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CONTRACTING REFORM: EXPERT

RECOMMENDATIONS AND PENDING BILLS

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

ORGANIZATION, AND PROCUREMENT

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 27, 2007

Serial No. 110–101

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

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

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

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

——— ———

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

LAWRENCE HALLORAN, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, ORGANIZATION, AND PROCUREMENT

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

CAROLYN B. MALONEY, New York

BRIAN P. BILBRAY, California

TODD RUSSELL PLATTS, Pennsylvania,

JOHN J. DUNCAN, JR., Tennessee

MICHAEL MCCARTHY, Staff Director

(III)

C O N T E N T S

Page

Hearing held on February 27, 2008 ....................................................................... 1

Statement of:

Amey, Scott, general counsel, Project on Government Oversight; and Alan

Chvotkin, senior vice president and counsel, Professional Services

Council ........................................................................................................... 84

Amey, Scott ................................................................................................ 84

Chvotkin, Alan ........................................................................................... 96

Denett, Paul A., Administrator, Office of Federal Procurement Policy,

Office of Management and Budget; John Hutton, Director, Acquisition

and Sourcing Management, U.S. Government Accountability Office; and

Marcia Madsen, CHAIR, Acquisition Advisory Panel ................................ 10

Denett, Paul A. .......................................................................................... 10

Hutton, John .............................................................................................. 28

Madsen, Marcia ......................................................................................... 45

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

Amey, Scott, general counsel, Project on Government Oversight, prepared

statement of ................................................................................................... 87

Chvotkin, Alan, senior vice president and counsel, Professional Services

Council, prepared statement of .................................................................... 99

Davis, Hon. Tom, a Representative in Congress from the State of Virginia, prepared statement of ........................................................................ 26

Denett, Paul A., Administrator, Office of Federal Procurement Policy,

Office of Management and Budget, prepared statement of ....................... 13

Hutton, John, Director, Acquisition and Sourcing Management, U.S. Government Accountability Office, prepared statement of .............................. 31

Madsen, Marcia, CHAIR, Acquisition Advisory Panel, prepared statement

of ..................................................................................................................... 47

Maloney, Hon. Carolyn B., a Representative in Congress from the State

of New York, prepared statement of ........................................................... 82

Murphy, Hon. Christopher S., a Representative in Congress from the

State of Connecticut, prepared statement of .............................................. 8

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 3

(1)

CONTRACTING REFORM: EXPERT

RECOMMENDATIONS AND PENDING BILLS

WEDNESDAY, FEBRUARY 27, 2008

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

ORGANIZATION, AND PROCUREMENT,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m. in room

2154, Rayburn House Office Building, Hon. Edolphus Towns (chairman of the subcommittee) presiding.

Present: Representatives Towns, Maloney, Murphy, Welch, Davis

of Virginia, Platts, and Duncan.

Staff present: Michael McCarthy, staff director; Velvet Johnson,

counsel; Kwane Drabo, clerk; Earley Green, chief clerk; Mark Stevenson, professional staff member; Larry Halloran, minority staff

director; Keith Ausbrook, minority general counsel; Mason Alinger,

minority legislative director; John Brosnan, minority senior procurement counsel; Benjamin Chance, minority clerk; and Ali

Ahmad, minority deputy press secretary.

Mr. TOWNS. Today’s hearing is focused on one of the most important parts of the subcommittee’s oversight jurisdiction, the acquisition of goods and services by the Federal Government.

As stewards of taxpayer dollars, we owe American citizens no

less than full transparency and accountability over the Federal

Government’s operations. We need to be certain that Federal assets

are protected from loss or misuse.

Today we will examine the recommendations made by the Services Acquisition Advisory Panel for improving Federal Government

acquisition practices. We will also get input in three bills related

to contracting reform.

The Federal Government is the largest buyer of goods and services in the world. Between 2000 and 2006, spending on Government contracts has grown from almost $219 billion to $415 billion.

That is an astounding 89 percent increase in the past 6 years.

Anyone who has been paying attention to the news in recent

years has heard time and time again of the waste, fraud, and abuse

involving a number of Government agencies and contractors. We

are all familiar with the report on acquisition problems that arose

in response to Hurricane Katrina and in the reconstruction efforts

in Iraq and Afghanistan.

These problems aren’t just one-time occurrences; they often occur

in routine Federal acquisition projects. It is clear that our GovernVerDate 11-MAY-2000 13:47 Jan 07, 2009 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\45947.TXT KATIE PsN: KATIE
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ment has serious problems with the way it manages contractors

and contracts.

The purpose of this hearing is not just to talk about the problems

with the system, but to find meaningful solutions. We want to

know how we can make the system better.

I am eager to hear ideas from our witnesses on how we can improve our Federal acquisition system. GAO has written numerous

reports on government contracting, and, likewise, Ms. Marcia

Madsen, legal background in contracting, and her service with the

panel establishes her as an expert in this area. We are delighted

to have you, as well.

Also, we look forward to getting feedback from the administration and members of the contractor community on three contracting

reform bills that we have before us today. One bill is the Government Contract Accountability Act of 2007, which has been introduced by my good friend, Representative Chris Murphy. This bill

would require disclosure of the names and salaries of top executives of companies that receive more than 80 percent of its annual

gross revenues and more than $5 million annually from Federal

contracts.

The Contractors and Federal Spending Accountability Act of

2007 requires a data base of information on contractor performance

and integrity. This bill is sponsored by Representative Maloney.

The intent is to gather together in one place information from evaluations, audits, and legal proceedings so contracting officers have

a full picture of a contractor’s track record.

We will also examine a bill introduced by Representative Brad

Ellsworth designed to prevent companies with seriously delinquent

Federal tax debt from receiving new contracts. This is a bill that

Mr. Ellsworth and I worked on together based on the input from

a hearing held last April.

I look forward to hearing from our witnesses and gaining their

perspective as we work together to find a workable solution to

something that we can all agree is a continuing problem.

[The prepared statement of Hon. Edolphus Towns follows:]

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Mr. TOWNS. At this time I recognize Congressman Murphy for an

opening statement.

Mr. MURPHY. Thank you very much, Mr. Chairman. I thank you

greatly for holding today’s hearing. I look forward to hearing from

the panel, especially with regard to how we can improve our procurement process, increase competition, establish clear performance

requirements, including how we measure performance.

As Mr. Towns elucidated in his explanation of the bill before us

today, I think it is necessary to add one more recommendation to

the list of those put before this committee today. I am pleased that

we will be able to talk about a bill presented by both myself and

by another member of this subcommittee, Peter Welch.

Our legislation, the Government Contractor Accountability Act,

seeks one simple thing with regard to Government contracting, and

that is transparency. As pointed out by the GAO study, buying

services account for 60 percent of the total fiscal year 2006 procurement dollars, a staggering number. Expenditures on security services due to our engagement in Iraq and Afghanistan have increased

substantially.

Obviously, the most high-profile company involved in those security services is Blackwater, a subject of a major, important hearing

before the full committee some months ago.

This Nation spends billions of dollars on private Government

contractors overseas. The American taxpayers and this Congress,

as we have found out, know very little about these companies and

the windfalls that they may be reaping from those contracts. Their

management practices, their financial statements, and their employment policies are tightly held secrets not subject to public scrutiny, unlike their public company that are competing in many cases

for the very same contracts.

Not surprisingly, at that hearing in October by the full committee, the CEO of Blackwater refused to provide Congress with details of the company’s profits or his personal compensation.

I found and still find that refusal unacceptable. In the case of

Blackwater, the American people pay 90 percent of the CEO’s salary and 90 percent of the salaries of his employees. Congress and

the American people have a right to know how its money is being

spent.

And this principle shouldn’t be held just for private contractors

in Iraq. While Blackwater is the clearest example of why this legislation is needed, this principle should be required of all those private businesses that make a vast amount of their earnings from

the Federal Government and, more importantly, the Federal taxpayer.

The Government Contractor Accountability Act, which I am

pleased to say is also cosponsored by the chairman of the subcommittee, Mr. Towns, and the chairman of the full committee, Mr.

Waxman, requires that contractors who receive more than 80 percent of their annual gross revenue from Federal contracts and have

contracts worth more than $5 million in any fiscal year disclose the

salaries of their most highly compensated employees.

I hardly believe this is an onerous requirement and certainly

should do nothing to diminish the competitiveness of Government

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payer, highlighted by the fact that public companies, those that

must open their books to the world, compete and win Government

contracts every day. Our legislation would merely align the disclosure requirements for Government contractors with existing requirements for publicly traded companies and nonprofit corporations.

Government contractors should be held responsible to the American taxpayer, and we should have a right to know where our

money is being spent. If a private company is making multi-million

dollar profits off of Government contracts and can still afford lavish

payments to its executives, then we should closely explore why

Government continues to do business with these contractors. Unfortunately, without our legislation, we will never have access to

this information.

Again, Mr. Chairman, I thank you for the opportunity to have

this bill before us, and I look forward to hearing from the panel on

this bill and on other very important matters related to government contracting.

[The prepared statement of Hon. Christopher S. Murphy follows:]

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Mr. TOWNS. Thank you very much.

It is a longstanding policy of this committee that we swear our

witnesses in, so will you please stand and raise your right hands.

[Witnesses sworn.]

Mr. TOWNS. Let the record reflect that the witnesses answered

in the affirmative.

Let me introduce our first panel.

Paul Denett is the Administrator of the Office of Federal Procurement Policy at OMB, where he is the point person for the administration on issues of Federal contracting and acquisition.

John Hutton is the Director of Acquisition and Sourcing Management at the Government Accountability Office.

Marcia Madsen served as the Chair of the Services Acquisition

Advisory Panel. Ms. Madsen has nearly 20 years experience in

Government contract law. She has served as Chair of the ABA’s

Section of Public Contract Law and was also president of the Board

of Contract Appeals Bar Association.

Let me just indicate to you that your entire statement will be included in the record. I ask that you summarize your testimony in

5 minutes.

Let me just point out one other thing. There is a light. When you

start out, the light is on green. Then, as you proceed, it moves to

yellow. That means that you should begin to summarize up. Then,

when the red comes on, that means you should shut up. OK?

Thank you. Thank you so much.

Now that we’ve got the rules straight, we can move forward.

Thank you. We will now begin with you, Mr. Denett.

STATEMENTS OF PAUL A. DENETT, ADMINISTRATOR, OFFICE

OF FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET; JOHN HUTTON, DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND MARCIA MADSEN, CHAIR, ACQUISITION ADVISORY PANEL

STATEMENT OF PAUL A. DENETT

Mr. DENETT. Thank you, Mr. Chairman.

Chairman Towns, Ranking Member Bilbray, and members of the

subcommittee, I appreciate the opportunity to appear before you

today to discuss the efforts of the Office of Federal Procurement

Policy to implement the recommendations of the Acquisition Advisory Panel.

You have also asked for comments on several bills. I have prepared written remarks that I would like the subcommittee to enter

into the record, and you indicated that it would be, so let me briefly

summarize some of those comments for you.

Many of the recommendations made by the panel fit well with

the priorities I have set as administrator at OFPP. These priorities

include strengthening the professionalism, agility, and quality of

the acquisition work force, using competition more effectively, and

ensuring good stewardship of taxpayer resources.

I am happy to report that my office has either implemented or

is in the process of implementing more than 40 of the 60 recommendations that the panel directed toward OFPP for action.

