    [Joint House and Senate Hearing, 105 Congress]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 105-564

    A FREE MARKET APPROACH TO FEDERAL CONTRACTING: THE FAIR COMPETITION ACT
          OF 1998 AND THE COMPETITION IN COMMERCIAL ACTIVITIES OF 1998

    =======================================================================

                                 JOINT HEARING

                                   before the

                          SUBCOMMITTEE ON OVERSIGHT OF
                     GOVERNMENT MANAGEMENT, RESTRUCTURING,
                          AND THE DISTRICT OF COLUMBIA

                                     of the

                                  COMMITTEE ON
                              GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                                    AND THE

                       SUBCOMMITTEE ON GOVERNMENT MANAGE-
                       MENT, INFORMATION, AND TECHNOLOGY

                                     OF THE

                                  COMMITTEE ON
                        GOVERNMENT REFORM AND OVERSIGHT
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED FIFTH CONGRESS

                                 SECOND SESSION

                                   ----------

                                 MARCH 24, 1998

                                   ----------

                               Serial No. 105-140

                                   ----------

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

                          U.S. GOVERNMENT PRINTING OFFICE
     48-113 cc                   WASHINGTON : 1998
    _______________________________________________________________________
               For sale by the U.S. Government Printing Office,
     Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

                       COMMITTEE ON GOVERNMENTAL AFFAIRS

                       FRED THOMPSON, Tennessee, Chairman
    WILLIAM V. ROTH, Jr., Delaware       JOHN GLENN, Ohio
    TED STEVENS, Alaska                  CARL LEVIN, Michigan
    SUSAN M. COLLINS, Maine              JOSEPH I. LIEBERMAN, Connecticut
    SAM BROWNBACK, Kansas                DANIEL K. AKAKA, Hawaii
    PETE V. DOMENICI, New Mexico         RICHARD J. DURBIN, Illinois
    THAD COCHRAN, Mississippi            ROBERT G. TORRICELLI, New Jersey
    DON NICKLES, Oklahoma                MAX CLELAND, Georgia
    ARLEN SPECTER, Pennsylvania
                 Hannah S. Sistare, Staff Director and Counsel
                     Leonard Weiss, Minority Staff Director
                           Lynn L. Baker, Chief Clerk

                                     ------

    SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING, AND
                            THE DISTRICT OF COLUMBIA

                        SAM BROWNBACK, Kansas, Chairman
    WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
    ARLEN SPECTER, Pennsylvania          MAX CLELAND, Georgia
                         Michael Rubin, Staff Director
          Laurie Rubenstein, Minority Staff Director and Chief Counsel
                          Esmeralda Amos, Chief Clerk

                                     ------

                  COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

                         DAN BURTON, Indiana, Chairman
    BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
    J. DENNIS HASTERT, Illinois          TOM LANTOS, California
    CONSTANCE A. MORELLA, Maryland       ROBERT E. WISE, Jr., West Virginia
    CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
    STEVEN SCHIFF, New Mexico            EDOLPHUS TOWNS, New York
    CHRISTOPHER COX, California          PAUL E. KANJORSKI, Pennsylvania
    ILEANA ROS-LEHTINEN, Florida         GARY A. CONDIT, California
    JOHN M. McHUGH, New York             CAROLYN B. MALONEY, New York
    STEPHEN HORN, California             THOMAS M. BARRETT, Wisconsin
    JOHN L. MICA, Florida                ELEANOR HOLMES NORTON, Washington,
    THOMAS M. DAVIS, Virginia                DC
    DAVID M. McINTOSH, Indiana           CHAKA FATTAH, Pennsylvania
    MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
    JOE SCARBOROUGH, Florida             DENNIS J. KUCINICH, Ohio
    JOHN B. SHADEGG, Arizona             ROD R. BLAGOJEVICH, Illinois
    STEVEN C. LaTOURETTE, Ohio           DANNY K. DAVIS, Illinois
    MARSHALL ``MARK'' SANFORD, South     JOHN F. TIERNEY, Massachusetts
        Carolina                         JIM TURNER, Texas
    JOHN E. SUNUNU, New Hampshire        THOMAS H. ALLEN, Maine
    PETE SESSIONS, Texas                 HAROLD E. FORD, Jr., Tennessee
    MICHAEL PAPPAS, New Jersey                       ------
    VINCE SNOWBARGER, Kansas             BERNARD SANDERS, Vermont
    BOB BARR, Georgia                        (Independent)
    DAN MILLER, Florida
                          Kevin Binger, Staff Director
                     Daniel R. Moll, Deputy Staff Director
             William Moschella, Deputy Counsel and Parliamentarian
                           Judith McCoy, Chief Clerk
                     Phil Schiliro, Minority Staff Director
                                     ------

       SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

                       STEPHEN HORN, California, Chairman
    PETE SESSIONS, Texas                 DENNIS J. KUCINICH, Ohio
    THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
    JOE SCARBOROUGH, Florida             MAJOR R. OWENS, New York
    MARSHALL ``MARK'' SANFORD, South     CAROLYN B. MALONEY, New York
        Carolina                         JIM TURNER, Texas
    JOHN E. SUNUNU, New Hampshire
    ------ ------

