to our employees.

I’d be delighted to answer any questions the committee might

have.

Mr. SHAYS. Thank you, Mr. Cameron.

[The prepared statement of Mr. Cameron follows:]

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Mr. SHAYS. What my intention is as Chair is to recognize Mr.

Ose and then go to Mr. Van Hollen, Ms. Norton and Mr. Tierney,

and then I’ll ask some questions. We’ll do the 5-minute rule right

now and maybe do a second round.

You have the floor, Mr. Ose.

Mr. OSE. Thank you, Mr. Chairman.

Mr. Cameron, it’s good to see you again. I know we’ve visited

previously on paperwork reduction. I’m still interested in that

checkoff.

Mr. CAMERON. Actually, I thought I’d see you in Mr. Putnam’s

committee last week. So I did the research. The answer is, we’re

still on track.

Mr. OSE. Good. Stay there.

Mr. Walker, thank you for your testimony.

A couple questions, if I might. I want to preface my questions by

saying, as I did in my opening statement, that subsequent to the

November proposed policy change, my staff did a lot of work. In

fact, we sent out inquiries to 102 different Federal agencies. I want

to mention that because I want to take note of the work that Chris

Rich and Brooke Greer did in assimilating and compiling these

data. We come to this meeting today with significant information,

and it’s a function of Chris’s and Brooke’s good work.

On page 3 of your testimony—your written statement, Mr. Walker, you state, effectively implemented, the new Circular should result in increased savings, improved performance and greater accountability, regardless of the service providers selected.

The question I have is, has GAO estimated the potential dollar

savings in the first year, the second year and then annually thereafter?

Mr. WALKER. No, we have not. And that would be virtually impossible to do, because you have no degree of certainty as to how

many competitions will occur, what functions they will be.

I think we can say that, historically, based upon data that we’ve

seen in the past, is that there have been significant cost savings

that have been achieved and inured to the benefit of the taxpayer,

irrespective of who wins in the past—in other words, whether the

Federal workers win because of the creation of a most efficient organization or whether contractors win—but at least initially there

have been significant savings that have occurred in the past.

Mr. OSE. OK. So your estimate, if you will, the savings is a function of historical trends rather than a prospective look?

Mr. WALKER. That’s correct. I mean, we can report on what’s occurred in the past; and what we can say is that we believe—and

you said the right words, ‘‘if effectively implemented.’’ Because, you

know, we find that there’s sometimes a difference between design

or plan and actual. There is an opportunity for additional savings

here, no question.

Mr. OSE. When you think in terms of savings, do you have some

sense of perhaps the range of percentages that we might have in

savings?

Mr. WALKER. Historically, the savings have been in the 20 to 30

percent range with regard to historical competitions, no matter who

wins the competition. But I think it’s important to note cost is imVerDate 11-MAY-2000 10:51 Oct 06, 2003 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 D:\DOCS\89005.TXT HGOVREF1 PsN: HGOVREF1
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portant, but cost is not everything. We obviously are concerned

about reliability and quality and other issues, too.

Mr. OSE. Second question. On page 6 of your written statement,

you mention that GAO has listed contract management at NASA,

HUD and DOE, Department of Energy as an area of high risk, the

contract management function. What do you recommend to ensure

that these three agencies can fairly implement the new A–76 Circular without disadvantaging Federal employees currently performing commercial functions?

Mr. WALKER. These Federal agencies in particular have met the

criteria in the contract management area for being deemed to be

high risk, as noted by GAO’s public criteria. There are other Federal agencies that have serious challenges in the area of contract

management.

Our experience has shown that if for some reason through competitive sourcing or other methods the Federal Government ends

up contracting out certain responsibilities and functions to the private sector that it is critically important that they maintain an

adequate number of qualified, capable Federal employees who can

manage cost, quality and performance of that contractor; and if

they do not do that, then the government is at risk, the contractor

is at risk, and the taxpayers are at risk. So I think that if there’s

going to be more that’s going to be done by private-sector employees of traditional government functions or activities, if you will,

then it’s going to be critically important that capability exist in the

government to make sure that we don’t end up having more highrisk areas or we exacerbate the ones that we already have.

Mr. OSE. Mr. Chairman, at some point or another I hope we do

talk about the training necessary for contract officers under this

scenario, because this is, as Mr. Walker is suggesting, a very critical piece to the successful implementation.

Ms. Styles, on page 11 of your written statement, you state, ‘‘our

taxpayers simply cannot afford—nor should they be asked to support—a system that operates at an unnecessarily high cost because

many of its commercial activities are performed by agencies without the benefit of competition.’’

Has OMB estimated the potential dollar savings in the first year,

second year or thereafter?

Ms. STYLES. No, we have not. What we have done is created a

system within the Circular for collecting that information.

One of the problems in the past has been that the information

has been difficult to collect and not consistently collected. We have

requirements in the Circular for consistent collection governmentwide for the creation of baselines for an understanding not only of

what we project the cost savings to be but to ensure that we are

actually achieving the cost savings that we project into the future.

Mr. OSE. Thank you, Mr. Chairman.

Mr. SHAYS. Thank you. I thank the gentleman.

Mr. Van Hollen.

Mr. VAN HOLLEN. Thank you, Mr. Chairman.

I thank all the witnesses.

Let me just understand one thing, because I represent the 8th

Congressional District in Maryland. It obviously has a lot of Federal employees, and I’ve visited a lot of Federal agencies. In talking

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to the head of a lot those Federal agencies, some of them have provided assurances to their employees that they will not lose employment as a result of this. They may be shifted around to different

positions and that kind of thing.

My question is, is that realistic? How are we going to achieve the

kind of cost savings that we’re talking about if no one is laid off?

I have concerns that despite promises or assurances that we’re

going to see large layoffs——

My question, I guess, Ms. Styles, is best addressed to you. What

kind of assurances can you provide to the Federal work force that

people aren’t going to be losing jobs?

Ms. STYLES. It’s being applied differently at different departments and agencies. I think each department and agency has a different look at their human capital plan, different numbers in terms

of retirements. Some of them have more flexibility than others to

move employees to open positions, to retrain them. Many of the

people are also at retirement age, end up retiring and go to work

for a Federal contractor. We work with each department and agency on their plan to see how they address it with their work force

to ensure that the relevant laws are followed, where agencies have

no RIF goals in place, that they aren’t setting forth a goal that they

can’t follow through on. Other agencies have not set that goal because they don’t believe that they have available positions or that

they’re going to be able to retrain or move people around in their

organizations. So it varies a great deal from agency to agency.

Mr. VAN HOLLEN. Yes.

Mr. CAMERON. Mr. Van Hollen, perhaps I can help in terms of

the Interior Department context.

Over the next 5 years, roughly 20 percent of our employees are

eligible to retire. We are studying under competitive sourcing about

7 percent of our employees over the next several years. We think

we’ll win most of those competitions, so that perhaps leaves you a

situation with a couple of percent of employees where we have to

find other positions in the Department, while 20 percent of the

folks are eligible to retire. So that gives us some optimism.

Mr. VAN HOLLEN. Yeah.

Mr. WALKER. If I can, Mr. Van Hollen, there’s a difference between whether or not they still have employment if they want employment versus whether they’re working for the Federal Government. There are many, as you know, that end up going to work for

the contractors, and so therefore they still have a job, but they’re

not working for the Federal Government. There are others who end

up voluntarily retiring, early or otherwise, and they have decided

they don’t want to work.

I think it would be highly unlikely that you’re going to find a situation where we’re going to achieve significant savings unless

there are some numbers of people who no longer work for the Federal Government. They may still be employed. There may be some

reallocation within the Federal work force where we need people

and we don’t have enough and therefore they can be re-employed,

but I think there’s no question there’s going to be a decline in Federal employment as a result of these competitions.

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Mr. VAN HOLLEN. Have you done any analysis to determine, that

correlates savings to an anticipated decline in employment with the

Federal Government?

Mr. WALKER. I think we have to be very careful to make sure

that the deck is not stacked for a predetermined outcome. What

competitive sourcing is all about from my standpoint, it is a tool.

It is a means to an end. It is not an end in and of itself. And that,

ultimately, is what we want to make sure, that we’ve got the right

people doing the work as efficiently and effectively and as economically as possible.

So, to me, I look at this as a sourcing strategy. It could be

outsourcing, it could be in-sourcing, and in many cases it could be

co-sourcing, where the functions are performed by a combination of

contractors and Federal workers. I think we have to be very careful

not to be predisposed one way or the other. It’s getting the right

answer.

Mr. VAN HOLLEN. Right. I don’t want to lose all my time here.

I think it’s very important we don’t stack the deck, too; and I’m

very concerned that the deck is stacked. For example, my understanding is that a private contractor that loses a bid or loses his

competition has the ability to appeal. Whereas my understanding

is—and correct me if I’m wrong—whatever Federal group—group of

Federal employees, if they don’t succeed in winning the competition

and lose the—they don’t have the right to appeal. Is that right?

Mr. WALKER. It’s a matter of who they have the right to appeal

to. Right now, the Federal workers or representatives of the Federal workers do not have a right to appeal to the GAO. We, however, have a Federal Register notice out right now asking for public

comment about whether and under what circumstances, representatives of Federal workers should have the right to appeal to the

GAO in certain circumstances. My personal view is, if we want to

create a level playing field, there are some circumstances in which

they ought to have that right, and we’re looking forward to receiving the results of public comment and then being able to make a

decision thereafter.

Mr. VAN HOLLEN. Well, no, I would think—I have lots of concerns with this whole—some of the—other concerns proposed, but

the very least it seems to me people should have an equal right to

appeal a decision that’s been made with respect to their employment.

Thank you, Mr. Chairman.

Chairman TOM DAVIS [presiding]. Thank you very much.

Mr. Shays.

Mr. SHAYS. Thank you, Mr. Chairman.

Let me start my questions by saying OMB recently revised its

competitive sourcing goals to require agencies to begin an A–76

competition on 15 percent of the commercial activities by 2004. The

initial goal would have required agencies to compete 15 percent of

all commercial activities by September 2003. So, Ms. Styles, what

was OMB’s rationale for changing its competitive sourcing goals?

Ms. STYLES. We actually haven’t changed the goals, per se.

Let me give you a little history on this because this is a very confusing area.

Mr. SHAYS. Very little.

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Ms. STYLES. Very little, but it’s important to understand.

We came out at the beginning of the administration and said a

15 percent governmentwide goal over a period of 2 years. We asked

the agencies to generally presume that 15 percent was going to be

appropriate for them. We developed, tailored individual plans for

each department and agency based on their mission and needs. We

are not going to have more than four or five agencies that actually

compete 15 percent of their commercial activities before the end of

this fiscal year, mainly because we realize it’s going to take a long

time to implement and put that infrastructure in place and we

want it done right.

I set a personal goal. We went out with a——

Mr. SHAYS. I think you’ve answered the question.

Mr. Grone and Mr. Cameron, will your agencies be able to meet

the goal of initiating competitions for 15 percent of your agencies,

commercial positions by July 2004?

Mr. CAMERON. At Interior, yes.

Mr. GRONE. Mr. Shays, based on where we are now in the context of our competitions, as of June 1st of this year we’re looking

at the 15 percent target.

Mr. SHAYS. Ms. Styles, what will happen to agencies that don’t

meet this goal?

Ms. STYLES. We’ll continue to work with them to make sure that

they have the infrastructure in place. We have agencies that won’t

meet it until 2007. We’re trying to make this rational and appropriate for each——

Mr. SHAYS. So you’re just working with them?