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Here is just a taste of what we have done or are doing, both as part

of our efforts to implement the panel recommendations and beyond:

We have launched certification programs to standardize training

and experience requirements for contracting officers, their technical

representatives, and our program managers. We have given agencies the tools they need to identify and close skill gaps as part of

their human capital planning. We are working with regulatory

drafters to come up with clear competition rules for multiple-award

contracts, which account for a growing percentage of our growing

acquisition expenditures.

We are institutionalizing results-oriented buying practices such

as strategic sourcing, where agencies work together to pursue

multi-agency solutions for commonly purchased goods and services.

Strategic sourcing has the potential to produce tens of millions of

savings for our taxpayers in 2008.

We are identifying models and best practices for agencies to get

the most out of our buying tools. For example, we will soon publish

a model inter-agency agreement to ensure agencies understand

their roles and responsibilities and assist in acquisitions.

We are also developing a checklist to help our professionals

evaluate if the performance-based acquisitions are structured in

the best manner possible. We are integrating acquisition into the

formal agency internal control program outlined in OMB Circular

A–123 so that agencies will have a process to formally and comprehensively assess their progress on a broad range of acquisition

initiatives, including those that carry out panel recommendations.

With respect to improving contractor tax compliance, I am

pleased to report that final changes will be made to the Federal acquisition regulation in March to address how tax delinquency may

be used as grounds for potential debarment or suspension. I believe

this regulatory change, in combination with the ongoing efforts by

the Federal Contractor Tax Compliance Task Force, will achieve

the goals envisioned by the Contracting and Tax Accountability

Act, H.R. 4881.

I hope the subcommittee will wait to see the beneficial results of

these actions before making a final decision on the need for legislation.

Additional comments on the bills mentioned in your letter of invitation are in my written statement.

Before concluding, I would like to acknowledge the exceptional

achievements of three SHINE Award winners. The SHINE initiative is another example of how we are promoting best in class behavior. It is the first coordinated Government-wide effort dedicated

exclusively to recognizing individuals and team achievements of

outstanding performance within our acquisition work force.

Ms. Jean Todd of the Army Corps of Engineers supported numerous reconstruction efforts in the wake of Hurricanes Katrina and

Rita, including accelerated removal of water and construction of

over 81,000 temporary roofs.

The late Commander Philip Murphy-Sweet volunteered to be the

onsite contracting officer in central Iraq, supporting the establishment of a Criminal Investigative Court and helped ensure the

project stayed on track.

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The Bureau of Prisons Acquisition Team used an innovative alternative dispute resolution partnering approach in construction of

a new environmentally friendly Federal correctional facility on time

and budget.

Finally, I would like to express my appreciation for the steps

Congress has taken to strengthen the work force by making permanent the acquisition work force training fund and extending direct

hire authority. Both of these are immense help to us in strengthening the acquisition work force.

I look forward to working with the subcommittee as we continue

to strengthen the acquisition process.

This concludes my prepared remarks. I will be happy to answer

any questions you might have.

[The prepared statement of Mr. Denett follows:]

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Mr. TOWNS. Thank you very much, Mr. Denett.

I would like to yield now for an opening statement to my colleague, Congressman Davis.

Mr. DAVIS OF VIRGINIA. Thank you. I may not be able to stay.

We have a lot of conflicting meetings. This is a very important one

today, obviously.

I want to thank you, Chairman Towns, for holding this hearing

on the recommendations of the SARA panel established to review

the laws and the regulations regarding the use of commercial practices, performance-based contracting, the performance of acquisition functions across agency lines and responsibility, and the use

of GWACS, the Government-wide contracts.

As you know, the Advisory Panel was created by section 1423 of

the Services Acquisition Reform Act of 2003, which I authored. The

act charged the panel with making recommendations for reforms to

the acquisition system, with a focus on ensuring the effective and

appropriate use of commercial practices and encouraging the most

innovative firms to compete in the Government market.

My intent was to ensure that the Federal Government could harness the commercial market to acquire the best value of goods and

services through a fair and a reasonable process. The SARA panel

made a number of recommendations which I support, including

those regarding the recruitment and retention of the Federal acquisition work force and the consolidation of inter-agency contracts.

Workforce issues, by the way, are issues where there is no partisan divide that we ought to be getting the work force. This is absolutely critical. Most of the major contracts that go under are because of lack of appropriate supervision and training and the like.

That is something we ought to be able to move on quickly.

But, there are a number of recommendations I don’t support.

Still, the panel has helped foster a productive and a very reasoned

debate, and I hope will lead to positive reforms to the Federal acquisition system.

Which leads me to the other focus of today’s hearing. The subcommittee will also review a number of legislative proposals, all of

which pertain to Federal acquisition. The three bills under consideration are the Contractors and Federal Spending Accountability

Act, the Government Contractor Accountability Act, and the Contracting and Tax Accountability Act.

The titles of these bills more or less say it all. These proposals

are not attempts to improve the Government acquisition system

and process, but, instead, focus on punishing companies conducting

business with the Federal Government. These bills would require

increased disclosure of proprietary information or limit the pool of

businesses eligible to receive Federal contracts.

The bills’ sponsors presumably believe they are promoting the interests of the Federal Government by championing these reforms,

because there have been press reports in recent years of bad conduct by certain companies doing business with the Federal Government. However well intentioned, though, these proposals don’t

focus on creating the most effective and efficient Federal acquisition system possible, and, instead, will have a chilling effect upon

firms wishing to participate in the Federal marketplace. This could

result in decreased competition for Federal contracts as companies

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decide doing business with the Federal Government is not really

worth the price.

At this crucial time, we should be seeking ways to bring more

companies into the Federal marketplace, making it easier for them

to participate, demanding more competition to ensure that American taxpayers receive the most for their precious tax dollars.

It is unclear to me how any of these proposals improve the Federal procurement system. If anything, I think they are a step in the

wrong direction.

It is ironic that, while we focus today on the panel’s efforts to improve the system, not one of the proposals we are considering today

has any relationship to the panel’s recommendations. There is

nothing here to remedy poorly defined requirements, which lead to

so many acquisition failures. Nothing here, by the way, to look at

the security clearance backlog, which is a huge problem where the

Federal Government is paying the price. Security clearances are almost a commodity today, because of the scarcity of them and the

inability of the Government to move them through the process.

Nothing will provide us with a sufficient number of acquisition

trained professionals with the right skills to select the best contractor and manage contract performance, probably the No. 1 change

we can make to bring about improvements to the system.

That being said, it is important we hear from the witnesses today

on the legislation and from the panel of experts on the recommendations of the panel.

Chairman Towns, I look forward to continued robust discussion

on this and to seeing you in Columbia this weekend.

Thank you.

[The prepared statement of Hon. Tom Davis follows:]

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Mr. TOWNS. Thank you very much for your comments.

At this time I yield to Congressman Duncan from Tennessee for

an opening statement.

Mr. DUNCAN. I have no opening statement.

Mr. TOWNS. Thank you very much.

We now go to you, Mr. Hutton.

STATEMENT OF JOHN HUTTON

Mr. HUTTON. Chairman Towns and members of the subcommittee, thank you for inviting me to discuss our recent report on the

Acquisition Advisory Panel’s findings and recommendations. In

2003, Congress established the panel to review acquisition laws

and regulations and to make recommendations to improve the Federal acquisition practices.

The panel issued its report last year and made recommendations

covering seven areas, including commercial practices and the Federal acquisition work force. The panel directed most of its recommendations to the Office of Federal Procurement Policy, while

others were directed to Congress and Federal agencies.

In view of our past work and broad institutional knowledge, we

were asked to review the panel’s findings and recommendations.

The panel’s results are important to consider, given that each

year, the Federal Government spends billions of dollars to procure

goods and services. In fiscal year 2006, it spent over $400 billion,

and services now account for about 60 percent of the total procurement dollars.

At your request, my testimony today will highlight how the panel’s findings and recommendations compare with our past work and

OFPP’s plans to address the panel’s recommendations.

Overall, the panel’s findings and recommendations are largely

consistent with our past work. Like the panel, our past work has

pointed out the need for competition, the need for clear performance requirements, measurable performance standards, and quality

assurance plans to improve the use of performance-based acquisitions, the risks inherent in the use of inter-agency contracts, because of the rapid growth and their improper management, the

stresses on the Federal acquisition work force and the need for a

strategic approach to assess work force needs, concerns about contractors engaged in activities traditionally performed by Government employees, and the proper roles for contract employees in a

blended work force, and, finally, the adverse effects of inaccurate

Federal procurement data that cannot be relied on to conduct procurement analyses.

I will now highlight a couple of areas the panel reviewed, the

general thrust of the panel’s recommendations, and our views on

them.

One area the panel focused on was commercial practices. The

panel noted that the bedrock principle of commercial acquisitions

is competition. It found that defining requirements is key to achieving the benefits competition and procurements, with clear requirements—are far more likely to produce competitive, fixed-price offers that meet customers’ needs.

Further, the panel found that commercial organizations used

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petition for award, and monitor the contractor performance, and

their recommendations included, among other things, that the requirements process be improved and competitive procedures be

strengthened.

Our work is generally consistent with the panel’s results, and we

have issued numerous products that address the importance of

well-defined requirements and the need for competition. Our past

work has shown that poorly defined or broadly described requirements complicate the efforts to hold agencies and contractors accountable for poor acquisition outcomes. Further, our reports have

noted the lack of competition in acquisition of goods and services.

The panel also focused on the Federal acquisition work force. It

recognized the significant mismatch between the demands placed

on the work force and the personnel and skills available within the

work force to meet those demands.

For example, the panel found that work force demands have

grown substantially, while at the same time the complexity of the

Federal acquisitions system, as a whole, has increased. Accordingly, the panel made a number of recommendations designed to

define, assess, train, and collect data on the acquisition work force,

the recruitment of talented personnel, and the retainment of its

senior work force.

Again, our work is generally consistent with the panel’s findings.

For example, our work at DOD has shown that effective work force

skills were essential for ensuring that DOD receives fair and reasonable prices for the goods and services it buys.

We also noted increased demands on the acquisition work force

as one of a number of conditions that increased DOD’s

vulnerabilities to contracting waste and abuse. We presently have

ongoing work focusing on acquisition work force issues at DOD,

DHS, and NASA.

Now, turning to OFPP’s efforts to address the recommendations,

OFPP has acted on some, while other actions are pending or under

consideration. Generally, it expects implementation of the recommendation to fall into broad categories of legislative actions,

changes to the Federal acquisition regulations, OFPP actions such

as issue and revising policy, and Federal agency action.

OFPP noted that legislative actions and pending FAR cases could

address about one-third of the recommendations, and they expect

to address most of the remaining and plan to work with the chief

acquisition officer or senior procurement officials within each agency to do so.

Mr. Chairman, OFPP, as the lead agency for responding to the

panel report, is now in a key position to help sustain the panel’s

work. In some cases, it has established milestones, reporting requirements to help provide it with visibility over the progress and

results of implementing the recommendations, but not for all.

As such, we recommended that OFPP work with the chief acquisition officers and senior procurement officials to lay out an overall

strategy or plan to help engage how the panel’s recommendations

are being implemented and how they improve Federal acquisitions.

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Mr. Chairman and members of the subcommittee, this concludes

my statement, and I will be pleased to answer any questions.

Thank you.

[The prepared statement of Mr. Hutton follows:]

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Mr. TOWNS. Thank you very much, Mr. Hutton.