                                   Ex Officio

    DAN BURTON, Indiana                  HENRY A. WAXMAN, California
              J. Russell George, Staff Director and Chief Counsel
                     John Hynes, Professional Staff Member
                              Matthew Ebert, Clerk
              Mark Stephenson, Minority Professional Staff Member

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Brownback............................................     1
        Representative Horn..........................................     3
    Prepared statements:
        Representative Maloney.......................................    10
        Representative Kucinich......................................    11
        Representative Duncan........................................    12
        Representative Hoyer.........................................    15

                                   WITNESSES
                            Tuesday, March 24, 1998

    Hon. Craig Thomas, a U.S. Senator from the State of Wyoming......     4
    G. Edward DeSeve, Acting Deputy Director for Management, U.S.
      Office of Management and Budget................................    17
    Skip Stitt, former Deputy Mayor, City of Indianapolis, testifying
      on behalf of Hon. Steven Goldsmith, Mayor, City of Indianapolis    19
    Steve Kelman, Ph.D., Weatherhead Professor of Public Management,
      Harvard University.............................................    36
    Bryan Logan, Chief Executive Officer, Earth Data International...    38
    Larry Trammell, Corporate Vice President and General Manager,
      Science Applications International Corp........................    41
    Douglas K. Stevens, Jr., Partner of Information Technology
      Services Group, under Grant Thornton, LLP, representing the
      U.S. Chamber of Commerce.......................................    42
    Robert M. Tobias, National President, The National Treasury
      Employees Union................................................    44
    Bobby L. Harnage, President, American Federation of Government
      Employees......................................................    46
    Michael B. Styles, National President, Federal Managers
      Association....................................................    48

                         Alphabetical List of Witnesses

    DeSeve, G. Edward:
        Testimony....................................................    17
        Prepared statement...........................................    65
    Harnage, Bobby L.:
        Testimony....................................................    46
        Prepared statement...........................................   276
    Kelman, Steve:
        Testimony....................................................    36
        Prepared statement...........................................    81
    Logan, Bryan:
        Testimony....................................................    38
        Prepared statement...........................................    84
    Stevens, Douglas K. Jr.:
        Testimony....................................................    42
        Prepared statement...........................................    91
    Stitt, Skip:
        Testimony....................................................    19
        Prepared statement submitted on behalf of Mayor Stephen
          Goldsmith..................................................    72
    Styles, Michael B.:
        Testimony....................................................    48
        Prepared statement...........................................   337
    Thomas, Hon. Craig:
        Testimony....................................................     4
        Prepared statement...........................................    80
    Tobias, Robert M.:
        Testimony....................................................    44
        Prepared statement with attachments..........................    97
    Trammell, Larry:
        Testimony....................................................    41
        Prepared statement...........................................    88

                                    APPENDIX

    Draft letter from David M. Gentry, American Federation of
      Government Employees affiliated with the AFL-CIO, dated 16
      March 1998.....................................................    34
    Additional prepared statements submitted for the record from:
        Procurement Round Table......................................   346
        National Treasury Employees Union............................   368
        Helicopter Association International.........................   370
        American Congress on Surveying and Mapping...................   374
        American Consulting Engineers Council........................   381
        Small Business Legislative Council...........................   384
        National Federation of Federal Employees.....................   389

                       A FREE MARKET APPROACH TO FEDERAL
                       CONTRACTING: THE FAIR COMPETITION
                        ACT OF 1998 AND THE COMPETITION
                        IN COMMERCIAL ACTIVITIES OF 1998

                                  ----------

                            TUESDAY, MARCH 24, 1998

                                           U.S. Senate,
     Oversight of Government Management, Restructuring and the
        District of Columbia Subcommittee, of the Committee on
                Governmental Affairs, joint with U.S. House of
       Representatives, Subcommittee on Government Management,
    Information, and Technology, of the Committee on Government
                                          Reform and Oversight.
                                                        Washington, DC.
        The joint hearing met, pursuant to notice, at 2:11 p.m., in
    room SD-342, Dirksen Senate Office Building, Hon. Sam
    Brownback, Chairman of the Subcommittee on Oversight of
    Government Management, Restructuring, and the District of
    Columbia, presiding.
        Present: Senator Brownback and Representatives Horn,
    Sessions, Maloney, and Kucinich.