Ms. STYLES. Yes.

Mr. SHAYS. For the last several decades the basic government

policy or principle has been to rely on the private sector for needed

commercial services. This principle has been in Circular A–76 for

many years. Why isn’t this policy or principle included in the revised Circular?

Ms. STYLES. Because for a number of years we had a situation

where we were inconsistent. We said that we wanted to rely—that

the private sector was presumed to provide commercial services

cheaper and better than the public sector. At the same time, we

had a process for determining who was the better sector, public or

private. We wanted to tell people that we were actually committed

to determining whether the public sector or the private sector was

better to provide these services to our citizens. We didn’t want to

presume that one sector was necessarily better than the other in

our policy statement, which is why we removed it.

Mr. SHAYS. What kind of questions have agencies had for OMB

regarding the new A–76 process? How has OMB ensured that it

has given consistent guidance to these agencies?

Ms. STYLES. We’ve had a number of questions, but fewer than I

would expect, because we spent a considerable amount of time between the release of the draft and the final Circular working with

every department and agency to make sure that they could implement this Circular. We have had two primary questions, one dealing with direct conversions, when direct conversions actually end so

they can’t actually do any more direct conversions, and the other

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one is the application of the minimum cost differential for ongoing

streamlined cost comparisons.

Mr. SHAYS. According to the General Accounting Office, A–76

competitions performed by the Department of Defense take an average of 25 months—that blows me away—to compete. The new

Circular requires agencies to compete in A–76 competition in 12

months. So what specific change, Ms. Styles, in the new Circular

will assist the agency in meeting the 12-month deadline?

I’m tempted to ask—let me ask Mr. Walker. Why does it take 25

months?

Mr. WALKER. It’s a very complex process, and I think the bottom

line is it can, must and should be expedited, but in order to be able

to hit the kind of timeframes that are proposed in the new Circular, you’re going to end up having to provide enough financial

and technical support resources to the Federal workers to be able

to compete effectively.

I also would note that I believe that 12-month timeframe is a

guideline, and it’s not hard and fast, but it is ambitious. There’s

no question about it.

Mr. SHAYS. Let me ask you then, Mr. Walker, what would be

some of the risks associated with having agencies complete the

competitions in 12 months, as opposed to taking——

Mr. WALKER. Well, I think the real key is that there’s no question there are opportunities to streamline and simplify this, but I

think the real key is going to be what type of financial and technical support resources are going to be made available in order for

people to be able to do this while still doing their regular job.

I mean, after all, people have a mission. I mean, they’ve got to

perform; and to a great extent we’re asking employees to be able

to do things that they may or may not have the expertise. So

they’re going to need some technical support in order to try to help

compete effectively in and financial resources to back that up.

Mr. SHAYS. Thank you very much.

Mr. WALKER. If that doesn’t happen, then, A, we might not get

the right answer; or, B, it may be perceived to be unfair, which

could have an adverse morale impact, etc., just beyond the affected

workers.

Chairman TOM DAVIS. Thank you very much, Mr. Walker.

We have votes going on, but we’re going to continue questioning

for a few minutes. We’ve three votes, but I’ll go to Mr. Waxman.

Mr. WAXMAN. Thank you, Mr. Chairman.

I appreciate the testimony that the witnesses have given.

Rather than asking questions, I want to state my own feelings

about this matter.

Today’s hearing is looking at the OMB revised Circular A–76,

which was released about 2 weeks ago, on May 29. A–76 governs

the processes through which Federal agencies decide whether to

privatize responsibilities currently being performed by government

employees. And I’ve said this before: This administration has virtually declared war on Federal employees. It’s stripped hundreds of

thousands of Federal employees of basic rights such as the right to

appeal, unfair treatment and the right to bargain collectively. It

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ployees at the very same time that it has supported large cash bonuses for political employees.

The administration’s most direct assault on Federal employees is

the effort to terminate Federal jobs and hire private companies to

perform this same work. The President’s Management Agenda includes a Competitive Sourcing Initiative which would impose privatization quotes on agencies, requiring them to allow private contractors to bid for hundreds of thousands of jobs currently being

performed by Federal employees.

I’m not opposed to hiring private companies to perform jobs currently being filled by government employees if the private companies can do the work more efficiently and at a lower cost. In fact,

I believe we owe it to the taxpayers to ensure government functions

are performed as cost-effectively as possible, but I am opposed to

the privatizing at any cost ideology that seems to drive this administration.

We know that Federal employees can often do the work performed by large contractors like Halliburton at a much lower cost

than the contractor, but this administration doesn’t seem to care.

It continues to shower favorite companies like Halliburton, who, incidentally, happens to be a large campaign contributor, with massive contracts at enormous expense to the taxpayer.

If you want another example of the dangers of privatization, just

look at the Energy Department. Literally billions of dollars of taxpayers’ money has been squandered on private companies at places

like Hanford and Paducah.

This is the context in which we have to review the new A–76

process. I’m not opposed to reasonable changes to streamline the

process by which agencies decide whether public or private employees can best provide certain services, but I’ve heard concerns from

employee representatives that the new A–76 process simply goes

too far. It makes little sense to force agencies to engage in A–76

competitions at the expense of important program priorities, but

this is exactly what seems to be happening. For example, the National Park Service says that the costs of running some of these

competitions are so large that they could lead to cutbacks in seasonal hiring.

I’m also concerned that the administration may have overstepped

its authority by redefining the term ‘‘inherently governmental.’’

These are activities that must be performed by governmental personnel. Although the definition is codified in statute, the administration has ignored the statutory language and adopted an overly

narrow new definition.

Clearly, these are important issues but complicated issues; and

I think the witnesses that we’re hearing from today will help us

shed some light on them and work through them; and rather than

ask any questions of these specific witnesses, I wanted to set out

my views and hope that we can examine these issues together.

Chairman TOM DAVIS. Thank you very much, Mr. Waxman.

Let me take just a few minutes, and then what we’ll do is recess.

I know other Members are going to want to ask questions of this

panel, but our problem is our second panel. We have some representatives that have to be out of here by 11:45, I believe, and I

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want to give them ample time as well. With the recess, we’ll try

to move this expeditiously.

One of the things this committee centers on is the interconnection between a strong government work force and an efficient procurement process; and I think we need to be careful in all of—in

that in creating a very strong contracting work force and looking

at short-term, you know, efficiencies that we can get out that we

don’t destroy morale of Federal employees who every 3 or 4 or 5

years wonder if their job is going to be up for competition and they

may be out on the street. That is a fundamental issue that we need

to look at, because we may in fact be getting efficiencies over the

short term in terms of the way we do some things, but do we destroy the morale and our ability to hire and retain good people if

we hire them, bring them into government and every few years put

them up for grabs again just like a contractor?

Let me ask, Mr. Walker, is that a realistic concern? And, if so,

how do we address that in this context?

Mr. WALKER. I think you have to be concerned about this. The

fact of the matter is, is that you do want to get the best deal. Cost

is important, but cost is not everything. It’s easy to be able to

quantify the cost associated with the public-private competition.

It’s very difficult to be able to quantify the cost to the taxpayer due

to decreased productivity, due to an adverse impact on morale, if

there’s a perception that these things aren’t done fairly.

So I think the key is the panel tried to come up with a set of

principles that were unanimously adopted to try to help achieve

that balance and also some supplemental recommendations. Because you do have to be concerned about the hidden cost, and this

hidden cost is, if you don’t do it right or you don’t do it in a way

that is perceived to be fair, you can have an adverse productivity

impact and there is a cost associated with that.

Chairman TOM DAVIS. Right.

Anyone else want to address that issue? Anyone else see an issue

there?

Mr. CAMERON. Well, Mr. Chairman. I’ll defer to——

Ms. STYLES. No, I think we’re very cognizant of the morale

issues. It’s a very serious consideration. If you look at past history

of the Department of Defense where the competition is run well,

where you’ve got people that are allowed to compete in the Federal

work force, where it’s a fair and level playing field, it is a morale

boost to the employees particularly when they win, and they win

more than 50 percent of the time. When it’s a fair and level playing

field and they understand the contractor has proven that they can

win this and do this more efficiently, I think the Federal work force

accepts that and people are more willing to come—in terms of recruitment people are more willing to come to a Federal Government that is innovative and creative and a place that they believe

that they can learn from experiences of the Federal Government.

But I also think that some of the departments here probably

have some greater insight than I do into this.

Mr. CAMERON. If I could, Mr. Chairman, I would add morale is

as much a communications issue as it is anything else, and it’s a

real challenge to constantly communicate with our employees what

we’re trying to do and what we’re not trying to do. Competitive

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sourcing is all about increasing value for the customer, helping

those very dedicated people accomplish their mission more effectively.

If you’ve been in the Federal service for 20 years in a career capacity, you went through the first Clinton administration’s

downsizing exercise, where 10 percent of the employees were let go.

We went in the early Reagan administration through an

outsourcing experience. So, unfortunately, the history that most

Federal employees have had is very different from what we’re trying to accomplish through competitive sourcing. So communications

are a challenge.

Another way to look at is, frankly, a relatively small fraction of

our employees are likely to be involved in competitive sourcing over

quite a few years. At Interior, less than half of our FTEs are commercial in nature. The White House has said that over the long

run, with no deadline on it, only half of those jobs will be studied

under competitive sourcing. So a relatively small fraction of our

employees will ever be involved in a competitive sourcing study,

and yet they’re all worried about it.

Chairman TOM DAVIS. Does that hurt recruiting, too? I mean, it

used to be one of the things you get with the Federal Government

is you would get some kind of tenure to an extent, something—a

guarantee you didn’t get in the private sector; and that was the

tradeoff for not having the stock options and some of the bonuses

you could get in the private sector. It seems with this you’re taking

that away, to some extent.

Mr. CAMERON. Our biggest problem with recruiting, quite frankly, is it takes us 4 months to make an offer to somebody, whereas

the private sector can make an offer in 4 weeks or 4 days. So I

think that’s, frankly, more of a challenge at the recruiting end.

Mr. GRONE. Mr. Chairman, if I might, I second everything that

Ms. Styles said with regard to DOD. But the key piece for us and

the key part of the reform of the Circular in this record I believe

is the emphasis on best value, where we’re able to make within certain parameters the ability to trade or weigh cost considerations

against other performance considerations; and it’s something I

think that can be very helpful in this regard to—it’s not just simply

a cost driver, but it is also efficiency and performance and cost all

taken together. That’s why for us the ability to use best value in

this regard in combination with the other tools is so critically important.

Chairman TOM DAVIS. OK. I’ve got to go over and vote on the

floor, as does Mr. Tierney, as I know he has some questions. I am

going to allow Ms. Norton to ask questions and chair the meeting

and recess at the conclusion of your questions, and we’ll come back

and we’ll resume with you and then move to the next panel. But

I want to get our next panel on because they have to be gone at

a certain time and make sure they have their say and we get some

questions from them.

So I’m going to hand the gavel—this kind of breaks precedent—

to Ms. Norton. I know she won’t abuse it; and if she takes over 5

minutes, nobody’s here to stop her. So there you go.

Ms. NORTON [presiding]. Tom and I are such good friends that

he thinks that I won’t seize the gavel and keep it, and that’s why

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he gives it to me. One of these days it’s going to be a revolution,

however, in this House.

I think it’s my time to ask questions.