Ms. Madsen.

STATEMENT OF MARCIA MADSEN

Ms. MADSEN. Mr. Chairman, members of the subcommittee,

thank you for inviting me here today to talk about the Acquisition

Advisory Panel. Mr. Davis did a good job of summing up the panel’s charter. Sometimes people think that we were tasked to look

at the entire acquisition process, so I always feel compelled to talk

about what the panel’s charter was, which was commercial practices, performance-based contracting, and use of inter-agency contracts.

I should recognize that there are two other panel members with

me today. Sitting behind me, Mr. Ty Hughes, a Deputy General

Counsel for the Air Force for Acquisition and Mr. Roger Waldron,

formerly of GSA. Also, several of our panel staff came today: Laura

Latta, who was our Executive Director, Ms. Ann Terry, and Mr.

Eric Cho.

It is no small challenge to sum up the panel’s report in 5 minutes, but I will be happy to try to do that. I actually need one of

these timers at home. I think it would be a great idea.

With respect to commercial practices, the one thing I think that

we did differently is nobody has really looked at commercial practices in about 10 years since FAS or FARA were enacted, so we

asked big commercial buyers to come and talk to the panel about

what works for them in acquisition of services. The things they emphasized to us were requirements—that is where they invest, requirement’s definition, and competition. That is what our recommendations reflect. I think most of our recommendations, actually, in this area have been picked up in the Defense Authorization

Act and in S. 680, and we are very happy about that progress.

On inter-agency contracts, we recommended a number of steps to

improve the management of inter-agency contracts. Our findings

and recommendations recognized that they are important to helping the Government meet its mission, but that there were significant issues with proliferation and failure, really, of management

between agencies that owned those vehicles and agencies that used

them, so we have a number of recommendations there. Again,

many of those have been picked up in pending legislation.

I was asked specifically to address our work force recommendations. Although they are not called out in the statute specifically,

we felt that we couldn’t do our work justice without talking about

the Federal acquisition work force.

The panel determined that there was a significant mismatch between the demands placed on the work force and the personnel and

skills available to meet those demands, but we also realized, after

a lot of work, that there wasn’t much in the way of reliable information about the size, competencies, and composition of the Federal acquisition work force, or, I might add, of contractors supporting that work force.

One can’t understand the transitive affect of the work force without adequate data, so we commissioned a study, the executive summary of which I have provided a copy to the staff. It is actually

46

available in a nine-CD set. We are happy to provide the whole

thing to you if you want to take a look at it.

But our recommendations start with prompt and aggressive action to improve the work force, consistent definitions, a single Government-wide data base, and an emphasis on human capital planning by the agencies. I would like to add, again, a number of these

recommendations have been picked up in the Defense Authorization bill, as well as in S. 680, including the importance of providing

funds, which are in the work force development fund, and the

SARA training fund, both of which are in the National Defense Authorization Act, and the SARA training fund made permanent,

which is in S. 680.

We did not recommend that agencies rush out and hire scores of

new acquisition professionals, because we did not have enough information to tell us the relationship between numbers of acquisition professionals and competencies of those people, gaps in skills,

and the use of contractors. But, we did state that a flexible planning process should be used and begun immediately so that

changes could begin as soon as the information was available, and

OFPP has recently completed a work force assessment process, and

DOD has one underway.

Again, although not called out in the statute, the panel also determined that our findings and recommendations would have an

impact on small business. So, we set up a cross-cutting working

group to take a look at small business issues, and we recognized

that particularly the growth of task and delivery order contracts for

multi-agency use created challenges for small businesses. This is

because, basically, most of the small business laws were written in

the era before it became common practice to use these contracts

that have delivery order or task order mechanism.

So, we have some recommendations in our report to deal with

this issue, including statutory revisions that would allow contracting officers to reserve a portion of awards and a full and open competition. For small businesses, we also recommended express authority to reserve orders for competition among the small business

contract holders only.

I would be happy to answer more questions about the panel’s

findings and recommendations when you all are ready to ask them.

I appreciate the opportunity to be here today.

Thank you.

[The prepared statement of Ms. Madsen follows:]

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Mr. TOWNS. Thank you very much for your testimony.

Let me begin with you, Mr. Denett. In your testimony, you discussed that you have started the process of implementing most of

the changes recommended by the SARA panel. I think GAO and

SARA panel agree that you are off to a good start, but I want more

details on how you will finish the job. I understand you are off to

a good start, but are there any timetables for the changes to be finalized? I mean, could you just tell us more about it?

Mr. DENETT. Sure. Many of them are going to be put in our Federal acquisition regulation, and that is a process. It is a deliberative process where we go out, we propose it, we get comments from

industry, citizenry, and everybody else. After we cull through all

that and complete the analysis, then we issue regulations.

We have groups, both within the Defense Department and the civilian agencies, that spent a lot of time and months on that, so

those will be coming out almost every month. Every month there

is a new issuance, which includes more and more of them.

I think one of the most important things we are going to be doing

for tracking a lot of this—I am pretty excited about this—is we are

going to include an acquisition component in the existing OMB Circular A–123, where departments go out and check on their progress

on a wide range of management things and see what they are accomplishing. We are going to have a detailed listing of all our

things that we want tracked in the acquisition area, and individual

departments, when they go out and make their field visits and

checks, they will now, for the first time, incorporate acquisition

into that to tell us if, in fact, the policies that we are putting out

to implement the SARA panel, in fact, are being done by the agencies in the field.

Mr. TOWNS. So have you ranked them in order of priority in

terms of the recommendations in order of priority? Have you

ranked them?

Mr. DENETT. Not a specific ranking. Of the 60 that are pointed

toward us, over 70 percent of them we have already moved out on

and are taking action. The remaining ones we have work groups

analyzing it to make a recommendation to us as to which ones we

should aggressively implement or which ones we might be coming

back to you, talking more with Marcia and others to better understand to see if, in fact, we should move out on those.

Mr. TOWNS. Right.

Mr. DENETT. Like one is the creation of the Federal Acquisition

University. That was one that I was hoping to get more guidance

in terms of—let’s do it, but that recommendation said let’s study

it, so we will study it. But, that is one that I view favorably, and

I can see a lot of benefits of having a Federal Acquisition University.

Mr. TOWNS. All right. Thank you.

I guess to you, Ms. Madsen, and also Mr. Hutton, everyone

agrees that there are serious issues with the acquisition work force.

Of course, there are a lot of questions throughout Government

about how to fill the gaps when the large number of baby boomers

start to retire. How are these issues for the acquisition work force

similar or different than the issues of the overall Federal work

force?

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Ms. MADSEN. Mr. Chairman, I am not sure I feel competent to

comment on the overall Federal work force, but, with respect to the

acquisition work force, certainly one of the things that we saw, and

it is very visible in the data collection that we did, is that in the

mid-1990’s, just to use DOD as an example, the acquisition work

force at DOD was cut by 50 percent. It looks like maybe acquisition

jobs were viewed as expendable because of the post cold war defense build-down. The problem with that is, of course, no one anticipated what was going to happen on September 11th and that

we would be in the situation we are today where we have sort of

a convergence of a very complex acquisition system and not enough

people, and not only that. I think not enough people with the right

skill set.

I mean, one of the things the panel report points out is that 60

percent of the Federal procurement budget today, including at the

Department of Defense, is being spent on services. A lot of those

are complex IT-related services. Much of it are services that are

purchased in the commercial sector. It may well be that there is

a different skill set than the traditional acquisition skill set that

is required. That is why our recommendations talk about doing an

assessment, doing very capable human capital planning, and making decisions about where agencies’ core needs are and what kinds

of people they need before just adding to the number of traditional

procurement people who they employ.

Mr. TOWNS. Thank you.

Mr. HUTTON. Mr. Chairman, just to build on that response, GAO

does look at human capital issues across Government, and I think,

more broadly, there are issues Government-wide. But, GAO has offered various principles that one can use to look at the human capital situation in Government, and Ms. Madsen has mentioned some

of the key components, but having a human capital strategy where

you are trying to identify what are the missions and how you are

going to conduct those missions, what kind of skills and abilities

do you need, how many do you need, and whether, even the extent

to which these are things that you need for issues that are more

tasked that the Government employees ought to be doing versus

contractors.

So, I think the human capital strategy is probably an underpinning to get at not only the Government-wide issues, but I think

some of the things that we are talking about here today with respect to acquisition work force.

Mr. TOWNS. All right. Yes?

Mr. DENETT. I would like to build on that also. I mean, I believe

the acquisition area, one of the reasons that perhaps were worse

than some of the other functions is because people that know acquisition are so employable. Private industry has a lot of need for

people that really know how to do contracting, so we really have

to take initiatives to bring in new blood. We have launched aggressive intern coalition where we are taking in over 500, 600 new people out of college each year to help fill the pipeline.

We have gotten big help in two areas already from Congress.

One is direct hire authority now, where we can hire people more

rapidly, because we are competing with industry, and when somebody has to wait several months before they actually get a job offer,

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that puts us at a big disadvantage. By giving us the direct hire authority, that helps us a lot.

The other is for us to re-employ annuitants when they retire.

They used to have the retirement money taken away from them.

Now we are allowed to hire newly retired acquisition people to

come back and assist us with the training and filling in some of

the holes while we get staffed up adequately.

Mr. TOWNS. Right. Thank you very much.

Congressman Duncan.

Mr. DUNCAN. Thank you, Mr. Chairman.

Let me just make a couple of comments. I remember several

years ago Governor Rendell of Pennsylvania, when he was mayor

of Philadelphia, he testified in front of a subcommittee here in the

Congress, and he said the problem with Government is that there

is no incentive for people to work hard, so many do not. There is

no incentive to save money, so much of it is squandered. Because

of that, we found out years ago that we could get almost anything

done in the Federal Government by private contractors more

cheaply, efficiently, quicker, and so forth, by going to private contractors.

Now, what has happened, though, over the last few years—and

the chairman did a real good job in his opening statement—these

contracts have been exploding over the last 6 years, and now we

are continually reading stories about the waste, the fraud, and

abuse that the chairman mentioned, and just excessive, ridiculous,

exorbitant profits. These Government contracts have become the

most profitable contracts, far exceeding profits that companies

would make in the private sector.

So now some of these contractors are about to kill the goose that

laid the golden egg. It started most heavily and to be seen most

vividly in the Defense Department. The International Tribune had

an article about the revolving door at the Pentagon. We found out

the Defense contractors were hiring all the retired admirals and

generals, but then it started going to all the departments and agencies, where they would hire these retired high-level Federal employees. Then, these companies would go back and get these contracts, so that it was beginning to look to some of us that every

major Federal contract was a sweetheart deal of some sort or another.

I want to read to you something I had in one of my last newsletters. The Washington Post carried a front-page story reporting

that one no-bid $2 million contract awarded by the Department of

Homeland Security in 2003 ballooned up to $124 million by July

of this year. In December 2004 Department lawyers said payments

to Booz Allen Hamilton, one of the largest Federal contractors to

provide consultants, had gone ‘‘grossly beyond the scope’’ of the

original contract. The lawyers advised the Department to allow

other companies to compete.

At that point, payments had reached $30 million. The competition did not take place for more than a year. During that time, payments under a no-bid arrangement went to $73 million. Then, DHS

broke it up into five contracts totaling $51 million. Shock of all

shocks, Booz Allen Hamilton won ‘‘the competition’’ for all five contracts, thus adding up to $124 million so far.