                 OPENING STATEMENT BY SENATOR BROWNBACK

        Senator Brownback. The hearing will come to order.
        Thank you all for joining us today. I want to welcome you
    to our joint hearing examining the Fair Competition Act of 1998
    and the Competition in Commercial Activities Act of 1998. I
    would especially like to welcome our colleagues from the House
    Subcommittee on Government Management, Information, and
    Technology, Congressman Horn who is present, and I would
    particularly like to note his leadership on this topic. For all
    the years I have been in Congress, the House and the Senate has
    been a leader on this topic, and we are moving forward with
    something positive, and I am glad to be associated with him.
        Our Subcommittee held a hearing in June of last year on the
    previous version of S. 314, the Freedom from Government
    Competition Act, and listened very carefully to industry and
    Federal Government representatives testify about the strengths
    and the weaknesses of our legislation. Since then, we have been
    redrafting the legislation to accommodate various concerns, and
    I believe we have come a long way to move this bill toward
    enactment.
        The reason for the legislation, I think is clear. The
    current Federal competition policy, also known as OMB Circular
    A-76--that is quite a title--is not working. A-76 provides
    guidelines for a com-
    petition process, but Federal agencies are not required to
    follow these guidelines, and as a result, many agencies simply
    ignore them.
        Last year, OMB asked Federal agencies to provide the number
    of Federal employees currently performing commercial activities
    in-house. The results varied widely. For example, the
    Department of Defense follows the OMB competition guidelines
    under A-76. DOD acknowledged that about 59 percent of their
    employees engaged in non-inherently government or commercial
    activities. Other Federal Cabinet agencies, however, claimed
    that on average approximately 5 percent of their employees are
    performing commercial activities. Two agencies, the Department
    of Commerce and the Department of State, chose not to respond
    to the OMB survey at all. I hope that these responses are not
    indicative of an attitude of resistance to competition in these
    Federal Cabinet agencies, and I also hope that this discrepancy
    between the Department of Defense and the rest of the Federal
    agencies will be explained by some of our witnesses today.
        In redrafting this legislation, representatives from the
    Federal Employees Union and private industry made it clear that
    OMB Circular A-76 does not work because Federal agencies ignore
    it. We have got a little cartoon graphic here for that.
        As a result, on one side of the table, private industry
    says that Federal employees are favored because the agency
    chooses to keep these functions in-house, and on the other side
    of the table, the unions say Federal agencies choose to
    immediately contract out commercial functions without giving
    Federal employees a chance to compete for these functions.
        In order to address these concerns from the Senate
    Subcommittee at the last hearing, the new bill implements a
    competitive process which includes both the private industry
    and the Federal employees. Both sides have an opportunity to
    compete on a level playing field.
        Another concern raised at our Subcommittee's last hearing
    is the need for flexibility in determining an inclusive
    competition policy.
        In addition, the unions expressed the need for cost
    comparisons to be included when determining whether the
    functions should be performed by the Federal Government or the
    private sector.
        Since then, all sides on this issue have acknowledged that
    fair competition between the Federal agencies and private
    industry is essential to ensure that the Federal Government is
    getting the most for each taxpayer dollar spent on these non-
    inherently governmental functions. As a response, we have
    redrafted S. 314 to create a level playing field for fair
    competition to take place between a private sector and the
    Federal agencies. The Fair Competition Act addresses all of
    these concerns. The ongoing discussions with representatives
    from all sides of this issue are very important to redrafting
    this bill. We are very serious about moving this legislation
    through Congress this year, and I look forward to working with
    our colleagues in the Senate and the House and the
    administration to make this happen.
        With that, I want to acknowledge Congressman Horn for an
    opening statement and again state how pleased I am to be
    associ-
    ated with him on this effort that he has focused so much
    intensity on in moving this issue forward.
        Congressman Horn.