During the last administration was the first large decline in Federal employees in generations, and it was huge. It didn’t cause a

lot of acrimony. It was done with buyouts. It was done with the cooperation with the representatives of the workers. It was done with

fairness; and during the time it was done, it seemed to be the way

to proceed. It meant that you could downsize your government

without upheavals.

Then there developed great controversy because government employees complained that they found they were now sitting with contracting employees, raising questions about whether there had in

fact been downsizing; and I would like to question you about the

substitution of contracting employees for Federal employees when

the government is told that it has—it is indeed reducing costs for

government employees. Of course, the last time we heard the government pays for contracting employees the same way it pays for

civil servants.

First, I want to know whether you have evidence that there have

been employees from contractors who replaced people who were

bought out.

Ms. STYLES. Certainly. I can tell you under the old Circular process, the one we changed, there was a direct conversion process. So

one particular employee in a smaller function, you could actually

directly convert that work to the private sector. So in some respects

I think you could say that person was simply replaced by a contractor-employee with little or no documentation for why that choice

was made, which is why we have gotten rid of that process.

Mr. WALKER. I think it is important to note that the primary cost

savings can occur because of process improvements, because of

leveraging of technology, or because of being able to have individuals who are doing work on a just-in-time and as-needed basis,

rather than a full-time basis where you may not have the need. So,

in fact, even when Federal workers win the competition, their

wages aren’t cut. What happens is they end up improving the processes. They end up leveraging technology more so that they can do

more with, in many cases, fewer people. So, yes, there are circumstances even with—through competitive sourcing where you

end up having contract individuals doing basically the same job

that——

Ms. NORTON. You do understand that the agencies were forbidden to downsize and then later replace the downsized employees

with government employees.

Mr. WALKER. That’s with regard to the buyouts and the early

outs or whatever.

Ms. NORTON. Yes, after the buyouts.

Mr. WALKER. I understand that. And, as you know, Ms. Norton,

that while you’re correct in saying that the biggest downsizing, you

know, that we’ve had was during the 1990’s and a lot of it was

through buyouts and early outs, a lot of it was also through reductions in force. I can tell you GAO was downsized 40 percent, and

most of it was due to reductions in force. And the way those rules

work they mortgage the future.

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Ms. NORTON. Well, yes, the point is the GAO probably needs to

know how much we have grown in contracting employees since we

downsized and laid off government employees. This kind of seesaws

when we then report to the public that there are far fewer government employees does not in fact give a correct picture of what a

government employee is. When are we going to tell the public that

a government employee, in this day and age, where there is massive privatization, includes people who are contracted and people

who are civil servants, and wouldn’t that be the fair way to inform

the public, who pays the taxes for both?

Ms. STYLES. We do have extensive public data available on the

contracts that each department and agency has, and we actually

look at those as we determine what’s appropriate in competitive

sourcing for a particular department and agency.

HUD, for example, you can see a clear trend of decline in employees and an increase of contract dollars going out the door, and

you also see them being on the high-risk list for contract management. That’s an agency that we have to be very cautious in our approach to competitive sourcing because of the trends you see there.

Ms. NORTON. Tightly managed government employees, contracting employees not held to the same standards; and that, of course,

begins to bother people when you consider that it’s taxpayers’

money we’re talking about. Somehow I would like——

You know, the Supreme Court has once again declared that

quotas should never be used. I’m a former chair of the Equal Employment Opportunity Commission, did affirmative action, always

without quotas, have never believed in quotas even to make up for

past discrimination unless you find a case of deliberate discrimination. The courts have been—of course, sanction quotas; and the theory is the correct one, that if you use a quota or an absolute number of any kind you will be inclined not to judge on the basis of

qualifications.

Now, when it comes to privatization we’re looking for efficiency.

For the life of me, I’d like to have you explain to me, particularly

in this anti-quota Congress, and as the Supreme Court has decried

quotas for reasons that I think most people would agree, why—how

you could justify the quotas that you now have for privatization.

Ms. STYLES. We don’t have privatization quotas.

Ms. NORTON. You have to elaborate on that.

Ms. STYLES. We set some goals.

Ms. NORTON. So you now reduce the quotas to goals, and what

does that mean?

Ms. STYLES. We never have had quotas. We have never had

quotas for privatization. We’ve asked agencies to build an infrastructure for public-private competition being agnostic as to who

wins, to put these up for competition, not to privatize these, not to

outsource them, to actually build an infrastructure at their agency

that recognizes the management efficiencies that can be created by

a public-private competition.

We’ve sat down with 26 major departments and agencies over

21⁄2 years. We’ve developed detailed, tailored plans for the departments and agencies that we adjust every quarter. It recognizes

their mission needs and what’s appropriate for their agency in

terms public-private competition.

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Some agencies will have more competitions than others in the

near term. Some agencies have been able to build infrastructure

faster than others. Some agencies will move forward.

We still have in place aggregate governmentwide goals, that we

would like to see 15 percent aggregate governmentwide competed,

but that is not arbitrary. It’s not a quota. We work with each department and agency to determine what is appropriate for them

over a short period and over a long period.

Ms. NORTON. Mr. Walker.

Mr. WALKER. When the administration first came in. They had

certain goals, 15 percent and 50 percent targets.

Ms. NORTON. You know good and well they were absolute numbers. And she’s testified, and we all saw them. You know, you’re

before a committee where you have been sworn. We all saw those

absolute numbers. They were absolute percentages. I don’t know

what you have now, but the way in which to be truthful to this

committee is to say, well, we did have absolute numbers, a 15 percent quota; we don’t have them now.

That’s all right. I’ve heard you. Let me hear Mr. Walker.

Mr. WALKER. Let me try to—my opinion—as you know, I work

for GAO, not the administration.

Ms. NORTON. I understand that perfectly.

Mr. WALKER. And so, therefore, I believe at least my perspective

is—in this is the administration had 15 percent and 50 percent

goals. They weren’t quotas. They were perceived to be quotas. Some

viewed them that way. They were arbitrary. They came out of the

campaign. They were not considered numbers.

Quotas are inappropriate. Period. Goals are inappropriate if

they’re arbitrary. Goals may be appropriate if they’re a result of a

considered process and, you know, a reasoned approach. So, in reality, what’s happened is that they modified how they’re approaching this now and are approaching it in a different manner than

they were before.

Ms. NORTON. I think that would have been a truthful answer.

Mr. GRONE. Ms. Norton, if I may.

Ms. NORTON. Yes.

Mr. GRONE. From a DOD perspective, if I could put some of this

in the context of what our experience has been in the last 3 years

with regard to the agenda as we’ve worked it through with OMB—

you referred to them as quotas. We concur that it was a considered

process. It’s not a quota. There were goals.

But the way in which they were managed is that those goals

were built off of inventories that identified which functions were to

be inherently governmental and which were commercial, a rigorous

process outlined by statute to develop an inventory that laid out

what were the positions and what bins in which they should be

put.

Over the last 3 years, as we have gone through our exercises to

get to compete, over 71,000 FTEs in this process, we generated a

savings number of roughly five—nearly $51⁄2 billion as a result of

that.

I went back and asked the staff, put those in appropriate bins

for me—contract, in-house, FTEs—as a number, just a discrete

competition. What we found just in this 3-year pattern—and it’s

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not necessarily elaborative of the whole Federal Government or

what will be in the future—but what we saw was that, over this

3-year period, for the positions that we had competed as discrete

numbers of the competition, 70 percent of those were won by the

in-house work forces.

The MEO looked at from the perspective of FTEs. It was 60 percent were won by the in-house MEO. In terms of the savings, when

the contractor wins, it resulted in 47 percent savings, real money,

to help the Department of Defense meet its mission needs; when

the in-house won, it was 27 percent savings; and in the overall aggregate, it was 40 percent over this 3-year period for us.

So whether one wants to look at them as goals or however one

wants to look at them, these are real targets based on a considered

discussion of what the inventory ought to look like, a process that

we went through, fairly rigorously, that yielded real savings and

real efficiencies. The processes in the reforms that have been put

into place by OMB will allow us to buildupon these successes to

consider performance of both the in-house and the contract in the

future that provides incentives for both the contract and the inhouse work force to continue to improve efficiency over time, and

that’s to the benefit of all.

So, from the perspective of the Department of Defense, that’s

why we believe so firmly that this process is going to yield us a

good result and that it is based on a considered evaluation of what

ought to be the essential functions that ought to be competed, not

that we have a target that you must outsource a certain number

of people or a certain amount of functions, but that they be subject

to the rigors of competition and that then gives us the best result.

Ms. NORTON. I think Mr. Cameron wanted to say something before we——

Mr. CAMERON. Yes, very briefly. Whether one calls these numbers—goals or targets or quotas or something else—I do think it’s

important to focus on what they represent, and what they represent are studies that need to happen. There’s no preconceived notion on anyone’s part what the outcomes of these studies might be.

So these are not numbers that represent privatization goals or privatization targets. They are management goals for getting a number of analyses done; and the numbers, the results of those analyses will speak for themselves in terms of what’s best for the employee, what’s best for the customer, what’s best for the taxpayer.

So thanks.

Ms. NORTON. Yes. The reason that the distinction has come to be

very important legally, and it is very important managerially. If a

manager thinks that if he really makes the 15 percent privatization

his own rating will be better than if he makes 10 percent, he is

perhaps more likely to press it.

You’re speaking to somebody who, unlike you, had to use numbers under the inspection of the Supreme Court of the United

States and who successfully used them and indeed—so that you do

not find me saying that numbers are inappropriate. I don’t think

that you can know whether you have succeeded if you don’t measure and if you don’t set some kind of goal.

The need to be careful when dealing with—forgive the word—bureaucrats or managers or people who are on the Federal work force

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who do, unlike contractors, get measured, get evaluated by everything they do, the fact is this administration put out this number.

These numbers caused huge consternation throughout the work

force. The managers weren’t trained as to how to handle these

numbers.

So there really is a difference between—in the United States,

people still don’t understand the difference between goals and

quotas. They see a number, and that’s what it’s supposed to be. It

is a very delicate concept.

You see what we do when we have, quote, numbers or goals for

parking tickets in my district. I mean, you will send people out of

their skulls, even if the government or the District of Columbia,

overcrowded with cars from throughout the region and the District

of Columbia, says, look, you all are not doing your job if you don’t

bring in what—you’ve got to be careful about telling them what to

bring in and how to go about doing it and how that you’ll then authorize them so that the number, which is the only absolute thing

up there, doesn’t take control.

So, you know, I found Ms. Styles’ answer absolutely ingenuous.

It seems to me you have to have a sensitivity for what numbers

can mean to a manager or a supervisor, and then you go forward.

You admit you used numbers. They are perfectly valuable to use.

But then you show the kind of sensitivity for what you have to do

to make sure that they don’t run away with the whole process.

Mr. Walker, I wish you would get back to this committee with

any clarification you could give us on a statistic that has come from

a credible source. Doctor Paul Light, who is a senior fellow at the

Brookings Institution, estimated—now this figure goes back to

1999. We’re in 2003. But he said that in 1999 the government had

a contract work force of 5.6 million employees, compared to 1.9

Federal employees.

To me, that means a shadow work force has taken over the Federal Government; and until we know—and it can be perfectly legitimate. The only question is we ought to know what the real number

is. Until we know, and we ought to know, if that’s what we’re

doing, then we ought to do it consciously, and we ought to know

we’re doing it.