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Then I added, The Department of Homeland Security apparently

has turned into a very lucrative gravy train for some people.

Now, first of all, I appreciate the fact that Congressman Murphy

said, because I want to cosponsor your bill. Put me down on that.

These things are getting out of control.

It seems to me there are two major problems. Most Federal bureaucrats think that it is easier and they feel more important if

they are dealing with one big, huge, giant company instead of 100

small companies, but you have to get more competition into these

contracts, for one thing. Then we have to put some restrictions or

limitations of some sort on the revolving door that we are getting

in every department and agency where all these Federal contracts

are sweetheart deals that are going to high-level Federal employees

who have retired and gone to work in the private sector, and then

those companies are coming back and getting those contracts.

These things are getting ridiculously out of control, and the profits are just almost obscene. It is just totally unfair to the taxpayers.

I was going to ask for your comments. Unfortunately, we have

this vote going on, so I will try to come back in a little bit and hear

what you have to say. But it seems to me that those are the problems, and they are really getting to be very, very serious.

Thank you very much, Mr. Chairman.

Mr. MURPHY [presiding]. Thank you.

I apologize for the inconvenience, but we have one vote on the

House floor, so it is our intention to take a short recess and then

reconvene here for further questioning in about 10 minutes.

[Recess.]

Mr. MURPHY. If the witnesses could take their seats.

Mr. Duncan, I know that we were a little hasty in having to run

over to vote. I don’t know if you have anything further.

Mr. DUNCAN. Thank you, Mr. Chairman. I guess I got everything

off my chest all at once there, but if any of the panel has any comments about anything that I have said, or do they feel that any of

these reforms that have been suggested will help cure any of the

problems that I raised—yes, sir, Mr. Hutton, or whoever?

Ms. MADSEN. Mr. Duncan, a couple of things I think that are in

our report, and some of which are making their way into some of

the bills, I think will help. I mean, as I listened to you, I thought

at the bottom of what you were talking about were some structural

issues that are addressed in our report.

Requirements definition—typically when you see a contract that

sounds like the one you are describing, the agency hasn’t really

thought that hard about what it really needed and hasn’t really

specified its needs.

Competition—effective competition has to be built on a good requirements base.

Another recommendation we made that I didn’t have a chance to

talk about is, we strongly recommended that the agencies do—particularly when they are acquiring consulting services—IT-type

services, that they do the same kind of market research that the

private sector does so they know what their options are. It sounds

like that didn’t happen there, either.

So all of those recommendations that we made would have

helped the situation that you described.

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Mr. DUNCAN. All right.

Mr. HUTTON. Mr. Duncan, I would like to just add to that comment. It is very important, as we know, to have sound policies and

very good policies to help direct us to good outcomes, but the important thing, as well, is just having that sustained leadership and

being able to drive these policies down through an organization at

the practitioner level, making sure that the people that have to

work on these things on the ground have the tools, they are properly trained, and they have sufficient oversight to basically plan for

these acquisitions in a way that you are going to have a higher

likelihood of a good outcome.

I think Ms. Madsen does underscore some of the key principles

for that, and that is the whole issue of commercial practice and

competition.

Mr. DUNCAN. All right.

Mr. DENETT. I would tack on that I agree completely. We have

to define our requirements properly. When we don’t, it leads to

problems. Strongly for competition, we have issued some additional

guidance for the reinvigorated position, called the competition advocate in the departments that had fallen dormant over the years,

so we have revitalized that. We are collecting information.

But, I have to, also, mention that the percentage of dollars that

are competed are at about 64 percent, and that is a constant number. It has been that way for about 10 years, so even though we

have had a huge surge, increase in spending, the amount of dollars

that were competed is staying right around 64 percent.

We want to educate our contracting officers so they can do a

stronger job on competition, so they can search the marketplace.

We want to limit the one case you gave at Homeland Security that

kept going on and on and on. We have proposed to put a limit on

those to 1 year without having to get the direct approval of a much

higher authority. There are some bills being proposed by the Congress that would make it less than a year. I think one of them is

270 days. But, regardless, we want to put a limit to it. Now there

is not one.

Those are some of the things we are doing to try to address some

of the concerns that you have raised.

Mr. DUNCAN. Thank you very much. It is frustrating. I mean, I

am a very pro-business, conservative Republican. I would like to

see many, many things done in the Federal Government by private

contractors, but it is getting almost embarrassing to people like me

who support Government contracting to see some of the waste, the

fraud, the abuse, the sweetheart deals, the sham competitions. I

mean, 64 percent doesn’t impress me when I read that a lot of

these competitions are rigged or set up so that a contract is almost

guaranteed to go to one contractor or another. And, when I see that

all these contracts end up going just to the big giants, and even

fairly large and medium-sized companies can’t even compete fairly,

so there is just a lot of problems throughout this Federal contracting process. I don’t know how much we can get done on it, but we

sure need to make some changes.

Thank you, Mr. Chairman.

Mr. MURPHY. Thank you, Mr. Duncan.

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I wanted to turn to one of the bills at issue here that, Mr.

Denett, you offered testimony on in your written remarks to the

committee, and that is H.R. 3928, which Mr. Duncan spoke so

kindly of, which requires certain companies doing a percentage of

their business—80 percent or above—with the Federal Government

have and should have an obligation to disclose the amount of profit

or, at the very least, the salaries of their top executives when those

salaries are, in effect, paid 80, 90, potentially 100 percent in taxpayer dollars.

Your remark in your written testimony was expressing concerns

on how that would potentially stifle competition. I certainly understand that concern here.

I guess my first question is: we already have this information

with regard to profit and executive compensation when it comes to

public companies, and, as we know, public companies have done

very well with regard to Government contracts. In Connecticut,

home for several incredibly successful Defense contractors, those

are public companies that disclose that information, and they not

only compete, I think very effectively, with their other public companies, but they compete very effectively with private companies,

as well. In fact, conversely, private companies right now seem to

compete with public companies, as well.

So, my question is: if we haven’t seen a stifling of competition

with regard to public companies that disclose this type of information, why are we concerned that simply requiring private companies to disclose a modicum of the same amount of information the

public companies disclose, why are we concerned that would, all of

a sudden, result in a decrease in competition?

Mr. DENETT. Well, you know, contracting officers on cost reimbursement contracts have access to all that information anyway. I

guess, making it known to the world can have a chilling effect, especially with the dollar threshold that you currently selected of $5

million. If you were to go through with it, I would highly recommend that you raise the threshold to maybe $25 million, because

there are a lot of small businesses that would be discouraged from

jumping into the Government space or pursuing it, and we are trying to bring along more small businesses. And, those presidents of

those private companies, they don’t want their employees to know

what they are making, so I believe in those instances some of them

might decide not to jump into the public space.

We are trying to encourage more of them to get in. We want to

increase small business, so I would hope that you would see that

the ones, when it digs down that low, that it could have a chilling

effect on those small businesses. So, you might consider a higher

dollar amount, which would get at some of the much larger ones

that I would conjecture are causing you the most consternation.

Mr. MURPHY. I think I and those that support the bill would be

very willing to enter into that conversation. I think you are very

right that we are really getting at private companies that operate

and look like some of the bigger public companies that provide that

information.

I guess, let me just followup on a statement that you made. Can

you just give a window into the type of information that the contracting agents and personnel that are reviewing and awarding

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these contracts, what kind of information regarding profit and executive compensation do those contracting agents have?

Mr. DENETT. Well, on cost reimbursement contracts they get all

the cost data on the larger ones. I mean, it breaks down all the

overhead, where the money is going, and there is actually caps on

compensation that have been around for many years for the executives on these cost reimbursement contracts.

Mr. MURPHY. So then how do we get into a situation in which

we have reports? I don’t want to keep on harping on Blackwater,

because I think it is the most high-profile case, but I think we have

seen examples in some of the contractors involved in the Gulf

Coast recovery and others where you have executive compensation

that is exorbitant in comparison to what similar public employees

are getting. How do we have those private employees making compensation amounts in the multiple-millions of dollars with those

caps in existence?

Mr. DENETT. Well, most of it, they are fixed-price contracts, and

on fixed-price contracts we do not dissect, get cost information, and

see what people are getting. If it is a fixed-price one, we are just

trying to make sure that the price is fair and reasonable, and we

don’t get involved with what the compensation is.

Mr. MURPHY. And, I guess the thought behind this bill is that in

understanding what price is fair and reasonable, it would seem to

be that the amount of money that is being taken off the top for

profit—and for private companies, profit really effectively means

compensation of employees— that is a relevant piece of information

in deciding what price is reasonable or fair; that if we find out that

10 to 15 to 20 percent is being taken off of the top for executive

salaries, that is a relevant piece of information in deciding whether

what we believed was a fair and reasonable price is actually fair

and reasonable, given the amount of money that is being taken for

compensation.

Would you agree with that?

Mr. DENETT. Let’s say we have three offers to provide widgets to

the Federal Government, and they are all close and we go to the

lowest-priced one. Maybe they have been in existence 20 years;

maybe they have superior manufacturing techniques. Who knows

what goes into that? But, if we get the best possible price, if the

head of that company, you know, makes $1 million a year, as long

as I am getting a really good price for the widget I generally—especially on fixed price—I just would not get involved with when is he

making too much. When he or she breaks $200,000, is it too much?

$400,000? I don’t get into that, especially on fixed price.

Mr. MURPHY. Thank you for your testimony.

My time is up.

I guess for any private investor that was investing in that firm,

that would be part of the decisionmaking process in whether they

were getting a fair price or not, and I think it should be part of

our consideration. But, thank you for your testimony.

Mr. Davis.

Mr. DAVIS OF VIRGINIA. Thank you.

Let me ask all of you—I will start, Mr. Denett, with you—do you

think legislation mandating the publication of proprietary salary

data, establishing a data base of information of allegedly wrongVerDate 11-MAY-2000 13:47 Jan 07, 2009 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 C:\DOCS\45947.TXT KATIE PsN: KATIE
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doing, and using the acquisition system to collect back taxes addresses the fundamental problems that are plaguing our acquisition system?

Mr. DENETT. No, I do not. I mean, you know, what we need is

some of the things that we have already been provided, the direct

hire authority, being allowed to get re-employed annuitants without it impacting their annuity. Those are the things that are helpful. The training fund, the skill gap analysis that we are doing,

these are all proactive steps that are going to improve the process.

Having to add to all of the things that we have to do to try to

get a data base that includes information from States—and every

State has different information—I mean, that would be very cumbersome, costly, difficult to administer. And, as I was explaining a

short while ago, I don’t see that the salary of the executives and

posting those, how that is going to help us do a good job.

Mr. DAVIS OF VIRGINIA. Let me just stop here. Under cost contracts, the cost type contracts, data related to a company’s executive salaries are available to contracting officials, and you only get

a certain reimbursement level anyway. Isn’t that correct?

Mr. DENETT. That is correct.

Mr. DAVIS OF VIRGINIA. All right. Thank you.

Let me ask Mr. Hutton and Ms. Madsen to just react to that, as

well.

Mr. HUTTON. Mr. Davis, we weren’t asked to formally comment

on those bills, but I did look at them before the hearing. I think,

more broadly, GAO tends to look at, again, the policies that are in

play in the Federal acquisition arena and the extent to which there

is the leadership to drill it down into the practitioners on the

ground level.