    OPENING STATEMENT OF STEPHEN HORN, A REPRESENTATIVE IN CONGRESS
                      FROM THE STATE OF CALIFORNIA

        Mr. Horn. I thank you, Mr. Chairman. We are delighted to be
    with you. We have learned to appreciate your expertise and
    knowledge and commitment in the House. We are sorry you went
    over here, where you have all this space and beautiful hearing
    rooms, but it is nice to be on your turf.
        Today, we are examining a policy in the area of commercial
    activities performed by the Federal Government. Current policy
    is governed by the Office of Management and Budget Circular A-
    76, something I remember well, I happened to be in the
    Eisenhower administration, which says: one, that agencies ought
    to rely on private sources for commercial activities, and on
    government sources for inherently governmental activities; two,
    that agencies should not start new commercial activities if
    they can get a contractor to perform the activity; and, three,
    that agencies will subject their in-house commercial activities
    to competition.
        According to information provided by the Office of
    Management and Budget, not one single agency, outside of the
    Department of Defense, uses A-76 competitions. The Department
    of Defense does follow the circular, largely because there is
    an implicit agreement that savings will go to other agency
    programs--namely, force modernization.
        We have an administrative policy promulgated by the
    President through OMB that is simply not followed. It is into
    this vacuum between policy and practice that the current
    legislative proposals seek to fill.
        This policy dates from 1954, as I noted, President
    Eisenhower's first term, when Congress passed a version of H.R.
    9835, legislation establishing a policy of relying upon the
    private sector sources for commercial activities. H.R. 9835
    passed the House by a voice vote, was amended in the Senate,
    but never became law. We have seen that happen a few times in
    our careers.
        Resistance to the current proposals sounds eerily familiar
    to objections heard 40 years ago. In the House debate, then-
    Representative Tip O'Neill, Jr., Massachusetts, argued for
    retaining the plant in Massachusetts that made rope for the
    Navy. Others discussed the Federal operations making coffee
    roasters, dentures, sleeping bags, and even iron and steel
    plants. Most of these operations are now defunct, and we have
    contracted with private vendors to make dentures, and the
    coffee to stain them, with specialized firms that have those
    functions as their core missions. In response, the Bureau of
    the Budget promulgated a bulletin on this issue, which evolved
    into OMB Circular A-76.
        In the private sector, specialization and competition have
    reduced costs and improved performance and consumer choice. The
    most competitive sectors of the economy are also the most
    innovative. Federal antitrust policy is designed to ensure
    competition, so that customers do not get gouged. We need an
    antitrust policy for the Federal Government, to ensure that
    competition brings benefits to taxpayers.
        My own view is that some agencies already have the most
    experienced and efficient people doing the job. But other
    agencies do not, especially as buyouts have removed some of the
    most capable performers. Competition can be a spur to improve
    performance in either case. According to the General Accounting
    Office, Congress' audit arms that program in money, competition
    can reduce the cost of government by an average of 20 to 35
    percent. That is real money.
        I know that there are vendors who have been harmed by
    government competition. I also know that there have been
    Federal employees harmed by contracting out. There have been
    spectacular failures by contractors, equally spectacular
    failures in government agencies in functions performed by
    Federal employees. But our primary purpose here today is to
    focus on good government demanded by the taxpayers who sent us
    here, and who ultimately pay the bills of not only Congress,
    but the Executive Branch.
        Today, we will hear from the sponsor of the bill, my next-
    door neighbor my first year in Congress, Senator Craig Thomas
    of Wyoming, a very distinguished, dedicated Member. Our
    witnesses represent some of the best minds in this area at the
    Federal, State, and local levels, and at the employee as well
    as employer levels, and we look forward to their testimony.
        I want to add that the staff has received several
    unsolicited statements for the record of this hearing. The
    Subcommittee would like to encourage additional thoughts on
    this issue, and we will hold open the testimony for 3 weeks for
    any person to provide a statement. We do not mean to close the
    door to any point of view, and we encourage healthy debate.
        Thank you very much, Mr. Chairman.
        Senator Brownback. Thank you very much.
        We would like to invite to the table, Senator Craig Thomas,
    the sponsor of the Fair Competition Act of 1998. We were going
    to have Congressman John Duncan, but his plane has been
    delayed. So he will not be able to be with us.
        Senator Thomas, I would note at the outset, after your
    presentation and the questions, you would certainly be welcome
    to join us on the dias if you would like to. I may have to slip
    out at one point for an amendment that I have on the floor
    during this hearing. So that may be something that has to take
    place.
        Welcome. I know you have been doing a lot of work on this
    act, and please fill us in.