So I would ask you to get back to the chairman and the ranking

member with any—I’m not asking you to do a study, understand—

but with any information you could give to us as of 2003. What is

the best estimate you can give us of the contract work force—remember, 5.6 million is what Dr. Paul Light says—and what is the

best estimate of the civil service work force of the United States at

this time.

Mr. WALKER. We’ll do what we can.

As you know, Paul Light is on one of my advisory boards. I’m

very familiar with his work.

I think one of the things we have to be careful of is to make sure

that we’re getting the right answer, and one of the things we have

to be careful of is not to have arbitrary goals or not to have any

quotas with regard to FTEs. I mean, that’s part of the problem.

And there have been situations in the past where either the executive branch or, frankly, the Congress has set limits on what that

should be, which may end up pushing certain decisions that may

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not make sense for the taxpayer. So I think it goes both ways. It’s

not only with regard to what should be done by contractors but

whether or not there’s the flexibility to be able to hire Federal

workers in circumstances where that is in the interest of the taxpayer and the country.

Thank you.

Ms. NORTON. Thank you.

Before I recess this matter, I want to indicate that, in talking

about contracting employees controversy they have done, this has

not been a Republican or a Democratic matter. The contracting

work force has grown inexorably through Democratic and Republican administrations. It may have grown more during the last 8

years of a Democratic administration than any other administration.

So this is not a—it doesn’t—somebody must believe that contracting is better for the Federal Government, because it is a bipartisan matter now. And no one would believe that you could ever

turn the Federal Government or, for that matter, most local governments around to go all the way back to civil-service-dominated

work forces. That really isn’t the question.

The question is—and you move us perhaps somewhat toward this

goal. The question is understanding what we’re doing, being forehanded about what we’re doing, not making the assumptions that

have been routinely made that a contracting worker, one, will cost

you less.

GAO did a study some years ago that showed that was not the

case in a number of agencies, one, that a contracting employee will

cost you less; and, by the way, nobody even cared whether the contractor or the contracting employee was as efficient. That was beside the point.

So the drive has been to drive down the cost of government and

the assumption and I—and the operating word here is assumption—is that you were saving the government money that way.

When you grow the way we’ve grown, it is your burden to show

both that you improve efficiency and that you save the government

money, and I hope we’re on course to do that now.

I want to thank this panel. I found it a very enlightened panel,

and I know I speak for the entire committee when I say I appreciate the work you have done to prepare this testimony.

We are in recess.

I am told by staff that there was a member who still had questions for this panel. Could I ask the full members of this panel to

stay? Therefore, catch whoever is trying to get out of the door.

There was a member who was promised that he would be able to

ask questions.

So we’re in recess.

I thought the chairman wanted to change panels, but I am informed that there is a Member that is on his way back from voting

who actually has questions of this panel. So please remain. I mean,

you don’t have to sit in those chairs, but don’t leave—your panel

isn’t over yet.

[Recess.]

Chairman TOM DAVIS [presiding]. The panel will take their seats.

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I’m going to recognize the gentleman from Massachusetts for

questions, Mr. Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman.

I want to associate myself with the remarks of the ranking member, Mr. Waxman, and some of the concerns the chairman made

earlier. I don’t want to re-cover old ground, but I am concerned

with some of the exercise of discretion that seems to be left. I am

wondering if some of you might be able to talk to me a little bit

about the change in definition from the active governing being a

discretionary exercise of government authority to now propose a

substantial discretionary exercise and what was the reason for that

change and what do you think the impact of that change will be.

Ms. STYLES. If I can start, because I personally made that—reviewed that decision. If you go back and you look at the policy of

the executive branch since at least 1992, it has said substantial exercise of discretion in our policy letter 92–1. Within the same policy

letter, which—this policy letter defined how an agency would determine whether something was inherently governmental or commercial. Within the same policy letter that said substantial exercise of

discretion, there was another statement in there that said exercises

of discretion. There was an apparent conflict on its face within this

policy letter, and we discuss it extensively in the preamble to the

final A–76 Circular because it was raised in the comments which

caused me to actually go back and look at the FAIR Act to look at

our policy letter and to look at what we had finally written into the

final Circular. Based on that, we decided to use the standard substantial exercise of discretion that had been there since at least

1992.

Mr. TIERNEY. Come again on that. You used the standard—the

last sentence you made, I am not sure I entirely heard it. The

standard——

Ms. STYLES. The standard for determining if something is inherently governmental or not.

Mr. TIERNEY. And you put substantial in there.

Ms. STYLES. No, we did not. We retained the standard, the substantial exercise of discretion, that had been in our policy since at

least 1992, if not before.

Mr. TIERNEY. My concern is that, besides being sort of a beancounting exercise of this whole thing, where it gets incredibly complex, costly or whatever, is that there is a lot of individual discretion or the exercise of judgment that’s down there that’s just ripe

for abuse or error.

I look particularly at the incident of the Affiliated Computer

Services case within the Department of Defense where the problem

was that an error was made. It was a human error that was made,

as opposed to process; and then the OMB suggested the remedy for

that was that the agency should consider allowing the employees

to go through the process again. The problem is, by the time they

discovered the error there were no more employees.

So, in an instance like that, who then is going to be able to remedy it and who’s going to be able to then put together a proposal

for what the cost of the employee would be to compete with the others. Has anybody thought about how do we avoid other situations

like that?

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Ms. STYLES. Yes, we thought about that extensively in our rewrite of the Circular.

The old Circular was so complex I think there was a lot of room

for human error. And that’s what that was. It was human error,

and I think it was very unfortunate.

What we wanted to do—you could write 500 more pages of Circular and still have that human error occur. The DOD IG missed

it three separate times when they looked at it, which meant the

Circular was too complex, too hard to understand. We really tried

to go back and avoid human error by having a Circular that was

easier to understand, that was transparent to you, to the public,

and to us and held the agencies accountable for the decision they

made.

I can’t promise you that errors won’t happen under the new Circular, but, hopefully, by it being easier to read and understand and

streamlined, transparent, very public about the decisions we’re

making and why we made them that we will avoid these in the future.

Mr. TIERNEY. Well, I think it gets back a little bit to Mr. Walker’s point earlier that, in order for us to be sure of that, then the

employees have to have the opportunity, they have to have the resources, the expertise and the funding.

Mr. Walker, are you comfortable within this recommended policy,

that those things exist? To make sure that we root out those errors.

Mr. WALKER. I think it’s unclear as to whether or not the financial and technical resources are going to be available. I think it’s

critically important that they be available in order to be able to hit

the expedited timeframes in order for this be to be perceived to be

fair.

In that regard, Mr. Tierney, one of the things that I would suggest is the administration has put forward a several hundred million dollar fund that originally was proposed for performance-based

compensation. I would respectfully suggest that most Federal agencies aren’t in a position to effectively adopt that yet, and Congress

should give consideration to using that fund to be made available

to agencies who make a business case to either compete effectively

in public-private competitions and also to try to create high-performing organizations in the vast majority of government that will

never be subject to public-private competitions. I think that’s something Congress needs to seriously consider; and we’re encouraging

OMB to do that, too.

Mr. TIERNEY. Thank you. That’s an excellent recommendation,

and I hope we look into that.

Mr. Chairman, one last question, just generally, is I’m looking at

the IRS situation in particular and looking at the fact that this

competition—some of that work obviously might be outsourced, and

besides the question about whether or not they’re dealing with a

collection of moneys and transfers of money and things of that nature, what about the risk that we stand of not only having that

outsourced to somebody in this country, a company over there, but

outsourced—the work outsourced to another country so we are actually taking the jobs elsewhere? What are we doing to guard

against that?

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Ms. STYLES. Our procurement system—unless it’s a national security procurement, the general rules of our procurement system

which we try to follow in public-private competition are not, in

most instances, going to look to where the work is performed. It’s

going to be looking at whether it is performed and what the cost

is.

Mr. TIERNEY. That’s why I point that out. We are in a serious

crisis in this country of our jobs being exported just for a race to

the bottom. You know, the idea of anything can be done cheaper

if you just send it over. With technology today, I think we’ve got

to be very, very careful about that; and, hopefully, we can do something in the context of this legislation and others about protecting

against that.

One of the reasons why I really hesitate to even put this process

in place is at least we know the jobs now are where they’re at, and

we’ve got to—how many lost jobs, you know, like millions of the

lost jobs out there that we’re not doing a very good job of recapturing at the moment, and I think we ought to protect that.

Chairman TOM DAVIS. The gentleman’s time has expired.

There may be other questions for this panel. I have some. I may

do it later.

But I want to get to the next panel simply because we have some

key members of that panel that have to be out of here at 11:45.

So, if there is no objection, let me thank all of you for coming. Appreciate all of your efforts and, you know, we will be—this is just

the beginning of a dialog on this. We’ll move to the next panel.

Thank you very much.

We have Bobby Harnage, national president, American Federal

of Government Employees; Colleen Kelley, president of the National Treasury Employees Union; Donald Dilks, the president of

the DDD Co. located in Landover, MD, who is here on behalf of the

Contract Services Association; and Stan Soloway, president of the

Professional Services Council.

It’s our policy all witnesses be sworn in before you testify. So I

am going to ask you to rise with me and raise your right hands.

[Witnesses sworn.]

Chairman TOM DAVIS. Thank you.

I’m going to give the Chair over to Mrs. Davis for about 5 or 10

minutes. I will be back for questions. I’ve read the testimony so—

and I’ve got to work with Mr. Waxman on something we’re doing

this afternoon. But I will be back in time for questions.

We’ll start, Mr. Harnage, with you. I understand you have to

be—leave at 11:45, is that correct? OK. You know the rules.

So thank you very much for being with us. I know this is an important issue to all of you, and it is an important issue to us.

Mrs. JO ANN DAVIS OF VIRGINIA [presiding]. Mr. Harnage, we

can begin with you.

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STATEMENTS OF BOBBY L. HARNAGE, SR., NATIONAL PRESIDENT, AMERICAN FEDERAL OF GOVERNMENT EMPLOYEES;

COLLEEN M. KELLEY, PRESIDENT, NATIONAL TREASURY

EMPLOYEES UNION; DAVID D. DILKS, PRESIDENT, DDD CO.,

LANDOVER, MD, ON BEHALF OF THE CONTRACT SERVICES

ASSOCIATION OF AMERICA; AND STAN Z. SOLOWAY, PRESIDENT, PROFESSIONAL SERVICES COUNCIL

Mr. HARNAGE. Thank you, Madam Chairman.

My name is Bobby Harnage, and I’m the national president of

the American Federal of Government Employees, representing

some 600,000 workers who serve the American people across the

Nation and around the world. I want to thank you for the opportunity to appear this morning on the hearing on the new OMB Circular A–76.

This is a political agenda driven by campaign contributions and

has nothing to do with better government or a more efficient or

more effective government. The entire process is for the benefit of

the contractors; and where there is a conflict, taxpayers come in

last every time. I will leave the details to my written statement for

the record.

However, I would like to take my time to at least list the 12 most

significant concerns AFGE has about the new A–76:

It would aggressively emphasize a second-rate competition process that makes the Most Efficient Organization optional as well as

impractical and eliminates a requirement that contractors at least

promise appreciable savings before work is contracted out.

It would, if a recent Department of Defense Inspector General’s

report is to be believed, significantly overcharge Federal employee

bids for overhead. In fact, it would double-charge Federal employee

bids for some indirect personnel costs, while not charging contractors for indirect labor costs incurred by agencies through contract

administration.