Mr. DAVIS OF VIRGINIA. But, this doesn’t address the fundamental problems. That is the whole point here. We know there are

some fundamental issues that need to be addressed, and we have

talked about whose contracting officers and procurement personnel,

and giving them appropriate training, and the brain drain, but this

doesn’t really go to any of those issues, does it?

Mr. HUTTON. Well, sir, in our work when we looked at contracting, what we find is: was there sufficient acquisition planning?

There are existing policies and practices in place. Do you get adequate competition? Do you have good oversight—tools like that?

I don’t have a formal comment on any of these three bills, and

if there is any interest in that we could——

Mr. DAVIS OF VIRGINIA. I am not asking, except that these bills

don’t address the fundamental problems, do they?

Mr. HUTTON. Again, I will take it back to the process, what

we——

Mr. DAVIS OF VIRGINIA. Let me ask you this. I am surprised to

hear you say that you think that publication of proprietary salary

data is a fundamental problem in the system.

Mr. HUTTON. I would ask, sir—I don’t even know how many that

bill would affect, how many contractors that would affect. I don’t

even know where to start with that particular——

Mr. DAVIS OF VIRGINIA. Is that one of the fundamental issues

that you have identified in terms of what is wrong with the contracting?

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Mr. HUTTON. I would say that the basis of our work over the

years—that is not an issue that GAO is——

Mr. DAVIS OF VIRGINIA. Of course it isn’t. It isn’t even close.

Ms. Madsen.

Ms. MADSEN. Good morning.

Mr. DAVIS OF VIRGINIA. Hi.

Ms. MADSEN. I am here in my panel capacity today, and these

are obviously not issues that the panel looked at.

Mr. DAVIS OF VIRGINIA. So the SARA panel didn’t even look at

these issues?

Ms. MADSEN. The SARA panel didn’t look at any of these issues.

Mr. DAVIS OF VIRGINIA. These weren’t part of your recommendations, were they?

Ms. MADSEN. No.

Mr. DAVIS OF VIRGINIA. OK.

Ms. MADSEN. The issues we looked at really are more structural,

and that is what the committee asked us to look at in the legislation.

Mr. DAVIS OF VIRGINIA. So none of these bills really were before

the SARA panel or a result of your recommendations?

Ms. MADSEN. No. That is correct.

Mr. DAVIS OF VIRGINIA. You agreed that under cost type contracts data related to a company’s executive salaries are available

to contracting officials?

Ms. MADSEN. The rules—speaking generally with respect to the

rules for cost type contracts, which have been in place actually for

a long time—the contracting officer has access to all of the costs.

There are restrictions in a number of areas on cost type contracts,

and one of the restrictions is that the costs that are passed through

to the Government under that type of arrangement, the salary levels are capped. I couldn’t tell you off the top of my head——

Mr. DAVIS OF VIRGINIA. If they want to pay more, they can pay

more, but they are not going to get reimbursed for it?

Ms. MADSEN. Right. They are not going to get reimbursed for it.

The Government is not going to pay for it under——

Mr. DAVIS OF VIRGINIA. So we already take care of that in acquisition regulations?

Ms. MADSEN. Right. Regulations have addressed this since probably the 1980’s.

Mr. DAVIS OF VIRGINIA. So it is addressing an issue that isn’t

even there. It goes to the committee looking at what corporate salaries, next week across the board, but the reality is in most of these

contracts you only get reimbursed for a certain amount. If the company wants to take it out of profits or something else to pay people,

they are certainly free to do that, and that is really the shareholders’ issue. But, the taxpayers don’t pay for it, and that is the point

I want to make.

Thank you.

Mr. MURPHY. Thank you.

Mr. Welch.

Mr. WELCH. Thank you.

I just want to followup on some of my colleague, Mr. Davis’,

questions. My understanding of this legislation, it is not expected

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pensation issue. We had testimony from Mr. Prince that the profit

was about 10 percent. We asked him the question how much ‘‘he

made’’ on contracts of $1 billion. Straightforward math is $100 million. That is not a bad payday.

The point of this is just to have some public disclosure, something that the SEC requires for corporations and then provides information that becomes the basis for appropriators to evaluate

whether this is a wise use of taxpayer money.

So, I guess I would ask the question a little bit differently than

Congressman Davis did, and ask each of you: is it helpful to us in

a procurement contract process to have more, rather than less, information about the expenditures and how our money is actually

being spent? Mr. Denett, you look confused. I probably didn’t ask

the question right.

Mr. DENETT. I was listening. It is not an area that contracting

officers need added to their information they have to make a determination as to who the low offerer is. They have all the cost and

pricing data they need. So, I think they have what they need to

make an appropriate determination. To get into the area of is a

president of a corporation making too much money—as long as we

are getting a good deal, fair and reasonable price for what we need,

and they are delivering it in the best manner, that is what the contracting officer focuses on.

So I see requiring additional information to be provided to him

as something that they don’t need. On cost reimbursement, as has

already been said, they already have that information. So if we are

talking about fixed-price ones, I just don’t see the need for having

that information.

Mr. WELCH. Well, let me ask you this: if you have a fixed-price

contract and you have made a determination that it is a so-called

fair price, the price we can get, but then, upon reexamination, it

turns out that they were buying widgets, let’s say, that was a part

of the contract, and they were paying $50, when they would be

available for $25. So, the cost embedded in the contract price that

we are paying is higher than if there were more aggressive management was necessary. That would be relevant information in

evaluating whether the next contract would be adjusted to get the

widgets at the $25 instead of $50, right?

Mr. DENETT. Well, if we find out there are ones available for $25,

then we ought to terminate the contract for convenience and go get

the $25 one.

Mr. WELCH. Yes. You know, it may be that it is more helpful to

Congress to have this to decide whether it makes sense for us to

be signing contracts where there is an individual who, in effect, is

making $100 million on these contracts. We might think that he

could suffer at $50 million.

Mr. Hutton, how about you? Do you have any opinions one way

or the other about this legislation?

Mr. HUTTON. Sir, when I look back at how GAO approaches its

work, typically we look at the policies and the guidance and we

look at how those things are implemented. And, what Mr. Denett

is mentioning are things that we share as the importance of competition, and if you have competition those market forces are going

to help put pressures on what the Government is paying.

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We don’t have a position on this particular bill, but I think that

our focus has always been on ensuring that the folks, the practitioners on the ground, have the tools and the capacity to make sure

that the existing policies and guidances are followed through. And,

that is what we typically focus on and make recommendations to

help improve that.

Mr. WELCH. Well, is it any problem to you if this legislation were

passed and information about CEO compensation was public and

made known to appropriators? That wouldn’t cause you any problem, right?

Mr. HUTTON. Me personally, sir?

Mr. WELCH. No, you professionally in your capacity?

Mr. HUTTON. Professionally?

Mr. WELCH. Yes.

Mr. HUTTON. Well, I think Mr. Denett points out just things that

would have to be considered and understood as this or any other

alternatives are looked at as to what one is trying to address with

this particular legislation.

Mr. WELCH. I don’t understand what you just said.

Mr. HUTTON. OK, sir. What I am saying is that, you know, there

is an outcome perhaps that one is trying to obtain through a piece

of legislation, and there may be alternatives or other ways that one

might approach how best to get that outcome. I haven’t reviewed

this to have an official position, or GAO doesn’t have an official position on this, but there are just basic things that we would want

to consider and look at as to whether this is something that would,

in our view, strengthen, or there are other alternatives out there.

Mr. WELCH. Wait. This is just about public information.

Mr. HUTTON. Yes.

Mr. WELCH. In the case of Congressman Murphy’s bill here, of

which I am a cosponsor, it is taxpayer dollars that largely are

spent on all the activities of a particular company. In other words,

if a company gets over 80 percent of its revenues from you and me,

we are just simply asking for some information, in this case salary

information. I don’t see how it would in any way interfere with the

procurement process. Are you suggesting that it might, or there is

some doubt about that?

Mr. HUTTON. No, sir. I just think, as a typical approach to these

types of things, when we do our work we are always looking at

what the condition is and what the existing policies and practices

are. And, if there is a particular problem, then it is what options

are available to best address it. Like I said, sir, we just don’t have

a position on this particular piece of legislation.

Mr. WELCH. Thank you.

Ms. Madsen, how about you? Let me just preface it. I am a little

bit puzzled what the big deal here is. We’re talking about companies where 80 percent of the revenues come from taxpayers, so we

obviously have an interest in getting as much information as we

can. We are also talking oftentimes about contracts where, as a

practical matter, there is either no competition or very limited competition, and where it is probably difficult to put a price on what

is ‘‘a fair price.’’ So, the sole request here in this legislation is some

transparency that applies to these essentially taxpayer financed

corporations for their revenues about what CEO compensation is,

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and it is the same standard that applies to our public corporations.

Then, of course, the shareholders have the benefit of at least knowing what the compensation schedule is.

Is there any reason that we wouldn’t want to know that?

Ms. MADSEN. Congressman, I was not asked to comment on the

legislation. I am here really as the Chair of the Acquisition Advisory Panel to talk about the Panel’s report. I mean, I can talk to

you about how the system works and how there are some recommendations in our report that I think potentially would address

this question. Our report talks a lot about the acquisition of services, and we talk about how, in the private sector, for example,

companies that acquire services use the requirements process and

the competitive process to get the best possible deal that they can

get, and the Government—and part of our charter was to look at

how the Government acquires commercial services, for example.

So, we have recommendations in our report that talk about that,

and we also talk about we have recommendations that deal with

the issue of what happens in the Government when contracts are

awarded without adequate competition and what kinds of data the

Government should be able to get under those circumstances. You

have cost-type contracts. The Government gets tons of data; the

Government gets cost or pricing data. Most of these large contractors are subject to the cost accounting standards. They are subject

to sort of ongoing audit for compliance with all of these requirements. So, for those kinds of contracts the data is there.

When they are fixed price, if they are not competitive, one of the

issues the panel looked at was what kinds of information should

the taxpayers be getting, should the contracting officers be getting,

and we made some recommendations about something called—

other than cost or pricing data, which will get into a level of

arcanity that you probably don’t want me to talk about—but some

recommendations about what kinds of data that they should get

and some revisions to the regulations that would provide a little

more detail into data in that area.

I haven’t looked at the bill, so I really can’t comment further on

that.

I would suggest you might want to look at that part of our report.

Mr. WELCH. Thank you.

Mr. MURPHY. Thank you very much, Mr. Welch.

Mrs. Maloney.

Mrs. MALONEY. First of all I want to thank you for holding this

hearing. I think that better management of our $419 billion that

we spend in procurement is really important, and I have a bill H.R.

3033, the Contractors Federal Spending Accountability Act, which

would work to really help the Federal Government’s watchdog, suspension and debarment officials, give them the information they

need to really protect the taxpayers’ dollars in a better way.

I was in another hearing that we had with Chairman Bernanke

on the state of the economy. I apologize that I am somewhat late.

I would like to ask all three panelists: do you believe that contracting officers have adequate information to determine if a company should be awarded a Government contract at this time?

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Mr. DENETT. Yes, I do believe they do. I mean, they have to take

the time to obtain it. They check the debarred mailing list. We now

require——

Mrs. MALONEY. You are saying if they took the time to obtain it?