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

        Senator Thomas. Thank you very much, Mr. Chairman. Mr.
    Chairman, Steve, nice to see you.
        I appreciate very much your having the hearing today. I
    have appeared before both of you in the recent past. We have
    made subsequent changes to the legislation, as you know, with
    your cooperation and your involvement. So I appreciate the
    opportunity to testify.
        I also thank Congressman Duncan, my colleague, for his hard
    work, and I am sorry he could not be here today.
        For over 40 years, it has been the administrative policy of
    the Federal Government to rely on the private sector for its
    commercial needs, a policy that is now found in OMB Circular A-
    76. The basis, of course, for this legislation is that A-76 is
    a fundamentally flawed process that is basically ignored.
        For example, OMB estimates there are nearly 500,000 Federal
    employees who are doing commercial work. OMB acknowledges that
    this is a conservative estimate because two Cabinet agencies
    and a host of smaller agencies did not even bother to respond
    and turn in a commercial inventory. What can OMB do about it?
    Nothing.
        The fact is CBO has estimated that well over a million
    Federal employees do commercial work. Even those agencies that
    do compile a commercial inventory maintain a government
    monopoly by keeping commercial work in-house and refuse to
    conduct A-76 cost comparisons.
        Because A-76 is an administrative policy, there is little
    OMB or the private sector can do to challenge these anti-free
    market practices. In fact, under reinventing government
    initiatives, agencies not only in-source without competitions;
    they also market their services to the private sector. This is
    such a big problem that all three sessions of the White House
    Conference on Small Business rated unfair competition as one of
    the top concerns to small entrepreneurs.
        But, OMB lacks important data on the commercial work of the
    Federal Government. OMB does not know the dollar value of
    commercial activities the Federal Government conducts. It does
    not know how much reimbursable work Federal agencies do for one
    another. It does not know how much work the Federal Government
    does for State and local governments.
        In fact, in a recent article, the Washington Times named A-
    76 as one of the seven worst regulations in America. It said,
    ``Circular A-76 has raised so many obstacles and regulatory
    impediments to market reforms at the Defense Department, it is
    having the opposite effect of its original intentions.'' A-76
    studies often take more than 2 years to complete. The cost
    comparison under A-76 are like comparing apples and oranges. A
    level playing field does not exist due to differences in public
    and private sector accounting structures, work organizations,
    and budgeting processes, but the worst part of the whole A-76
    mess is that the American taxpayer gets shortchanged.
        Studies by OMB, DOD, and GAO show that the government can
    save 20 to 30 percent or more when services are competed. That
    means the Federal Government could get better goods and
    services and actually save billions of dollars annually, but
    since A-76 is not fair and is not used, the taxpayers never get
    the benefits of those improved goods and services or the cost
    savings associated with competition.
        To inject free-market competition into government
    monopolies, for the past several years, I have been the Senate
    sponsor of the Freedom of Government Competition Act. Previous
    versions of the bill would have codified the 40-year-old
    administrative policy of re-
    liance on the private sector. However, the new and improved
    bill we are talking about today has been significantly
    restructured, and I want to stress this point. No longer does
    the bill require out-sourcing to the private sector. Instead,
    it replaces the one-side cost comparison found in A-76 with a
    competitive process, which will allow Federal employees and
    private sector businesses to compete on a level playing field.
        The redraft provides for simple and fair process. It
    requires a list of non-inherently governmental activities. It
    requires activities on the list to be subjected to competition.
    It provides for a challenge process to these decisions. This
    bill avoids the pitfalls of A-76, which is unfair, unused, and
    unenforceable.
        OMB will say the bill is not needed; that it is doing a
    good job of implementing A-76. The fact is that an
    administrative policy does not work and has not worked, and the
    time has come for a statutory requirement that is, in fact,
    enforceable.
        OMB also will say that the judicial review portion of the
    bill will tie up agencies' decisions in courts, and I share
    OMB's dislike for litigation, but I do not think that a
    taxpaying citizen should lose his job because the Federal
    Government ran him out of business without giving him a chance
    for some kind of judicial recource. The fact is judicial review
    has been part of many other government reform laws.
        Further, legislation introduced in the past by
    congressional Democrats to ban contracting out included
    judicial review. So there seems to be bipartisan agreement that
    some kind of redress is appropriate.
        OMB will, no doubt, criticize some other details of the
    bill. Reasonable people can, in fact, disagree, and I
    appreciate OMB's willingness to discuss these issues.
        As I indicated to OMB in a meeting the other day, I am not
    necessarily tied to this approach on how we get there. I think
    the goal--which is fair competition and to allow the private
    sector to participate on a fair playing field, and how we get
    there is something that we can all talk about. I am more
    interested in the results than the process, and the fact is
    that A-76 is not producing the results.
        In the past, unions have endorsed public-private
    competition. This bill empowers Federal employees. They