It would do nothing to prevent contracting out from being done

to undercut workers in their pay and their benefits and continue

to turn back the clock on the diversity of the Federal work force.

It would introduce a controversial and subjective best-value process that is as unnecessary as it is vulnerable to anti-Federal-employee bias.

It would impose absolute competition requirements on Federal

employees for acquiring and retaining existing work—but not for

contractors.

It would hold Federal employees absolutely accountable for failure through recompetition—but not contractors.

Contractors—but not Federal employees and their union representatives—would have standing before the General Accounting

Office and the Court of Federal Claims.

It would further narrow the definition of ‘‘inherently governmental.’’

It would, with the privatization quotas, emphasize privatization

at the expense of all other methods to improve efficiency.

It would not ensure that Federal employees could finally compete

for new work and contractor work.

It would not require anything new with respect to tracking the

cost and quality of work performed by contractors.

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And it would hold Federal employees, in almost all cases, to 5-

year contracts—but not contractors—and allow contractors—but

not Federal employees—to win contracts on the basis of how much

time they spend, instead of what they actually accomplish.

Those are the 12 main parts of the OMB Circular A–76 that we

find most objectionable. I thank you for the time to appear before

this committee today and for this committee holding this hearing

and look forward to answering your questions.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Harnage.

[The prepared statement of Mr. Harnage follows:]

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Mrs. JO ANN DAVIS OF VIRGINIA. Ms. Kelley.

Ms. KELLEY. Thank you. Mrs. Davis and members of the committee, I want to thank all of you very much for giving me the opportunity to share NTEU’s views on the OMB rewrite of A–76 on behalf of the 150,000 Federal employees represented by NTEU.

NTEU strongly opposes OMB’s quota-driven campaign to privatize more than 850,000 Federal jobs. Committee members should

not be misled by OMB rhetoric that the new A–76 will improve the

use of public-private competitions. Under the A–76 revisions, more

Federal jobs will be put up for grabs to the private sector.

Last week, NTEU filed a lawsuit charging that OMB has illegally overridden Congress on the sensitive issue of determining

whether a function is inherently governmental. The A–76 revisions

require Federal agencies to apply a substantially more restrictive

definition of inherently governmental functions than is now contained in the FAIR Act. This change would have an adverse impact

on large numbers of Federal employees. In fact, we have already

heard from the IRS that their FAIR Act inventory of Federal jobs

eligible for privatization will nearly double next year.

NTEU believes the A–76 revisions are unfair to Federal employees and will deprive taxpayers of the benefits of true public-private

competition. For example, the revisions do not make one single

meaningful change to improve oversight of contractors and better

track their performance. The new A–76 continues to disregard the

need for agencies to determine how much the contractors work cost

the taxpayers, whether the contractors are delivering the services

they promised within the timeframes promised, and whether the

services are being delivered at an acceptable level of quality.

OMB and this committee are well aware of the case of Mellon

Bank, a contractor hired by the IRS that lost, shredded or removed

70,000 taxpayer checks and tax returns worth $1.2 billion in revenue to the U.S. Treasury. Yet the new A–76 would not prevent a

Mellon Bank type of contracting fraud from happening again.

I was pleased that the new Circular would eliminate the use of

direct conversions. However, within days of the release of the revised Circular, we started hearing complaints from agencies about

the new direct conversion rules; and now it is unclear what action,

if any, OMB will take to stop agencies from either bypassing the

new rules altogether or seeking waivers to continue with the direct

conversions.

Another loophole for agencies to circumvent OMB’s stated goal

for competition is the so-called streamlined competition process.

Streamlined studies under the rewrite are nothing more than

sugar-coated direct conversions in which Federal jobs are transferred to contractors without first giving Federal employees an opportunity to put forward a competitive proposal. The new streamlined rules emphasize speed in privatizing Federal jobs at the expense of quality and costs. Because of the rigid 90-day timeframe

under the streamlined study, agencies have absolutely no incentive

to reorganize their own employees in a way that will deliver higher

quality services to the taxpayers at a lower cost.

It is no coincidence that at the same time OMB was revising A–

76 and enforcing its privatization quotas, the IRS was developing

a proposal to privatize tax collection functions. This is even further

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evidence of the aggressive push to privatize government activities

with or without competition whether or not they are inherently

governmental and whether or not they save money.

Even under the new A–76, tax collection is inherently governmental and would require legislation before it could be privatized.

Under this latest scheme the IRS wants to privatize these activities

without first conducting a public-private competition. According to

the Joint Committee on Taxation, this privatization proposal would

bring in less than $1 billion over 10 years at a cost of over $200

million. The IRS could bring in that amount in 1 year with just

over $30 million in additional in-house enforcement resources. IRS

employees can do the work for 15 percent of the cost of the contractors, but the administration still wants to contract it out.

It is hard to believe that the A–76 process is supposed to be

about competition. But even if agencies actually do conduct a competition, the new A–76 tilts the playing field heavily in favor of

contractors.

While OMB has gone to great pains to include every potential

cost of Federal employee performance of the work, the new A–76

arbitrarily excludes legitimate costs of doing business with contractors. NTEU is also concerned that the new A–76 encourages agencies to move away from cost-based competitions to more subjective

analysis that will lead to more outsourcing at a higher cost to the

taxpayers. The new A–76 would allow contracting officers to award

contracts to a bidder that comes in with a more expensive bid than

other bidders. Introducing this tradeoff called best value into public-private competitions would make fair comparisons between bids

even more difficult.

The new A–76 does nothing to advance the principles of increasing taxpayer value and leveling the playing field for Federal employees. I therefore urge this committee to block the implementation of the revised A–76 until these countless problems can be resolved. Thank you.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Ms. Kelley.

[The prepared statement of Ms. Kelley follows:]

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Mrs. JO ANN DAVIS OF VIRGINIA. Mr. Dilks.

Mr. DILKS. Thank you, Mrs. Davis and members of the committee.

My name is Donald Dilks. I am the CEO of DDD Co. My company has been providing a wide variety of logistical services to government and industry for over 23 years. We currently furnish

many of the mail processing services to government agencies in

Washington, DC, including the mail digitization services for the

House of Representatives.

I also serve as chairman of the Contract Services Association of

America, which represents over 400 contractors providing various

services to the Federal Government.

Thank you for the opportunity to be here today and share my

perspective on the revisions to Circular A–76 which were released

last month by the Office of Management and Budget. In general,

we believe the revisions represent an improvement in the competitive sourcing process and should increase private sector competitions for government services, which is good for the taxpayer.

CSA has worked with and on Circular A–76 since the Association’s founding in 1965, when there was very little industry interest. Now, public-private competitions are a much-discussed issue

and key to agency performance.

Some comments on the recommendations included in the revision: Much of the revisions are based on the recommendations

made by the Blue Ribbon Commercial Activities Panel.

I believe the revisions will improve the process in the following

areas: The FAIR Act inventories. The revisions spell out how agencies should develop their annual inventories and require them to

include the inherently government activities as well. The revision

also allows challenges to the applicability of the Reason Codes that

have been used to protect functions from competitions. These

changes will enhance agency accountability.

The timeframe. Shortening the time for competitions will facilitate the involvement of more competition, especially small businesses. It is more reflective of a FAR-based process. The evaluation

process will be fairer by treating the public sector proposals like

private sector bids and by evaluating all proposals, both public and

private, under the same set of rules, a system based on Federal Acquisition Regulations that is most familiar to government procurement officials.

For the first time, many public sector employees will be allowed

to make offers based on best value and therefore encourage innovation from those who are most familiar with the work, the government employees themselves.

Accountability. The revisions enhance the accountability associated with competitive sourcing. The FAR-type approach offers a

procurement process that is more transparent than the old A–76

approach. Competition officials and individuals participating in the

process must comply with procurement integrity, ethics and standards of conduct rules.

Most important, if the public sector wins the competition, its proposal will be treated like a contract. This means that the government officials will monitor the cost and service performance levels

of the public sector’s most efficient organization.

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Some recommendations that were not included and some other

concerns: The policy statement. We are concerned that the longstanding government policy statement related to reliance on the

private sector for needed commercial services have been eliminated. We urge that this statement be included in the transmittal

memo.

Elimination of the direct conversions. This direct conversion process increases agency flexibility to ensure it is receiving the best

value to meet its mission needs and meet their small business

goals.

We recognize the intent of the streamlined process and hope that

agencies will indeed avail themselves of this process. We do applaud the elimination of the differential in the streamlined process.

Concerning the Inter-Service Support Agreements, the proposed

November 2002, revisions included an important modification related to the Inter-Service Support Agreements. Unfortunately, this

section was eliminated from the final revisions.

We are concerned that the Inter-Service Agreements among Federal agencies as well as the military services are used as a means

to avoid outsourcing and privatization. We do not believe these

should be exempt from the competition.

Some other issues: The proposed revisions are silent on protest

rights. We believe that both parties, the agency and the company,

bidding under the same set of rules, should have the appeal rights.

In terms of the Performance-Based Services Acquisition, the proposed revision stated that a Performance Work Statement that is

developed in a standard competition shall be performance-based

with measurable performance thresholds and may encourage innovations. This specific statement was not included in the revisions.

We assume the contracting office will continue to encourage and

move to greater use of performance-based contracts.

Finally, the small business considerations issues such as small

business set-asides, minority business preference programs,

HUBZones, Native American preferences, disabled-veteran and

women-owned business preferences are not addressed.

In summary, it is too early to tell whether CSA members and

other private sector firms will jump back into the A–76 competitions. It is important to recognize that shifting to a FAR-type process is not a cure for all the problems facing competitive sourcing.

Significant issues remain. Cost comparisons between public and

private sector bids will continue to demand careful scrutiny and

fairness. Improvement is also needed in developing quality statements of work, the heart of the solicitation. Also, all competitors

need to be insured equal access to relevant information, including

workload data, in order to make credible proposals. And there

needs to be continued high-level agency support, along with an ongoing dialog between the agency and OMB.

While the new rules are easier to navigate and there appears to

be a greater clarity and consistency as well as enhanced accountability, implementation remains key where, as we have so often

seen happen in the past, good intentions will go down the drain.

Fairly implementing this for public-private competitions will be a

challenge filled with nuances and potential pitfalls, but we stand

ready to aggressively work with Congress and the administration

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to ensure the goals of the A–76 revisions are fully achieved. We believe it is the right thing to do.

Thank you.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Dilks.

[The prepared statement of Mr. Dilks follows:]

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Mrs. JO ANN DAVIS OF VIRGINIA. Mr. Soloway.

Mr. SOLOWAY. Mrs. Davis, members of the committee thank you

for the opportunity to testify today. The Professional Services

Council greatly appreciates your continued leadership in this important area.

Today, across the Nation and around the world, hundreds of

thousands of hard-working Americans are busy supporting the

many and varied missions of virtually every government agency.

They are public employees, private sector employees, employees of

non-profits and of universities. Despite the hyperbolic rhetoric to

the contrary, the truth is that this diverse work force, public and

private, has repeatedly demonstrated its collective commitment to

service, to excellence and to the Nation; and it’s in the context of

that reality that I would like to address the principal focus of this

hearing.

The revisions to A–76 seek to bring the process into closer alignment with the unanimously agreed-to, common-sense principles

recommended by the Commercial Activities Panel on which I was

privileged to serve. Those sourcing principles can be summed up as

follows: First, sourcing must be viewed as a strategic process and

not one governed by arbitrary goals or, for that matter, arbitrary

limitations. Second, sourcing policy must be founded on the tenet

of equal rights and equal responsibilities for all bidders, public and

private.