Mr. DENETT. Well, if they follow the proper procedures, they do

have adequate information. They have to check to see if any company is on a debarred bidders list or suspended. We also initiated

a new requirement where agencies are required to share administrative actions they may have taken against a company so that

EPA can be aware that the Defense Department took an administrative action against a company short of a suspension or a debarment. So that, added to the information pool that they already

have, is sufficient.

Mrs. MALONEY. Well, do you think it would be more efficient if

all of this information was gathered together by the various data

bases and agencies were hosted in one data base where you could

get this information would be very, very efficient.

Mr. DENETT. Well, we already have a single location for debarment and suspension, so I am not sure what additional things you

would feed into that. If you are talking about any of the ones with

States, I am concerned about that, because every State is different,

and I think it would be a huge undertaking to try to encompass

all State activity and meld it with the Feds.

Mrs. MALONEY. But your data base now only says whether or not

they have been debarred; is that correct?

Mr. DENETT. Well, we have a list of debarred or suspended.

Mrs. MALONEY. Debarred or suspended.

Mr. DENETT. Right.

Mrs. MALONEY. Do you think it would be helpful if there was

other information in this data base such as they are consistently

a low bidder but they always come in with alterations to contracts

or contract overruns, which then end up costing millions of dollars?

I think information about whether or not they complete the contract on time, whether or not they complete it within budget,

whether or not it is done appropriately—you can complete a project

and it not work. So there is a lot of information that could help our

procurement officers make better decisions on our taxpayer dollars.

Mr. DENETT. We do have people rate the performance on contracts with contracting——

Mrs. MALONEY. Is that kept in your central data base?

Mr. DENETT. It is not kept with the suspend and debar thing; it

is kept in another system.

Mrs. MALONEY. So my question is: wouldn’t it be more efficient

if we pulled together all of this relevant information and had it in

one data base so that our procurement officers could be held accountable for the decisions they are making?

Mr. DENETT. I guess the point would be where do you draw the

line. I would be glad to engage in a discussion with you or the Congress as to looking at the full array of all the data and figuring out

which ones would make sense. I am concerned if we launch into it

too quickly without fully understanding the ramifications, especially if it goes so broad as to pulling in State information.

Mrs. MALONEY. Well, information such as whether or not they

are members of organized crime, listed in organized crime list—

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New York City that I grew up in, the rough and tumble of New

York City contracts, after numerous scandals we created a law—

actually, I wrote that law—that created a central data base called

Vendex, which allowed our procurement officers to be responsible

and accountable for the decisions they are making. And, we had

relevant data on various important things.

I was wondering if you had looked at that data base or looked

at that legislation, what New York City is doing in terms of a centralized data base?

Mr. DENETT. I have not. I would be glad to.

Mrs. MALONEY. I would really appreciate it if you would look at

it, and maybe we could have a meeting and see what you think of

it. It did not go into what other States were doing, but it certainly

had relevant information on whether or not they complete contracts, whether or not they are members of organized crime in the

crime data base, whether or not it was completed in time, on budget, whether they had a history of constantly having cost overruns

and increased cost estimates that ended up really making the contract more costly and really abusive to the taxpayers.

Anyway, I thank you all for your testimony and your time, and

I thank all my colleagues.

Mrs. MALONEY. Thank you.

Mr. Davis.

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

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Mr. DAVIS OF VIRGINIA. Thank you.

Let me just say to my friend from New York that the thing that

troubles me about this big data base that is going to have all of

this information—this information includes, in many cases, just allegations. It includes something somebody brought, but we are not

talking about any adjudication. We are not talking about convictions. We are talking about allegations. Then, she is bringing in

organized——

Mrs. MALONEY. Would the gentleman yield?

Mr. DAVIS OF VIRGINIA. Yes. That is what the bill says.

Mrs. MALONEY. Well, that was not the intent of the bill. In the

New York City law it is not allegations. It is facts. It is a factual

item whether or not you are overpricing your contract.

Mr. DAVIS OF VIRGINIA. This says an administrative proceeding

brought against the firm, not the adjudication. It talks about administrative proceedings initiative. Those don’t give anybody an opportunity to come back and rebut the substance of that. It doesn’t

give them their day in court. They are blacklisted from day one.

They go on this big list.

I mean, what we are talking about here really is the institutionalization of gossip. That gives me great concern.

If you want to put a blacklisting group together, let’s talk about

adjudications. We already have some of that in debarment proceedings that are part of the law. Past performance is taken into account when you are giving that.

I think there is an appropriate way to do that and I would be

happy to work with the gentlelady to try to make something that

works. But, putting down mere allegations or charges and trying

to make this a part of what a contracting officer or procurement

official looks at in allowing who gets it I think makes this an open

season that does not help the contracting process at all.

Mrs. MALONEY. Would the gentleman yield?

Mr. DAVIS OF VIRGINIA. I understand the panel’s reluctance to

embrace it.

Yes. I would be happy to.

Mrs. MALONEY. I look forward to working with the gentleman, as

we have on so many important issues. I congratulate him for bringing this point up. It was certainly not my intent for it to be allegations, but only fact. I look forward to working with him to put forward facts and concrete examples.

Mr. DAVIS OF VIRGINIA. We will have some discussion.

Mrs. MALONEY. Certainly not gossip. As politicians, we know how

damaging gossip can be, and there is always a lot of it out there.

Mr. DAVIS OF VIRGINIA. Well, I look forward to working with my

friend.

Mrs. MALONEY. And a lot of it is not true, and we certainly don’t

want to bring that into the contracting process.

Mr. DAVIS OF VIRGINIA. Thank you.

Mrs. MALONEY. We want our contracting process to be factual,

accurate, streamlined, and helpful to business and helpful to taxpayers and helpful to Government.

Mr. DAVIS OF VIRGINIA. Thank you.

Mr. MURPHY. Thank you, Mr. Davis. I think we can say safely

that we do look forward to working with you on these pieces of legVerDate 11-MAY-2000 13:47 Jan 07, 2009 Jkt 000000 PO 00000 Frm 00087 Fmt 6633 Sfmt 6633 C:\DOCS\45947.TXT KATIE PsN: KATIE
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islation as they move forward, and we thank you very much for

your testimony here today. Thank you very much.

We are going to take just a brief break while we get set up for

our second panel, and then we will conduct the second panel.

[Recess.]

Mr. MURPHY. Good afternoon. The committee will come back to

order.

I would like to welcome our second panel here this afternoon. As

with our first panel, it is the committee’s policy that all witnesses

are sworn in, and so if the two witnesses would please rise and

raise your right hands.

[Witnesses sworn.]

Mr. MURPHY. Thank you. The record will show that each witness

answered in the affirmative.

Before we hear your testimony before the committee, I would just

like to briefly introduce each witness.

Mr. Scott Amey serves as general counsel of the Project on Government Oversight. It is a watchdog group that studies Federal

spending and contracting.

Alan Chvotkin is the senior vice president and counsel of the

Professional Services Council, representing many of the largest

Federal contractors in the United States.

Your entire statements are on the record and part of the record,

but I would ask each of the two witnesses to please summarize. As

Mr. Towns noted to the first panel, you will have lights in front of

you noting with the yellow light when your time is almost up, and

a red light alerting you when to conclude your remarks.

We will begin with Mr. Amey.

STATEMENTS OF SCOTT AMEY, GENERAL COUNSEL, PROJECT

ON GOVERNMENT OVERSIGHT; AND ALAN CHVOTKIN, SENIOR VICE PRESIDENT AND COUNSEL, PROFESSIONAL SERVICES COUNCIL

STATEMENT OF SCOTT AMEY

Mr. AMEY. Good morning to the subcommittee, and thank you for

inviting me to testify today about the status of Federal contracting

reform.

I am Scott Amey, the general counsel of the Project on Government Oversight, a nonpartisan watchdog group founded in 1981.

POGO investigates and exposes corruption and other misconduct in

order to achieve a more accountable Federal Government.

POGO is pleased that this subcommittee is holding this very important hearing. First, Government contract spending has eclipsed

the $40 billion range in fiscal year 2007. Second, there are numerous legislative proposals and recommendations that require serious

attention.

POGO has been asked to present its views on the recommendations made by the Acquisition Advisory Panel, as well as the proposals made in H.R. 3033, H.R. 4881, and 3928.

POGO fully supports H.R. 3033, the Federal Contracting and

Federal Spending Accountability Act of 2007. As the subcommittee

may recall, on July 18th I testified before this committee and supported H.R. 3033 at that time. That bill will propose a data base

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that will formalize and replicate POGO’s Federal contractor misconduct data base and address the Government’s failure to vet contractors to determine whether they are truly responsible.

Since the subcommittee’s hearing last year, POGO has been

working with the Senate to introduce companion legislation. As the

subcommittee might recall, POGO’s Federal contractor misconduct

data base is a compilation of instances of misconduct and alleged

misconduct committed by the top Federal Government contractors.

Currently we have 420 instances of misconduct in that data base,

totaling $10 billion.

The pending cases or the allegations that Representative Davis

had mentioned earlier are not included in those totals.

H.R. 3033 would correct the Government’s inaction in collecting

and evaluating contractor responsibility information. While Congress is considering this legislation, the Defense and civilian agencies have initiated a rulemaking that would begin to address some

of the issues raised in this important bill, specifically, notification

to contracting officers when there are violations of Federal criminal

laws regarding contracts and subcontracts. The proposed rule also

stipulates that failure to comply with the notification requirement

could result in suspension or debarment.

Although greater in scope, H.R. 3033 would codify into law the

actions agencies are already taking on their own. More importantly, however, those instances needed to be logged into a data

base created by H.R. 3033 for all Government officials and the public to see. Without a data base, those instances are not shared between agencies.

Even the National Procurement Fraud Task Force Legislation

Committee has proposed a similar data base that will include violations of criminal laws, so this isn’t far removed from what everybody is asking Congress and the agencies to do already.

Sharing information between departments and agencies as proposed in the bill would go a long way in improving pre-award contracting decisions and enhancing the Government’s ability to weed

out risky contractors, especially those with repeated histories of

misconduct or poor performance.

I predict that there will be industry criticism about what to call

the data base and efforts to scale back the type of information that

is included. POGO encourages an open debate on those topics and

will fight to keep all criminal, civil, and administrative settlements,

even those without any admission of guilt or liability by the contractor.

POGO believes that the Contracting and Tax Accountability Act

of 2007, H.R. 4881, is also very important. We actually think it

should be part of Representative Maloney’s bill, 3033, because that

would help put together instances where contractors are delinquent

in paying their taxes. That should be one of the first things entered. That is not an allegation, but if they are being held to be

delinquent, then at that point that is the type of information that

should be presented to taxpayers.

The Senate has held three hearings on Federal contractors with

unpaid tax debt, identifying $6.3 billion in unpaid taxes. That is

the type of information that should be collected.

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H.R. 4881 is on the right track, but POGO believes that it could

go further in its scope. The bill is limited to negotiated acquisitions,

leaving out FAR part 12 commercial item purchases. The bill would

also only apply to contractors that are seriously delinquent in paying their taxes.

POGO supports H.R. 4881 with the understanding that the definition for seriously delinquent encompasses the companies that

owe the $6.3 billion in delinquent taxes to the Federal Government.

We see H.R. 4881 as another tool to prevent companies with questionable track records from receiving Federal taxpayer dollars.