    complain that agencies are contracting without using A-76. They
    feel that they do not have the opportunity to compete. They
    ought to endorse this legislation. It allows them to compete on
    a level playing field. Where they stand on this bill remains to
    be seen.
        This legislation has been fundamentally rewritten. Is it
    perfect? No, but that is why we are here, and I am willing to
    work with anyone that has an interest in this matter.
        As I said before, I am not so concerned about the details
    as I am in the outcome. Saving American taxpayers money,
    creating a Federal Government that works better and costs less,
    that is the goal.
        So Chairman Brownback, and Chairman Horn, I thank you so
    much for the opportunity, and I look forward to working with
    you as we seek to perfect this legislation.
        Senator Brownback. We look forward to working with you, and
    we appreciate you bringing this bill forward. It is my hope
    that we can move it forward this session of Congress through
    the Subcommittees, the Committee, and onto the floor for a
    successful vote, and hopefully get it to the President's desk.
        I noted with interest your point of OMB's estimate that
    500,000 Federal employees are doing private sector type of
    work. That is a significant number and a conservative estimate.
    We really need to get at that, so that the Federal taxpayer or
    the taxpayers in the country can get their money's worth.
        I appreciate the Senator's work, what he is doing on this,
    and we will look forward to working with you as this process
    moves on forward.
        Senator Thomas. Thank you very much.
        Senator Brownback. Congressman Horn.
        Mr. Horn. Senator, I am curious if you can sum up in a
    couple of sentences how your apparatus would work compared to
    A-76, so we do not have the dilly-dallying we have had since
    the Eisenhower administration.
        Senator Thomas. Steve, no one can sum up in the Senate in a
    couple of sentences. No, I am kidding.
        Mr. Horn. Well, I am a college professor. I am use to 50-
    minute dialogs, also.
        Senator Thomas. I think your question is valid, you can do
    different things. The key to it is that it is a statutory
    requirement, currently it is not. So we have had this in place,
    as you mentioned, since the Eisenhower administration. It has
    been there. It has been the concept. It has been the notion. It
    has been the policy, but it does not have any enforcement. So
    what we are seeking to do, I think, basically is to accomplish
    the same goal, but we have found that it does not work, and it
    is the old saying, if you want different results, you cannot
    keep doing the same thing. So I do not think we can keep doing
    the same thing and expect the results to be different.
        Mr. Horn. Well, if it is statutory, which it would be if we
    passed it, what are the sanctions if they do not do it? There
    is a lot of laws that the Executive Branch, regardless of
    party, seems to have a great knack for not following.
        Senator Thomas. Well, first, the responsibility would be
    more ours (Congress) to ensure that it happened. After all, if
    we put it into statute, then we have some responsibility to
    ensure that it happens, as with any other law. I think that is
    also why there is some opportunity for some sort of judicial
    review. There should be some kind of a way to test that statute
    and see that it works. I am certainly not one that encourages
    litigation, but that is as fair here as it is everywhere else.
        Mr. Horn. Should there be some kind of base closure
    mandatory mechanism that each year an agency would have to put
    certain things on the chopping block, and then that would be
    looked at by an independent commission? Does that make any
    sense?
        Senator Thomas. I do not know. I frankly do not think it
    would be that hard to enforce if, in fact, it were a statute,
    if, in fact, agencies went through and did the listings with
    respect to the various commercial activities, and I am sure
    that you and I, for example, would get reactions from people at
    home, in the private sector, and probably some reactions from
    people in government if they did not think this was working,
    and there would then be pressure to do something about it.
        So I think it would be enforced if it were a statute, and I
    believe that is what we ought to do.
        Mr. Horn. Recently, we reviewed strategic plans from the
    various agencies. Should we make this a fundamental element of
    a strategic plan? That is also one way to deal with it.
        Senator Thomas. Yes, absolutely.
        Mr. Horn. That would force at least yearly goal-setting and
    looking at a situation within a particular area.
        Senator Thomas. As you said, we are in the process. I am
    Chairman of the Subcommittee on Parks. In fact, that is where I
    am supposed to be right now. We are trying to do some things on
    management there, and we are pushing for a strategic plan at
    the agency level, a strategic plan at the various park levels,
    plans that include measurable results.
        We have found through GAO studies that quite often the
    budget proposals that are submitted by agencies for the
    activities listed are not the activities that the money was
    spent for. So I think you are exactly right. I think there
    ought to be in the strategic plan and in the management plan
    some measurable kinds of results, so that you could look at
    them very easily, and this could be one of those.
        Senator Brownback. Thank you very much, Senator Thomas.
        Senator Thomas. My pleasure. Thank you.
        Senator Brownback. We appreciate it. We look forward to
    working with you.
        Mrs. Maloney. Good to see you again, Senator Thomas.
        Senator Thomas. Thank you. Nice to see you.
        Mrs. Maloney. We miss you in the other body.
        Senator Thomas. Well, I miss being over there, as a matter
    of fact.
        [The prepared statement of Senator Thomas follows:]