The question before the committee today is whether the revisions

to A–76 achieve those goals. To that, my short answer is that the

revisions represent a significant and important step forward. At

the same time, there remain some very important areas in which

improvement is still needed. Let me just mention a few specifics.

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Mr. SOLOWAY. First, as you know, the CAP unanimously recommended that the government consider both cost and quality factors in its sourcing decisions, otherwise known as best value contracting. Until the A–76 revisions were released on May 29, only

procurements conducted under A–76, less than 2 percent of all Federal procurement, were prohibited from exercising this commonsense buying strategy. Thus, we applaud the creation of a modified

form of best value within the construct of A–76.

However, under the new Circular, the authority for best value is

limited principally to information technology, new work or already

contracted work. Why does the authority stop there? Do we really

want to return to the old low-bid mentality of the past? If existing

contracts performed by the private sector can be competed under

best value criteria, why does the same not apply to work currently

performed by the government?

Additionally, even when best value techniques are permitted

under the new Circular, cost must represent at least 50 percent of

the source selection evaluation. However, it is easy to conceive of

circumstances in which cost, even if it is the single most important

evaluation factor, will not and cannot account for 50 percent of the

selection, given the range of other factors that also need to be considered. This arbitrary requirement thus limits the government’s

ability to make smart business decisions.

We are also concerned that, under the Circular, the past performance of only one party, the government, may not be considered.

This prohibition makes leveling the competitive playing field very

difficult and, more importantly, significantly disadvantages the

source selection process and the agency.

Among its most notable improvements, the revised A–76 requires

all bidders, public or private, to respond to the same solicitation,

submit their bids within the same timeframe, be evaluated on most

of the same criteria and enter into a binding agreement under

which performance will be monitored and the work subjected to

continual competitive pressures. This reflects a critical commitment

to fairness and accountability of the very kind unanimously recommended by the Commercial Activities Panel.

In the area of appeals and protests, the Circular authorizes administrative appeals from three parties, all of whom had similar

appellate rights under the old A–76—the affected contractors, the

government, and the affected Federal work force through its elected representative.

The significant question now being asked is whether protest

rights at the GAO—beyond the agency level appeal—should be extended to the government or the Federal work force or both. Under

the new Circular, we think it is possible that the GAO could determine that an agency tender official qualifies for standing to protest

before the GAO.

As this committee well knows, standing is derived from the Competition in Contracting Act and is limited for good reason to those

individuals with the authority to sign and certify a bid and to sign

and be liable for performance under a contract. For the most part,

the revised A–76 places on the government most of the rights and

responsibilities shouldered by other bidders. There are many comVerDate 11-MAY-2000 10:51 Oct 06, 2003 Jkt 000000 PO 00000 Frm 00142 Fmt 6633 Sfmt 6633 D:\DOCS\89005.TXT HGOVREF1 PsN: HGOVREF1
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plex legal issues associated with a government-filed protest, but it

is an issue worth exploring further.

On the other hand, it is inconceivable as a matter of equity or

law that Federal employees as individuals or through their elected

representatives would be or should be granted standing. While it

is true that companies have the standing to protest, neither their

work force nor their unions have such standing. Although all employees, public or private, are affected by decisions made in a competition, they do not have the legal or financial liability for the bids

submitted or for post-award performance. This is true of individuals and of unions, be they public or private.

There are also a number of areas of the Circular that we believe

merit further and immediate action by OMB.

First, it’s important that the costing methodologies be substantially revised. For example, the revised A–76 requires that a costrealism analysis be conducted on both public and private bids, and

we certainly support that. At the same time, the cost manual, the

use of which is required for government MEOs, is designed to create only a cost model of the government MEO. There is a vast difference, however, between cost modeling and cost realism. A model

reflects what things should cost. Cost realism is geared to what

they really will cost. This is a continuing weakness of the process

that must be addressed without delay.

The revisions also delete all coverage of the large, complex and

largely hidden web of activities known as Interagency Support

Service Agreements [ISSAS]. While OMB has stated its intent to

address this issue through separate policymaking, we see no reason

that new ISSAs should not be subject to competition, as was required under the 1996 revisions to the Circular.

Finally, the revised Circular makes no mention of waivers at all.

In those cases where a public-private competition does not make

sense from the perspective of cost, technical skills, technology, mission or the agency’s ability to adequately recruit, retain, support

and reward a work force, a waiver is the right answer. In such

cases, there should be a requirement that interests of the work

force be made a significant source selection factor, but for the reasons I mentioned earlier, we believe the Circular should clearly articulate a policy permitting waivers and appropriate circumstances.

Ms. Davis, members of the committee, we believe OMB has done

a good job of making significant improvements to the A–76 process.

We hope the revisions that OMB has made will lead to robust competition and, even more importantly, to outcomes that are in the

best interest of the government. I look forward to answering any

questions you might have and thank you again for the opportunity

to appear.

Mrs. JO ANN DAVIS OF VIRGINIA. Thank you, Mr. Soloway.

[The prepared statement of Mr. Soloway follows:]

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Mrs. JO ANN DAVIS OF VIRGINIA. I understand Ms. Kelley and

Mr. Harnage have to leave at 11:45, so I’m going to begin with the

gentleman from Tennessee. Mr. Cooper, do you have any questions?

Mr. COOPER. Thank you, Madam Chair.

To an outsider, the inherently governmental distinction looks

pretty confusing and arbitrary; and I almost wonder if it wouldn’t

be simpler just to say that you could privatize pretty much whatever any private company wanted to bid on. Because the standards

seem to shift over time; and it’s hard for me to see, as an outsider,

a clear dividing line. Are there clear dividing lines, especially when

you’re talking about narrowing the standard?

Ms. KELLEY. I believe there are very specific lines. Part of the

problem now is that there’s an area of work I think most people

would agree is inherently governmental, there is an area that everyone would agree may be designated commercial appropriate,

and then there’s this gray area. In NTEU’s view, the A–76 rewrite

has increased the number of jobs that will be moved to commercial

and I think ill-advisedly. Some could argue that it also widens the

area of the gray designation because NTEU would believe those in

the gray area are inherently governmental, and others I’m sure on

the panel would think those in the gray area should be commercial.

But I think there are definitely jobs in the Federal sector that

should be done only by government employees; and there is disagreement today over what that definition is.

Mr. SOLOWAY. Mr. Cooper, the question is a good one, and I

agree with Colleen’s point that there are clearly positions that

must be performed by Federal employees. OMB policy letter 92–1,

which was issued in 1992, lays out a pretty good framework for

what that is and what those jobs are.

Very often, what happens in this debate though, is we move

away from understanding what the functions really are. The example I’ll use is the recent amendment that was considered in the

Senate relative to air traffic control. I may or may not agree, but

one could argue that air traffic controllers themselves, given the

role they play, are inherently governmental. Some people believe

that, and, as I said, I am not going to debate that point.

But what that amendment encompassed was virtually all of the

support underneath air traffic control—the technical support, the

systems and so forth—that support activity is not in and of itself,

in our view, inherently governmental. In fact, most of the technology supporting that is commercially driven. That was why FAA

was given special authority a number of years ago to change its

procurement practices, because it was having trouble accessing

commercial technology.

So you have to be very careful when you talk about a tax collection function being inherently governmental. There are elements

and pieces to it. One piece may be inherently governmental, and

another piece may not.

Mr. Tierney, to the question you asked earlier about giving discretion to government managers and government employees to

make these decisions, I think it’s inevitable you have to give some

of that discretion and have some faith that government employees

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and government managers will show good sense in making those

distinctions that need to be made.

Mr. COOPER. It’s sounding again like it’s whatever private companies may want to bid on. I would, for example, have thought that

military service would be an inherently governmental function, not

Civil Service, but, if the Pentagon is requesting $200 million so

that they can essentially train foreign troops to preserve peacekeeping and other functions that ordinarily our troops would perform.

So it is amazing, the reach of these definitions. And I agree

that’s not Civil Service, but it is a change in what an ordinary

American would have thought.

I am worried about the inherent disadvantage. As I understand

it, there is an automatic 12 percent overhead rate applied to any

in-house bid, at least within DOD; and that seems like an arbitrary

and unfair number. Why is 12 percent automatically the overhead

rate that’s applied?

Mr. SOLOWAY. To deal with the overhead issue one has to go

back to the history of the Circular a little bit. If you will bear with

me, back during the early to mid-1990’s OMB was looking at this

very issue of overhead and how overhead was being accounted for

on the public side. Obviously, in a private sector bid you have to

account for all of it in your bids; and OMB found that the average

overhead, and this was particularly at DOD because that was the

only place that A–76 competitions were taking place, that the average factor being figured in was somewhere between 1.5 and 2.5

percent. Anybody who’s ever run a business or an organization

knows that when you’re running an organization 1.5 or 2.5 percent

overhead is a bit beyond the pale and virtually impossible.

So OMB went to DOD and then asked a number of folks in industry using the government definition of overhead, because it is

different for a government organization than it is for a company,

what should this number be. There were a variety of inputs

brought to OMB’s attention, ranging from the low single digits,

which I don’t think many business people would agree is realistic,

to more robust numbers in the mid 20 percent range.

Many company overhead factors are 25, 30, 35 percent, even good

companies. It is a reality of doing business, and to think that you

can operate a government entity at a 1.5 or 2 percent overhead is

clearly not accurate. But because of the way the budget and costing

models work and systems work in government, you don’t have full

accounting for your total overhead. You don’t really know what all

of those different lines of cost are.

So OMB actually came up with a compromise at 12 percent. It’s

not an arbitrary number. Is it absolutely right? It’s probably too

low, in my view. But it’s there to be a reasonable estimate of what

those costs are because we don’t have the financial systems to give

an accurate presentation and, we have a history where the numbers being used were absurdly low.

Mr. HARNAGE. Mr. Cooper, I would like to respond to that, too,

if I may.

You know, it is an arbitrary number, even for DOD; and if you

read the Department of Defense Inspector General, the 12 percent

overhead rate he states is ‘‘unsupportable, a major cost issue that

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can affect numerous competitive sourcing decisions. Unless a supportable rate is developed or an alternative method is calculated at

a fair and reasonable rate, the results of future competition will be

questionable.’’ The Inspector General of DOD says this is an arbitrary number and it’s not supportable.

Mrs. JO ANN DAVIS OF VIRGINIA. The gentleman’s time has expired.

The gentleman from Maryland, Mr. Ruppersberger.

Mr. RUPPERSBERGER. Yes. Really, this was a question that I

probably should have asked for the first panel, but I am going to

throw it out, and if you don’t want to answer that’s fine.

Setting aside whether or not the idea of outsourcing to the private sector is a good idea for a minute, I would like to ask a question about the A–76 process and the intent behind the process. The

contracts from this process tend to be large-dollar-volume contracts

which essentially cut small businesses out of the bidding process;

and these contracts may be $30 to $50 million annually and inherently are set up—in my opinion, they’re set up for large businesses.

In my Maryland 2nd Congressional District, Fort Meade, which

is an Army base, has been outsourcing much of its work to small

businesses; and, as a result of these changes, those small businesses in my district are telling me that they no longer are able

to compete because—with the large businesses. So my question

really is, what is being done to ensure that the small businesses

won’t be pushed out of the process and how can we be sure that

small businesses’ percentages are built into contracts or actually

fulfilled?