The third bill that I was asked to speak about is the Executive

Compensation Disclosure Bill, H.R. 3928, which would require certain contractors to disclose the names and salaries of their most

highly compensated officers. POGO struggled with our stance on

this bill, because there have been some issues that have already

been raised in the first panel as far as bringing to light private information; however, I think on the side of caution, disclosure wins

out here. The scope of the bill is very limited, and at that point,

these are companies that are vastly majority funded by the taxpayer, and, therefore, their information should be brought to light.

In conclusion, because I see that my time is running out, I think

that POGO’s worst fear with the Acquisition Advisory Panel and

some of these other bills is they are things that have been batted

around for years. If you take a look at the GAO’s report and the

testimony from today, a lot of the issues were issues that they have

raised for many, many years that have been ignored.

I think that there needs to be a change in the culture in the contracting system throughout the Government to promote competition and some of the other items and issues that are major concerns with our contracting system as it stands. Even if all of the

1423 Panel’s recommendations are implemented and Congress

passes the legislation included in today’s hearing, POGO believes

that there is still more work to be done.

Thank you for inviting me to testify today. I look forward to

working with Chairman Towns, Ranking Member Bilbray, and the

entire subcommittee to further explore how the Federal Government can improve the buying of goods and services.

Thank you.

[The prepared statement of Mr. Amey follows:]

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Mr. TOWNS [presiding]. Thank you very much for your testimony.

Mr. Chvotkin.

STATEMENT OF ALAN CHVOTKIN

Mr. CHVOTKIN. Mr. Chairman, thank you very much for the invitation to testify. The Professional Services Council is the leading

national trade association representing the professional, technical,

and engineering companies providing services to the Federal Government. Our members include small, mid-tier, and large businesses.

Before I comment on the specific legislative proposals being addressed today, I want to implore you to address all of these issues

in a fact-based manner. All too often, the complexities and nuances

of Federal procurement have either been misstated or misinterpreted and led to the creation of numerous myths about Federal

contracting. In this business, words and terms matter, and as you

examine avenues to enhance the quality of the Federal acquisition

process, it is important to proceed with well-understood definitions,

sound data, and an accurate assessment of the current environment.

It is also important to recognize that many layers exist today to

protect the Government’s interest in equities. The Government

marketplace is vastly different and far more regulated than the

commercial marketplace, and we do not suggest that the two can

or should be identical. While the discussion is wholly appropriate,

overly simplistic statutory or regulatory language that ignores the

policy, implementation, due process, and other dimensions involved

is the wrong way to start.

I also want to address the issue of the Federal acquisition work

force in its broadest context. Far from simplifying the life of the

Federal acquisition professional, many of the reforms included in

enacted legislation and recommended by the SARA Panel actually

make the acquisition process more demanding for the people

charged with its execution. While the procedures are far easier to

execute, they are also far less effective and frequently place procedural perfection over mission accomplishment.

Unfortunately, despite the near unanimous agreement that actions must be taken to address the challenges of the Federal work

force, not enough has been done in the executive branch or by the

Congress to turn the tables. More needs to be done.

PSC believes that a smart, well-trained, and prepared customer

makes the best customer. As PSC testified before the Senate last

July, we need a kind of work force Marshall plan that aggressively

addresses the hiring, retention, training, reward, and development

of the Federal work force we are asking to manage 40 percent of

the discretionary budget of the Federal Government.

Let me address the three bills that you have asked for our comments on. With respect to H.R. 3928 by Mr. Murphy, PSC supports

transparency and accountability in Federal contracting, but the

reason for this bill is clear and obvious. It seems to be focused on

only one company under a unique set of circumstances. Simply, the

bill provides no information that the Government can use to determine whether the contractor performs under the contract or is profitable. Furthermore, more than a decade ago, as the earlier panel

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pointed out, Congress imposed a comprehensive mechanism to annually cap the maximum compensation amount that the contractor

is allowed to charge under any Defense or civilian agency government contract. We don’t see this bill as necessary.

With respect to H.R. 4881, another bill pending before the subcommittee, private entities providing goods and services to the Federal Government should comply with Federal, State, and local tax

requirements. Companies that do not comply simply have an unfair

advantage over law-abiding contractors that pay their taxes. Yet,

there is considerable rhetoric surrounding allegations that government contractors have reputedly violated tax laws but continue to

receive contracts.

In May of last year, this subcommittee favorably reported a revised version of the bill under a substitute offered by you, Mr.

Chairman, and adopted by the subcommittee. PSC supports the

Towns substitute, although we had other recommendations that

were not included in it. Nevertheless, the substitute properly relies

on the debarment mechanisms under current regulations to ensure

that a contractor is provided with due process before being denied

access to Government contracts, as those already provided under

the responsibility requirements of Federal law and the Federal acquisition regulations. Many of those positive attributes are also included in H.R. 4881.

As you know, there were two nearly identical provisions related

to contractor and grantee tax compliance included in the 2007 Appropriations Act. Different formulations were included in different

stand-alone bills.

Since the enactment of these two provisions, we are not aware

of any guidance or inter-procurement regulations that have been

issued, but we will be watching for them.

In addition, as Mr. Denett noted, there are administrative actions that have been taken and are still in process that deserve to

be implemented and then assessed before adopting new legislation.

In light of these actions, we urge the subcommittee to hold off pursuing further legislation in this area at this time.

Finally, to address H.R. 3033, another bill pending before this

subcommittee, PSC supports the objectives of transparency and accountability in Federal contracting and recognizes the importance

of the Government having access to relevant information pertaining to contractor responsibility. We do not conceptually oppose a

Government-wide data base that includes objective information

based on factual, Government-provided input that includes sufficient descriptors to fully explain the nature of the reported data,

the nature of the remedial action taken, and the relative severity

of the infractions cited. Unfortunately, the legislation does not address these elements.

Furthermore, to the extent that the data base includes information on fines paid or settlements, fundamental due process mandates that include only those judicial or administrative actions that

result in findings or admission of guilt.

In my statement I go on to talk about the Acquisition Advisory

Panel recommendations. I would be happy to address any issues

that the subcommittee may have about that.

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We appreciate the invitation to testify and look forward to answering any questions you may have.

[The prepared statement of Mr. Chvotkin follows:]

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Mr. TOWNS. Thank you.

Let me thank both of you for your testimony.

Let me begin with you, Mr. Chvotkin. You oppose H.R. 3033 in

its current form. That is my understanding, and you said you do

not oppose a Government-wide data base on factual, Governmentprovided input. Then what needs to be done in order for you to

come onboard?

Mr. CHVOTKIN. Well, I think Mr. Davis pointed out some of the

issues that are of interest and concern to us where I think real

progress could be made. I mean, there is a lot of information that

is dispersed throughout the Government, and we don’t mind bringing existing information into a more convenient form, readily available to the contracting officers so that they are not out there

searching for relevant information. There is already significant information in the online representations and certifications system

that lists information about a company’s compliance with numerous laws. Mr. Davis mentioned the suspension and debarment list.

There is other debarment information. So bringing those kinds of

factual informations from a Federal level together into a single

data base we have no objection to.

Mr. TOWNS. You know, New York City already has a data base,

of course. Are you familiar with that one?

Mr. CHVOTKIN. I am, sir.

Mr. TOWNS. Why don’t we just copy that?

Mr. CHVOTKIN. Well, I am familiar with it. Much of the information asked of Vendex, both the companies and principals, is very

similar to the information that is already available at the Federal

level. The Vendex system asks for the information that maybe

should be asked at the Federal level, and it has other questions

that may not be appropriate. I think it is an appropriate model.

There are some legitimate concerns raised about the timeliness

of information, how information may be stale, making sure that

contractors, or anybody who has information in that data base, just

like your personal credit reporting, you have an opportunity to look

at it, submit comments. That protection needs to be in there. So

if the Vendex data base model is a starting point, we understand

that and we could be supportive of it.

Mr. TOWNS. All right.

Mr. Amey, I understand you get a lot of your information about

lawsuits from SEC filings where companies are required to disclose

information on pending cases. Could we just write a provision in

H.R. 3033 saying that if a lawsuit is required to be disclosed to the

SEC, it is required to be included in the contractor data base also?

Mr. AMEY. Mr. Chairman, I think that is a wonderful solution,

because that has already been vetted and debated for many years,

and I know that clause that discusses what legal proceedings have

to be disclosed has been a huge, debatable issue. There are lawsuits over it. Many companies have fought it.

I think the tide has turned where companies have erred on the

side of caution in wanting to disclose information to the SEC, because they are fearful of what their shareholders will do. That

would be a wonderful way to take a look at this.

But, then you also need to look at, I think, some additional items

in addition to what is included in the SEC data base, because that

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is not picking up administrative agreements, it is not picking up

contracts terminated for default, and that is where the other language in H.R. 3033 picks up to ensure that the Government has

as much information to make its responsibility determination as

they can.

Mr. TOWNS. Right. On November 14, 2007, the FAR Council

issued a proposed rule that would make a number of changes

aimed at reducing fraud in Government contracting. First, it would

require contractors to notify the Inspector General when they have

reasonable grounds to believe one of their employees has committed a violation of criminal law in connection with their Government

contract.

Second, it would add failure to disclose such violations as a cause

for suspension and debarment.

Third, it would require full cooperation with Government audit

and investigative agencies.

I would be interested in hearing your views on this proposed

rule.

Mr. AMEY. The Project on Government oversight submitted a

public comment supporting the rule, but also asking that it be expanded to include the other types of issues and the other misconduct that has been proposed in H.R. 3033. The one fear—and

I have read other comments that have been submitted—is the same

issue that Representative Davis has raised on the allegations. Even

the clarity of the definition for when a violation is known creates

some problem. Even as a lawyer, it creates a problem for me as far

as work product issues and whether you are being held guilty before you prove your innocence. But overall, I think that information

is necessary to disclose to contracting officers and to the Government to make sure that we are not awarding contracts to risky contractors.

We can debate on what is included at what point. I think final

adjudications is a nice way to go, but there are many different

types of misconduct that aren’t being captured at all, whether in

the performance retrieval system—and we provide grades in that

throughout that system. Why can’t we do the same thing with some

type of responsibility grade so that when a contracting officer can

go to one specific location and see a grade for a contractor and be

able to factor out right away whether they are risky or responsible?

If not, we might as well take the responsibility determination requirement right out of the law and we might as well do away with

it, because currently the suspension debarment list doesn’t get that

information, and neither does the excluded parties list or the performance information retrieval system, so at that point we have a

huge gap of information that is currently not being presented to

the government.

Mr. TOWNS. The light is on red, but very quickly, Mr. Chvotkin,

what do you think of that rule?

Mr. CHVOTKIN. We also commented extensively on that regulation. We are a strong supporter of mandatory, Government-wide

ethics programs that are suitable to the size and the nature of the

business that companies provide to the Federal Government. We

were troubled by the mandatory disclosure. We have not been conVerDate 11-MAY-2000 13:47 Jan 07, 2009 Jkt 000000 PO 00000 Frm 00185 Fmt 6633 Sfmt 6633 C:\DOCS\45947.TXT KATIE PsN: KATIE
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vinced that changes to the current voluntary disclosure process

couldn’t improve the process considerably.

Like Mr. Amey, we raised a number of questions about definitions. As I said at the beginning, definitions and words are so important in this business.

In the area of cooperation, there are already Federal laws regarding cooperation, and we recognize the value of doing that. Here,

again, companies have some due process rights, and we weren’t

sure that the regulations, themselves, clearly recognized those due

process rights.