                      OPENING STATEMENT OF SENATOR THOMAS
        Chairman Brownback, Chairman Horn, Members of the Subcommittees,
    thank you for the opportunity to testify before you today regarding the
    important issue of direct Federal Government competition with the
    private sector. I especially want to thank both Chairmen for their hard
    work and continued interest in this matter. I also thank Congressman
    Duncan, the primary sponsor of this legislation in the U.S. House, for
    his dedication to this topic.
    Need for Legislation: A-76 is Fundamentally Flawed and Routinely
            Ignored
        For the past four decades, it has been the administrative policy of
    the Federal Government to rely upon the private sector for its
    ``commercial'' needs. This policy was originally issued in 1955 during
    the Eisenhower Administration in reaction to a bill very similar to the
    original version of this legislation that was moving through Congress
    at the time. However, Congress relented when President Eisenhower
    agreed to solve the problem administratively. This policy is now found
    in Office of Management and Budget (OMB) Circular A-76. Basically, it
    requires Federal agencies to submit a list of commercial activities and
    the number of Federal employees engaged in those activities to OMB. A-
    76 lays out a process for dealing with these activities, namely cost
    comparisons between public and private sources for the right to provide
    a good or service. Unfortunately for the American taxpayer, that policy
    is fundamentally flawed and routinely ignored.
        For example, OMB estimates that there are nearly 500,000 Federal
    employees currently doing work that is commercial in nature. Over 90
    percent of these employees are in the Department of Defense. OMB
    acknowledges that this is a conservative estimate because the
    Department of Commerce and the State Department didn't bother to submit
    commercial inventories to OMB. Further, most other smaller Federal
    agencies declined to file a commercial inventory with OMB. In fact, CBO
    has estimated in the past that well over one million Federal employees
    are engaged in commercial work. And even in those agencies that do file
    commercial inventories with OMB, they keep commercial work in-house and
    maintain their government monopolies by refusing to conduct A-76 cost
    comparisons. Because A-76 is an administrative policy, there is little
    OMB can do to make agencies change their current monopolistic
    practices.
        But that's only part of the story. OMB has no idea what the dollar
    value is of commercial activities the Federal Government engages in,
    how much reimbursable work Federal agencies do for each other, or how
    much work the Federal Government does for State and local governments.
    Further, OMB and other Federal agencies ignore an existing Executive
    Order that requires each agency to compete 3 percent of its commercial
    activities each year.
        A recent article in the Washington Times named A-76 as one of the
    seven worst regulations in America. The article states, ``Alas,
    Circular A-76 has raised so many obstacles and regulatory impediments
    to market reforms at the Defense Department it is having the opposite
    effect of its original intentions.'' For example, A-76 studies
    routinely take over 2 years to complete and at best allow for apples to
    oranges comparisons between public and private sector capabilities. A
    level playing field does not exist due to differences in public and
    private sector accounting structures, work organization and budgeting
    processes.
        It is unfortunate that A-76 is broken and ineffective because the
    net effect to the American taxpayer is billions of dollars wasted each
    year. Activities ranging from the mundane to the high-tech, from
    laundry services to information technology are performed by government
    monopolies, even when they can be obtained more cost effectively from
    the private sector at equal or higher quality.
        Studies by OMB, the Department of Defense (DoD) and the General
    Accounting Office (GAO) show that the government saves 20 to 30 percent
    or more when services are competed. Similar savings were found when the
    private sector was utilized in several State and local governments in
    the United States and throughout the world. Later today, Mayor
    Goldsmith of Indianapolis will explain in detail the success he has had
    in providing his constituents with better services at lower costs by
    utilizing competitive market forces.
        However, under the Clinton Administration's ``reinventing''
    government initiatives, agencies not only engage in commercial
    activities for their own use (or so called in-sourcing), but have
    become entrepreneurial and are marketing their services to other
    government agencies and the commercial marketplace. In many cases, they
    are displacing private sector firms, a number of which are small
    businesses. In fact, the problem has become so pervasive that all three
    sessions of the White House Conference on Small Business ranked unfair
    competition from government and government supported entities as one of
    the biggest concerns to small entrepreneurs.
    Legislation Has Been Significantly Re-Drafted
        To inject market competition into government monopolies in
    Washington, for the past several years I have introduced the Senate
    version of the ``Freedom from Government Competition Act.'' Its main
    premise was based on the 40-year-old policy that the Federal Government
    should rely on the private sector for its commercial needs. However,
    this legislation before you today has been fundamentally restructured.
    Based on input from many parties, including OMB, GAO, private industry
    and labor unions, this legislation has been re-drafted to establish a
    simple and fair process.
        For example, the bill no longer requires outsourcing all Federal
    commercial functions. Instead of the one-sided cost comparison that
    favors government production of commercial goods and services now found
    in OMB Circular A-76, this legislation will allow Federal employees and
    private sector businesses to compete on a level playing field. This
    change will guarantee the American taxpayer will get the highest
    quality goods and services for the lowest possible prices.
        Basically, the re-drafted legislation does three things: (1) It
    requires Federal agencies to compile a list of ``non-inherently
    governmental activities;'' (2) It requires those agencies to run
    competitions for those activities within a specific time frame; and (3)
    It provides a process for both the public and private sector to
    challenge agency decision. By narrowing the focus of the bill and
    stripping it down to a simple process, this legislation avoids the
    pitfalls of A-76, which is unfair, unused and unenforceable.
    Criticism of Re-Drafted Legislation
        OMB will testify today that this bill is not needed. My testimony
    has already documented OMB's inability to enforce A-76. The fact of the
    matter is that an administrative policy has been in place for over 40
    years and it has not worked. The time for a statutory provision has
    come.
        Another objection OMB will make today is that passing this
    legislation will invite lawsuits from private sector businesses and
    labor unions that will tie up the process indefinitely. While I share
    OMB's dislike for lawsuits, I do not share the belief that a tax paying
    citizen should lose his job because the Federal Government ran him out
    of business without giving him the ability to go to court. The fact is
    that judicial review has been a part of several recently enacted laws
    like the Regulatory Flexibility Act and there have been few problems.
    Further, legislation introduced in the past by congressional Democrats
    (Rep. Kanjorski for example) to ban contracting out has included
    judicial review as a vital component, so there seems to be bipartisan
    agreement that judicial review of some sort is appropriate.
        No doubt OMB also will offer some criticisms of how the re-draft is
    structured and how it would be implemented. Reasonable people can
    disagree about some of these details. And I appreciate OMB's
    willingness to discuss these issues. But what's inarguable is that the
    American taxpayer is being shortchanged by the current system.
        Even Federal employee labor unions think the current process has
    problems. They complain that A-76 isn't used and that agencies contract
    out regardless of cost or performance. Quite frankly, the labor unions
    ought to endorse this legislation, because it provides Federal
    employees the opportunity to compete with private sector businesses on
    a level playing field. this bill would empower Federal employees. In
    the past, the unions have said that they strongly endorse competition.
    Where they stand on this bill will see if their actions match their
    rhetoric.
    Conclusion
        This legislation has been fundamentally re-written. Is it perfect?
    No. But that's why Congress has the committee process. I am willing to
    work with anyone, with any group that has an interest in this matter.
    Quite frankly, I am not so concerned about the details as I am about
    the outcome--saving taxpayers' money and creating a Federal Government
    that works better and costs less.
        Again, I thank Chairman Brownback and Chairman Horn for their
    continued interest in this issue. I also salute my colleague,
    Congressman Duncan for carrying the banner on the House side for many
    years now. I look forward to working with you and this Committee to
    enact this good government, common sense reform.