Mr. DILKS. I would like to respond to that, Mr. Ruppersberger.

Mr. RUPPERSBERGER. Sure.

Mr. DILKS. Having been a small business——

Mr. RUPPERSBERGER. I wanted to ask the question of the Department of Defense, but that’s fine.

Mr. DILKS. Well, I can tell you one of the major reasons we have

not seen a lot of small business participation in the A–76 studies

in the past is because the process is never ending. In my view the

timeframe change that is now part of the new Circular will see a

significant improvement in the participation of small businesses,

because now not only do they view the playing field as being more

level, they view that their investment and bid and proposal cost,

which is very limited in the small business, will see a more immediate return. So I think this revised Circular will benefit the small

businesses in many ways.

Mr. RUPPSERSBERGER. Why do you think they would be concerned or complaining then? We are getting some calls from the

small businesses that really deal with that Army base. Why would

they have concern? Do you have an idea?

Mr. DILKS. I really—in my view—I mean, small businesses have

always had an opportunity to team up with other companies on

large procurements.

Mr. RUPPERSBERGER. Well, it’s usually as a subcontractor.

Yes.

Mr. SOLOWAY. I think there is another point here. I think Don’s

point about the timeframes being a real disadvantage to small

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business historically and the nature of the process has caused a lot

of small businesses to stay out of the process.

On the other hand, and DOD has some very good numbers on

this. It would be worth asking them for them. There is a very substantial percentage of A–76 competitions in the past that have gone

to small business. I think the revision—one of the ironic and probably unintended consequences of it is it will harm small business.

To the extent that direct conversions are now eliminated entirely

and for under 65 employees, which is principally the area that

small businesses can be competitive, you can no longer do a direct

conversion and you’re back into the public-private competition environment. That was an area in the old Circular where I believe it

was under 50 or 60 employees you could actually have a robust private sector competition. It was an area where small business participated very extensively. You get up into the 100, 150, 200 employee range, obviously it becomes much more difficult for a small

business.

So one of the difficulties with the new Circular is in the push to

guarantee that we are always going to have public-private competition, even where it doesn’t necessarily make sense. We are

disadvantaging small business by eliminating that category that

they’re most competitive in.

Mr. RUPPERSBERGER. OK. Thanks.

Chairman TOM DAVIS. Thank you.

Let me just ask—I know you have to go. Can I just ask a couple

of questions of you?

Let me—Mr. Harnage and Mrs. Kelley, thanks a lot for being

here, because I think you have more members that could be adversely affected by this than anyone else. I appreciate your being

here, and I just want to tell you we have great sensitivity. Is this

a better Circular than the old Circular?

Ms. KELLEY. Not in NTEU’s view, no. We believe that the problems I identified in my testimony make it worse, and we are asking

that this committee block implementation of the new A–76 and go

back to the old unless these issues are addressed.

Chairman TOM DAVIS. Because the old one was horrendous, too.

We agree with that, don’t we?

Mr. HARNAGE. I don’t believe it’s better. One of the things that

amazes me the most is the practical—for all practical purposes, the

elimination of most efficient organization. For years we’ve pushed

the privatization issue on the basis that competition saves money;

and in this morning’s testimony, there was some reference to a 20

to 30 percent savings. That’s only—the 30 percent is only in the

case of it being privatized, 20 percent of the competition.

That’s the reason AFGE has supported competition throughout

these years. But if you eliminate the MEO, you’re eliminating that

20 percent savings. So why would you eliminate that?

I know the contractor community thinks it’s only fair that they

compete against what you’re doing today. But we recognize there

efficiencies in government. Why should we privatize those inefficiencies, then let the contractor eliminate them and have a windfall

profit at the taxpayers’ expense? It makes absolutely no sense.

You know, there are several issues in this that, as I said in my

opening statement, you know, this is driven. This is a political

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agenda. It’s not about saving money. It’s about moving money to

the private sector. There is nothing in this A–76 that gives us any

more accountability, and we have been trying to get that accountability now for years, where we have projected these savings. Let’s

go back and determine whether or not we did, in fact, save those;

and, if we didn’t, let’s don’t repeat that mistake.

Chairman TOM DAVIS. Well, let me tell you my agenda. And,

again, it’s not a political agenda. It’s one that wants to bring more

efficiency to government, and competitive sourcing I think helps

the government come in and do their job better. I think we all

agree that’s a very positive thing.

I expressed concern earlier that one of my concerns is when you

do this on a repetitive basis you kind of wear down the Federal

work force and people just kind of hang it up and say, you know,

I don’t have the job stability here I was getting for some of the reduced benefits or whatever. And that’s an issue as well. Now, both

the NTEU and the AFGE were included in the Commercial Activities Panel and agreed with the sourcing principles that developed.

What’s the primary differences between those principles and the

updated Circular? Could you characterize that quickly, the differences?

Ms. KELLEY. Well, while I supported the principles, I did not submit or support the underlying recommendations, one of which was

the one-step approach, which is being called tradeoff or best value.

Also, one of the things that I did support was the concept of the

high-performing organizations so that the Federal agencies were

encouraged and supported and funded to create these high-performing organizations, and there’s nothing in the new Circular that

does that. That piece of it is totally eliminated.

Chairman TOM DAVIS. For both of you, that’s just a huge issue,

is that fair to say?

Mr. HARNAGE. That’s a very large issue. Even though it was a

unanimous decision on the principles, on the report itself, the

supermajority was all of the appointees of the administration and

the contractor community, none of the academians or the——

Chairman TOM DAVIS. Well the devil’s always in the details, I

think.

Mr. HARNAGE. Yes. But, you know, what it looks like to me is

they picked out the part that—not only that the Commercial Activities Panel rejected, they put into this new A–76, but they picked

out the parts that most favored the contractors in the recommendations and left out those that most favored the taxpayers and the

Federal employees. You know, this package is totally objectionable.

They could have done a much better job had it been less influenced.

Chairman TOM DAVIS. I don’t know if you have done this, but I

would ask each of you, as you look at that current thing, if you

want to come back with some specific recommendations as to how

you would write it that would be helpful to us, just so we could get

it and compare.

Mr. HARNAGE. I’d be glad to do that. My question is, Mr. Chairman, is I’m more than willing to do that, but I’m a little confused.

What is the intent of this committee and handling this information?

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Chairman TOM DAVIS. Well, we’re an oversight committee. We

can also legislate. I mean, we have authority. The legislative process is a very burdensome process, as you know, because we would

have to not only move a bill through, we have to get it signed into

law. I don’t think there is a reason to be real optimistic about that

from where you sit, given the current alignments; and I’m just

being candid. However, I think we can influence the regulatory

process.

Mr. HARNAGE. We’ve had that conversation before.

Chairman TOM DAVIS. We can influence it in a fairly significant

way, and I am happy to do that. And if it means legislation—but

I want to just get a fair understanding of everything. Because I

don’t think there is any question competitive sourcing is a management tool that should be utilized and can be utilized and has been

helpful in many instances.

You know, I’m trying to be sensitive to do this in an appropriate

way; and I think in many ways—I mean, I think Ms. Styles has

taken a good stab at it. I’m just—we sit here, and we would hope

to have more consensus, and when you don’t get consensus on an

issue like this, it causes me some concern.

We have a vote on. I have more questions. I know you two have

to leave, am I correct? Both of you? Are there any other questions

at this point? Mr. Tierney. Let me give Mr. Tierney a couple of

questions for you. Then if you can wait I would like to come back

and ask you some questions after the vote, and we can have more

of a conversation, if that’s OK. Mr. Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman.

I want to thank all the witnesses for being here, being helpful.

I don’t want to hold you up, Mr. Harnage and Ms. Kelley, but,

I mean, I have obvious concerns about this.

We want any process to be fair. I think it has been remarkable

that both the organized labor as well as the business community

have wanted to move this process forward, but I have questions

about the details. For it to be fair, it can’t be arbitrary; and for

there to be a lack of arbitrariness you have to take out some of the

subjective aspects of it.

I keep looking at the current proposal and just see a lot of subjectivity all the way around, and that causes me great alarm and

great concern. We have, I think, an abominable record of supervising contractors, private contractors—the Department of Energy,

the Environmental Protection Agency and on down the line. So extending out to more private contractors without first improving our

ability to supervise them should be a concern to us.

Let me talk about this best value. That seems to be the most

subjective of all of the aspects on this. Mr. Harnage, Ms. Kelley,

do you have concerns about that? What are they and how do we

address them?

Mr. HARNAGE. The best value?

Mr. TIERNEY. The best value.

Mr. HARNAGE. Yes, I do have, because it’s such a subjective decision.

Under the old 76, if the statement of work requested a certain,

you know, job be done and the contractor was competing for that,

the contractor could go to the contracting officer and say, I know

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you asked for A, but I would like to provide you B. It is a little

more costly, but it is a better product, be more efficient, so it would

be a savings in the long run.

The government official could say, I like that, then would go back

to the in-house and say, can you do this, and if you can, what

would it cost?

You’re looking after the taxpayer. You’re keeping apples to apples, not apples to oranges.

Under this new situation, the government official can say, I like

that. You’ve got it. Not necessarily a savings to the taxpayer and

not necessary bells and whistles that you really need, but that individual likes it. And with this conflict of interest, this revolving door

that we have, particularly in DOD, that’s extremely dangerous.

Mr. TIERNEY. Ms. Kelley.

Ms. KELLEY. I would also add that Federal employees have many

ideas on how to do things better. They have a lot of ideas that are

innovative and creative, but most agencies don’t have systems, a

process funding, or management structures in place to support that

innovation and creativity from ever being put to work or ever being

funded and allowed to actually put forth these new ideas. So, in

that instance, I think that the agency should be not only encouraged but supported and funded to be able to do that.

On the issue that you mentioned, also, Mr. Tierney, about the accountability issue of the contract management, this new rewrite,

OMB suggests and requires, I guess directs each agency to create

a program office to monitor or to implement the competitive

sourcing agenda. I wish they had directed each agency to put in

place a program office that would monitor and hold accountable all

of the contracts that are out there so that real decisions can be

made about whether that work can and should be done by Federal

employees or by contractors and when it should be brought back

inside. There is no such system in place that mandates or requires

that; and, as we have heard from GAO and others, most agencies

just don’t do it.

Mr. TIERNEY. I have limited time, so I want to just cover one

other thing, Mr. Harnage, that you mentioned in some of your summary, was the adverse impact you believed would be the very diversity in the Federal work force. Would you just expand on that

comment?

Mr. HARNAGE. Well, except, you know, in most cases the privatization—the vast majority of the privatization that has taken place,

driven by either the quotas or the A–76, has most impact on minorities—minorities and women. That’s where that comes from. If

you look at the Federal work force and the people that are affected

and the ones that wind up leaving, as opposed to those staying, it

has a larger impact on the minority community.

Mr. TIERNEY. Mr. Dilks, you mention in your remarks that you

thought it would be fair to treat the public like the private in terms

of these bids. But I have some concerns about the fact that the contractors don’t seem to be being held to absolute competition requirements for requiring and retaining existing work. Would you

be amenable to having those—the A–76 changed to make sure the

contractors as well as public employees were held to recompetition

requirements?

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Mr. DILKS. We are held to recompetitions. Our contracts are recompeted at the end of their terms. That’s been the process as long

as I have been in the business. We’re already held to that.