Mr. CHVOTKIN. And if I may add one thing, that rule primarily

came from the Department of Justice, who feels they don’t have the

tools necessary in their toolbox——

Mr. AMEY. Right.

Mr. CHVOTKIN [continuing]. In even receiving voluntary disclosures from the contractors to be able to prevent and prosecute

fraud, so it wasn’t something that came from POGO or the private

sector. This is something where the DOJ is saying, ‘‘hey, we don’t

have enough in our toolbox to be able to go after some people, and

we need those tools.’’ I think that is vital.

Mr. TOWNS. Right.

Mr. Murphy.

Mr. MURPHY. Thank you very much, Mr. Chairman. Thank you

both for your testimony.

Mr. Amey, I want to get at, if I can, some of your inner turmoil

over 3928. I think what you posited was a challenge in reconciling

the benefit of the more transparent information regarding how

much private companies are pulling out of these contracts and

what you term as private information.

I certainly understand that the proprietary nature of salary data,

of profit numbers for truly private companies that are deriving

their investment sources from private individuals and private companies. In this case, this bill—and I think we had some good suggestions on how to, maybe, further limit it today—is getting at

companies that get the lion’s share of their investment of their revenue from the taxpayers, from the citizens of the United States. I

don’t look at that in the same way that I look at private proprietary data in truly private sector companies.

So I guess I want you to just elaborate on sort of why you come

to a less than conclusive statement in support of this bill.

Mr. AMEY. Thank you for the opportunity. I think in our written

testimony we called it tepid. Obviously, we are always supportive

of disclosure. I am afraid of the floodgates that would open, and I

don’t mean to make the industry’s argument in this case, but I

think the limited nature of the bill makes it more than adequate

and appropriate bill to sign on to.

I have additional problems with the executive compensation bills

overall, and I think that is also why we are tepid, because currently, as was discussed earlier with the first panel, there are caps.

The Government sees the information. DCA audits the information.

So you are creating a bill that would just be publicly available on

the public procurement data system, but I have more problems

with the fact that it is limited to the top five executives. So at the

part where you get to executive six, all of the sudden that contracVerDate 11-MAY-2000 13:47 Jan 07, 2009 Jkt 000000 PO 00000 Frm 00186 Fmt 6633 Sfmt 6633 C:\DOCS\45947.TXT KATIE PsN: KATIE
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tor can fully bill the Government and the taxpayer for that entire

salary and not the capped $597,000.

So I don’t mean to throw the baby out with the bath water to

get to greater reform when it comes to executive compensation, but

I think the Government has the necessary tools, and it collects the

information that they need to ensure that private contractors aren’t

taking advantage of taxpayers with those salaries, even the private

contractors that are in cost reimbursement type contracts.

Mr. CHVOTKIN. I believe there may be an incorrect statement. I

don’t want to leave the record. No salary in excess of the compensation amount is reimbursable. It doesn’t matter whether you are the

1st, the 6th, the 26th, or the 106th. The Government on cost reimbursement contracts is not—the contractors cannot bill the Government for that salary. Doesn’t matter.

Mr. MURPHY. Let me then ask the next question to both of you.

It is my understanding from the previous panel that compensation

limit applies to cost contracts, not to fixed-price acquisition contracts; is that correct?

Mr. CHVOTKIN. That is correct, sir.

Mr. MURPHY. And do we have a sense as to what percentage

right now of competitive contracts are fixed-price acquisition contracts?

Mr. AMEY. There was a recent study that was done—I think I

cite to it in my testimony—where, I think, they came up with a figure of the majority of contracts—well, not the majority, but 40 percent of contracts—were in the cost reimbursement section, and that

was also one of the Advisory Panel’s recommendations: We need to

get into more competitive fixed-price contracting. The percentage of

fixed-price contracting is a lot lower. So it would apply to more contracts than in the fixed-price sector.

Mr. MURPHY. Mr. Amey, doesn’t it concern you that if you are

talking about such a large number of projects not being subject to

that compensation limit, that if on fixed-price acquisition contracts

we don’t have a compensation limit—I mean, what is our control

on those contracts with regard to compensation?

Mr. AMEY. When they are fixed-price contracts, the control is just

the overall result. Did you feel you got a fair and reasonable price

for the overall contract? And you are just looking at the bottom-line

figure.

Mr. MURPHY. So let me just ask a question to both of you, the

final question to both of you. Let’s say in a hypothetical we have

a $10 million contract and we found out through some means a

year later that there was a $3 million salary to the executive of

that company. Wouldn’t that be incredibly relevant data to provide

a red flag that what we thought was a reasonable price, what we

thought was the best deal we could get, actually wasn’t, because

somehow that company found a way to pay its executives much

more than would be reasonable?

It seems to me that the amount of money that you are taking off

the top of the contract is incredibly relevant in determining whether or not we got as good a deal as we though we were going to get

at the outset.

I will ask that to both of you.

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Mr. AMEY. Well, the executive compensation threshold is also

proportional, so if they only have 85 percent of their work with the

Federal Government, they can only charge out of that threshold 85

percent to the Federal Government, so it won’t be all. Obviously,

contractors find loopholes in every law that we pass and find their

way around them, but I think there is adequate information currently with the Government that exposes the issue when it comes

to the fact that it is reported to contracting officers and DCA is

checking and enforcing it.

So, I don’t know what we win in the disclosure world, but overall

to have it there POGO would support it.

Mr. CHVOTKIN. Thank you, sir. Let me just make sure, for clarity, the contract price does not equal company profits or salary, so

there is a lot of components that go into price. And, on the fixed

price, we hope that there are strong supporters of competition. We

would hope that the competitive environment would help ensure

that the Government is getting a fair and reasonable price for the

goods and services that it is contracting for, and the Government

would retain its rights across evaluated companies to know where

that information was coming from. So, they do have tools to get at

that. We want to be very careful about opening up repricing fixedprice contracts. I think that is a very dangerous precedent.

Mr. MURPHY. Congresswoman Maloney from New York.

Mrs. MALONEY. Thank you, Mr. Chairman, for your leadership on

these issues.

I would like to ask Mr. Chvotkin, on your comments on due process protections, I believe the safeguards that exist in the current

FAR are unchanged in H.R. 3033. In your testimony today you

have repeatedly said that this impairs due process protections in

some way.

Can you explain in detail how H.R. 3033 changes current FAR

due process protections, especially in view of the fact that the bill

has provisions and provides for rebuttal and allows the contractor

to show mitigating or remedial factors?

Mr. CHVOTKIN. Yes, ma’am. Thank you.

As you point out, today, with respect to the past performance information retrieval system, the Government’s twin data bases that

are collecting information on ongoing work, that kind of information, the contractor is given the opportunity to review the file and

to submit comments, very much like the fair credit reporting that

applies to you and I in the private sector information.

That same kind of opportunity to review and comment does not

exist today in FAR for other kinds of information that the Government may have. Your bill does provide for some of that kind of due

process, and we strongly support that. It is to make sure that it

covers across the universe of information that we are going to collect from the data base. If the bill does that in its final form, we

would be supportive of it.

Mrs. MALONEY. Well, specifically, if you could get back to the

committee how you would propose that this answers it, it seems to

me that it does have room or provides for rebuttal, mitigating, remedial factors, and a response from the contractor.

Mr. CHVOTKIN. Yes, ma’am, I would be happy to get back to the

committee with those details.

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Mrs. MALONEY. And on the issue of objective criteria, which you

brought up, why would you say H.R. 3033 does not establish objective criteria? H.R. 3033 uses the FAR standards and clearly states

the standard of the same offense or similar offense twice within a

3-year period. What objective criteria would you suggest?

Mr. CHVOTKIN. It is the issues of the allegations. It is the unsupported audit reports. It is the GAO——

Mrs. MALONEY. What do you mean unsupported audit reports?

Audit reports are audit reports. What is an unsupported audit report?

Mr. CHVOTKIN. An unsupported audit report would be the initial

conclusions of a DCA auditor that has not been reviewed and commented on by the contractor and a decision made by the contracting officer. That would be an unreviewed, unsupported audit report. In our view, simply because an auditor can raise questions

about cost, legitimately so, there are other factors that go into

the—other information that goes into the final determination of

whether the costs are legitimately questioned or doubted, and if so

at what stage of the process that information comes forward.

This committee addressed that——

Mrs. MALONEY. So you would support it if it had comments from

the contractor on the auditing and the decision by the contract officer?

Mr. CHVOTKIN. Yes, ma’am. In fact, in the final version of legislation that this committee approved and the House passed early last

year by Mr. Waxman, H.R. 1362, that same issue was addressed,

and the committee concluded—and the House adopted provision

that provides for a final audit report, which includes the recommendations of the auditor, the information response from the

contractor, and a final decision by the contracting officer. With that

stage, no objection. That is the final report.

Mrs. MALONEY. And also on the issue of complex legal issues, you

said that H.R. 3033 would require contracting officers to make complex judgments, but wouldn’t you say that contracting officers now

already have to make a lot of pretty very complex judgments? And

are you saying more comprehensive data in a single place would

make their job harder or their judgments more difficult to make?

Mr. CHVOTKIN. No, I am not saying that at all. On the contrary.

We support having the factual information that we talked about

more conveniently available to a contracting officer. The Government already has the data, so we see no reason not to make that

more readily available. The factual judgments or the complex legal

judgments that some have proposed—again, it is not in 3033, but

my caution here is that some are asking contracting officers, whose

primary mission is to evaluate the opportunities for buying goods

and services, to decide whether a company is in violation of the

labor laws or the environmental laws or the tax laws. They are not

trained to do that. They don’t have sufficient information. Those

are the complex legal questions that we are concerned about.

Again, we are not concerned about having information. If there

is a conviction by the Justice Department for tax evasion, that information ought to be available to the contracting officer.

Mrs. MALONEY. Are you saying that if a contractor doesn’t pay

their taxes that should not be part of the information? I mean,

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there have been reports on how many people are getting Government contracts that aren’t paying their taxes.

Mr. CHVOTKIN. There are a lot of reports of a lot of things going

on. If there is a finding of tax liability and the contractor is not——

Mrs. MALONEY. Finding by whom? The IRS?

Mr. CHVOTKIN. By the IRS. They are the agency that the Congress has charged with responsibility for implementing the tax

laws. The IRS concludes that there is a tax liability that is not subject to an agreement or offset, absolutely, that information should

be made available to the Government.

Mrs. MALONEY. Finally, are you aware that the disclosure standards in H.R. 3033 closely mirror the standards in the private sector

for the construction industry? I have reviewed construction industry-wide forms. They are qualifications disclosure forms for construction general contractors and subcontractors, consensus forms,

221 and 721. These documents from the private sector ask for comprehensive contract compliance and legal compliance going back 5

years. Why wouldn’t or shouldn’t the Federal Government, Federal

purchasing function, mirror the best practices of the private sector?

Mr. CHVOTKIN. I am not familiar with those documents in the

construction industry.

Mrs. MALONEY. OK. Can we get them to you and could you get

back to us in writing?

Mr. CHVOTKIN. Yes, ma’am. It would be my pleasure.

Mrs. MALONEY. We have to go vote, so I would like to reserve the

opportunity to put other questions to you in writing. I know the

chairman is telling me my time is up and has been up for a long

time, so thank you, Mr. Chairman.

Mr. TOWNS. And we will hold the record open to receive that information. Thank you very much.

At this time the committee is adjourned.

[Whereupon, at 12:27 p.m., the subcommittee was adjourned.]

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