Mr. TIERNEY. I read these to back off of that a little bit. You

don’t read that at all.

Mr. DILKS. No, sir, not at all.

Mr. TIERNEY. Well, we’ll go back and read it again.

Ms. KELLEY. If I could just——

Mr. TIERNEY. Sure.

Ms. KELLEY. And this is really a question, I guess, to clarify my

understanding. Any recompetition occurs private to private. Federal employees never have the opportunity again to be in that process.

Mr. DILKS. Is that your question?

Mr. TIERNEY. That’s what I meant by backing off. Thank you for

translating it for me.

Mr. DILKS. I am not speaking for my members, but, speaking for

my own company, I have no problem with recompetition of work

that’s been contracted to me.

Mr. TIERNEY. Of course, the problem with that is, once you’re in

there, the employees are gone and who actually puts together that

bid then becomes a problem. We’ll have to work out some structure

on that. Because, otherwise, once it’s out the door, it’s out the door;

and if we are losing money and it’s not working well, we are sort

of in tough shape with that situation.

Mr. SOLOWAY. That’s at the point when you recompete it

amongst other companies. That’s the same decision process a company goes through.

Mr. TIERNEY. That’s where we are. If there isn’t a job that’s

needs to be done well by private, we’ve just lost the public aspect

of it and we’re done. As much as I think that there are appropriate

situations, I think there are some inappropriate situations; and if

you move to one of those and you don’t have any way to recover,

you’re in deep soup. That’s the problem there, is once you’re out the

door to private contractors for up to 5 years or whatever and then

you want to rebid, if it’s only contractor to contractor you’ve lost

the opportunity to have what might be the better process on that.

I yield back the balance of my time.

Chairman TOM DAVIS. Thank you very much. I just have a few

more questions.

Mr. HARNAGE. Mr. Chairman, if I might.

Chairman TOM DAVIS. Yes, you’re dismissed.

Mr. HARNAGE. I just wanted to say thank you very much for this

opportunity. I apologize for having to leave. We will get you that

information you requested, and I’ll be more than glad to meet with

any member of the committee that might like to meet personally.

Chairman TOM DAVIS. Thank you.

Let me ask, we don’t—we recessed. I heard the bells go off. The

new Circular permits interested parties, including employee representatives, to appeal adverse A–76 decisions to the contracting

agency, but the Circular doesn’t address the issue of the standing

of Federal employees to protest before the GAO or the Federal

courts. What is your view on whether the Federal employees themselves should have standing to challenge A–76 determination?

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Mr. SOLOWAY. First of all, Mr. Chairman, the Circular can’t address that issue because it’s not within the purview of an administrative policy. It’s actually a legal question and would probably require statutory changes. So I don’t believe the Circular even can

address the protest at GAO that’s actually GAO’s discretion as to

who they grant standing to.

But, as I said in my testimony, the issue that really has to be

examined here is who has standing before GAO or the courts. That

standing is derived from the Competition in Contracting Act and

has traditionally, for good reason, been limited to those who have

the authority to sign and certify to a bid and to have the liability

legally and financially for performance under a contract.

In the case of Don Dilk’s company, Don Dilks as the CEO of his

company has standing under that standard. His employees and his

unions do not have standing because they don’t have that liability

and that responsibility.

In the case of the revised Circular, as I said in my testimony, I

think it’s conceivable that GAO will for the first time determine

that the government is actually being asked to behave like a bidder. There is an official with authority and certification responsibility; and, therefore, that official and the government agency may

then get standing at GAO, but this is up to GAO.

However, to extend that beyond the agency tender official to either the union or to individuals would be, as a matter of equity and

law, totally inconceivable. It’s entirely contrary to the whole concept of standing and the whole purpose of the protest process.

Chairman TOM DAVIS. Mr. Dilks and Mr. Soloway, what really

influences a company’s decision to engage in competition? Because

there’s a cost to that. When you go after one of these, there is a

cost. You have to, you know, put forward your proposal and the

like. Does the revised process encourage companies? Is this more

of an incentive for you to get involved?

Mr. DILKS. Mr. Chairman, it will be for our company. There are

many factors, obviously, in determining when we are going to bid

on competitive procurement. The most important one, in many

cases, for my firm is what is the likelihood that we can be successful on the competition and provide high—as high or higher quality

of work than any of our competition. That’s usually the driving factor. And part of that factor is can we win the competition.

In the past, quite honestly, my company has always put A–76

competitions at the very bottom of the level of priorities because of

the fact that there’s never any certainty that there will ever, in

fact, be an award. With this revised Circular I think that for the

first time we have a real fair playing field, and I will be much more

interested in pursuing those opportunities where they might exist.

Mr. SOLOWAY. Mr. Chairman, I can’t speak for a company, but

I can tell you that the jury is still out on the question, and there

are a couple of key issues that play into this. No. 1 is the limited

application of best value. Despite Mr. Harnage’s comments to the

contrary, best value really is where cost and quality come together;

and throughout the Federal procurement system cost and quality

has become, by the dictate of this committee and others in Congress, sort of the standard by which we want to buy products and

services. The limited application of best value, particularly as you

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move into more sophisticated technology requirements, really becomes an issue for companies to look at whether or not they can

propose the kinds of innovative solutions that can be successful.

So I think that the jury is still out on the whole question. I think

it is clearly an improvement. The question is whether we have gone

far enough and there are a number of other issues that need to be

addressed.

Chairman TOM DAVIS. How often do Federal employees that are

displaced end up with a contractor after an A–76?

Mr. SOLOWAY. Historically, it’s been, a very high percentage. The

last numbers I saw were somewhere about 60 percent or so. As

Scott Cameron said on the earlier panel, in Interior’s experience

they have not had a single employee who has been involuntarily

separated as a result of the process.

One of the weaknesses of the process, ironically, to turn the

question a little bit, is that in the push to mandate public-private

competition and to not lay out and articulate a process for waivers

we’re avoiding or skirting opportunities to actually advantage the

employees through competitive outsourcing while still advantaging

the government.

The examples I’d suggest the committee look at are the National

Security Agency’s Groundbreaker contract and the Army’s Wholesale Logistics Modernization initiative. In both of those cases, the

interest of the employees was first and foremost in the source selection. In neither of those cases was A–76 conducted. The employees

were made a major asset in the process; and the companies were

basically told, if you want to do this business for us, you’ve got to

think about our employees and tell us what you’re going to do to

make them whole and take care of them. And the results were extraordinary.

You can’t do that when you’re competing against that employee

base, for obvious business reasons. But in many cases where the

A–76 competition makes no sense, those are options that we ought

to be looking at if our principal concern is the employees.

Chairman TOM DAVIS. OK. Mr. Soloway, you testified that you

have concerns with Federal employee groups being exempt from

having past performance used as a selection criteria in the first

round of A–76 competition. How would you measure a Federal employee’s past performance? How does the government assess its

own past performance?

Mr. SOLOWAY. It’s a very difficult question and I raised it in the

testimony because I think it’s one of the areas we’re going to have

to be very cognizant of as we go forward.

It is by a matter of policy, in many cases, practiced throughout

the government that past performance is sometimes 25, 30, 40 percent, even 50 percent of a source selection decision for very good

reason. As this committee has said over the years, it’s often the

best indicator of success or failure in the future. So to eliminate

only one party from being considered under their past performance

makes it very difficult to have a true best value level playing field.

I think the government needs to develop an internal system for

measuring activity level performance, not just agencywide report

cards, something beyond ad hoc reference checks and phone calls,

to actually build a performance data base. Now, that’s going to take

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some time. The second time around, if an MEO does win an A–76

competition, their past performance should be easily measured. It

should be tied to their binding letter of obligation, the performance

requirements, the cost associated with it and so forth. But I think

it is a very difficult question.

There are various things you can do to look at performance. You

can look at cost growth over time. It’s a little bit different than you

do with the private sector because we now have a system in place

across the government to measure the performance and maintain

a data base. But it is a real equity issue. It is also an issue for

agencies when they are looking to likely success or failure.

Chairman TOM DAVIS. Let me ask each this. I mean, we go

through government periodically and reassess can the government

do this better on the outside. Should the government have a program where contracts that are on the outside—every once in a

while to go reassess those and see if they’d be better off taking

them in-house?

Mr. SOLOWAY. There is certainly nothing in the Circular that

would inhibit or prohibit that. That has always been the case

under the old Circular and the new Circular. It’s called a reverse

A–76, and the rule just turns around the other way in terms of the

cost differentials and so forth.

Chairman TOM DAVIS. In your experience, has that been utilized

very much?

Mr. SOLOWAY. It’s been done. It’s not common, but it’s been done.

And the point that Mr. Tierney was making is a fair one. In your

days in the private sector if you decided to outsource something

and you eliminated the infrastructure that supported that activity

and the outsourcing didn’t work, your first and most common remedy would be to go recompete it amongst other providers. If at the

end of that process you really couldn’t find a provider that was

going to provide the quality and cost that you really needed, then

you go through the process of recreating the infrastructure. That

limitation is principally driven by arbitrary FTE ceilings, and I

don’t think those ceilings ought to be in place to limit your ability

to do that.

One good example of this—and we dealt with this during the

Commercial Activities Panel—was Indianapolis where, as you

know, Mayor Goldsmith was very active in competitive sourcing.

First of all, he actually had strong support from the unions there

to do a competitive process. Not everything was competed. There

were decisions made that some things just made no sense to be

performed by the private sector and other things made no sense for

the government to continue to perform for various reasons. They

did find on rare occasions that in some cases the market essentially

disappeared for the service they were buying.

The example he uses very often is pothole filling. If you take a

city the size of Indianapolis and you contract out the city’s need for

potholes and filling potholes, you have pretty much taken away

much of the marketplace because it’s a dominant piece of business

in the city. After a number of years they found that the performance was not up to snuff and so they worked with their unions to

build a competitive bid and bring the work back in-house. It’s uncommon. It’s driven primarily by radical changes in the mission or

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the marketplace. But if it’s commercial in nature and you’ve already made the decision that the performance by the government

or the private sector is not the critical decision, it’s the best source,

you continually use that competitive marketplace to find a better

supplier.

Chairman TOM DAVIS. What we found in Fairfax on trash collection is that, first, it was all outsourced. After a while we got the

county to also do a piece of it, and in the outsourced areas the costs

dropped because the county, by doing a critical piece of it, brought

some additional competition. We found basically, some price rigging

and so on among everybody prior to that as they were divvying up

the territories and the like so——

Mr. SOLOWAY. As you said, in the case where the market has

changed and competition doesn’t really exist, it can be helpful. But

in most cases the market is quite robust and just adding a government bidder to the process doesn’t create the competition. It’s

whether the competition is either there or it isn’t.

Mr. DILKS. Mr. Chairman, if I can add to Stan’s comments, you

also need to understand in the service contracting business we’re

challenged by our agencies, our customers every day to find less expensive and better ways to perform, so it’s an ongoing process. In

the services business truly you’re measured every day based on

your level of service and your cost. So this isn’t something that

comes up every time the contract’s up for recompete. This is part

of our everyday work performance.

Chairman TOM DAVIS. OK. Well, those are the questions I have.

Anything else you all would like to add? Probably. But your total

statements are in the record.

I appreciate your being here. I appreciate both of our panels coming here this morning and answering questions. I want to thank

our staff who worked on this hearing as well.

So the hearing is adjourned.

[Whereupon, at 12:15 p.m., the committee was adjourned.]

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