        Mr. Horn. Yes, sir.
        Senator Brownback. Congresswoman Maloney and Congressman
    Kucinich, do you have any questions of this witness?
        Mrs. Maloney. I just, in the interest of time, would like
    to know if my opening statement could be put in the record as
    read.
        Senator Brownback. Absolutely, without objection.
        Mr. Kucinich. Mr. Chairman, I would like to do the same.
    Thank you.
        Senator Brownback. Absolutely.
        [The prepared statements of Hon. Carolyn B. Maloney, Hon.
    Dennis J. Kucinich, Hon. John J. Duncan, Jr., and Hon. Steny H.
    Hoyer follows:]

      PREPARED STATEMENT OF HON. CAROLYN B. MALONEY, A REPRESENTATIVE IN
                      CONGRESS FROM THE STATE OF NEW YORK
        Thank you, Mr. Chairman. And welcome Representative Duncan and
    Senator Thomas.
        I look forward to today's hearing on the ``Freedom from Government
    Competition Act,'' the ``Competition in Commercial Activities Act,''
    and the ``Fair Competition Act.'' These bills go to the heart of the
    debate about the nature and proper role of government. Which functions
    should government perform and which functions should the private sector
    perform.
        Privatization, or contracting out, is not a cure-all for government
    problems. But if implemented wisely, contracting out can be a useful
    tool in providing services for the American public more economically
    and efficiently. However, we must remember that it is just one tool.
    Empowering workers through training, treating them as assets, and
    striving to improve management techniques are all great examples of
    tools we will need in government for the next century.
        The Federal Government relies on commercial contractors for $120
    billion annually in needed goods and services. The legislation we will
    talk about today is designed to substantially expand that amount.
    However, contracting out raises a number of difficult and contentious
    issues, which we should discuss here today. Cost accounting standards,
    contract management controls and job placement and training for
    displaced workers are but a few.
        We must also be cautious that contracting out a service doesn't end
    up costing us more in the long run, because once turned over to the
    private sector, it is often difficult and expensive for the government
    to regain control. For example, private trash hauling in New York City
    costs five times what it does in San Francisco. The Los Angeles school
    district wound up a few years ago with a $3 million bill for deficits
    run up by a contractor hired to run the school food services. On the
    other hand, New York City gave park service workers greater control
    over their jobs and found that they could operate more efficiently than
    private contractors. In a 1992 experiment, the cost of tree removal in
    Queens and the Bronx by city workers was thousands less than a
    contractor would have charged.
        Contracting out is a process which needs to be carefully
    scrutinized. First, we need accurate and complete information on what
    is to be privatized and why. Second, we must insist on sound contracts
    that incorporate incentives for cost savings including severe penalties
    for failure to perform. Finally, we should have a strong and effective
    job placement program for displaced workers.
        Thank you, Mr. Chairman, I look forward to hearing from our
    witnesses.

                                   __________
      PREPARED STATEMENT OF HON. DENNIS J. KUCINICH, A REPRESENTATIVE IN
                        CONGRESS FROM THE STATE OF OHIO
        Thank you, Mr. Chairman. I would also like to thank Chairman Horn
    for agreeing to hold this hearing at my request. The issues raised by
    this legislation are fundamental ones. How they are settled will have a
    profound and lasting impact on the structure of the Federal Government,
    on Federal employees, and on the American public. A full and fair
    discussion of these issues is vital to the legislative process, so I
    appreciate this opportunity, and the Majority's willingness to take
    into account our views on what would constitute a balanced panel of
    witnesses.
        That being said, I must also frankly state that I have serious
    concerns about this legislation as currently drafted. I'm sure that
    every Senator and Representative here today believes that our job is to
    constantly strive for a more efficient and cost-effective Federal
    Government. The current administration has made great strides in that
    effort through the longest-running government reform effort in
    America's history. The policies have already saved American taxpayers
    over $130 billion dollars. The size of the Federal workforce has been
    reduced, through attrition and buyouts, by over 300,000 employees. We
    now have the smallest Federal workforce since John F. Kennedy was
    President.
        This legislation seems to proceed from the premise that the Federal
    Government is not contracting out enough, despite the fact that we
    already spend more on the contracting of services--about $114 billion
    in fiscal year 1997--than we spend on pay and retirement for the entire
    civilian workforce. In fact, some of the more-recently created Federal
    agencies like the Department of Energy, NASA and EPA have relied from
    the start on contracting out for services rather than performing them
    directly. Critics of the current process as embodied in OMB Circular A-
    76 maintain that only the Defense Department is actively pursing
    public-private competitions, yet almost 40 percent of the $114 billion
    in service contracting comes from the civilian agencies.
        So we are already spending vast amounts of money on services
    contracts. Unfortunately, in many cases that money is probably being
    poorly spent. According to both OMB and the General Accounting Office,
    contract administration is one of the highest risk activities the
    government engages in. Examples abound: Senate hearings uncovered $27
    billion a year in contractor Medicare fraud; in 1995, $25 billion in
    payments to defense contractors could not be matched invoices, and in
    many cases DOD relies on the contractors themselves to identify
    overpayments; at one DOE site, a contractor poured toxic and
    radioactive waste into the ground, and stored more in leaky drums.
        Whether from outright theft, charges of unallowable costs, lack of
    top-level management attention to contract management, or ineffective
    contract administration and auditing, the Federal Government is losing
    billions of dollars a year. It seems to me that this bill puts the cart
    before the horse. If we are truly interested in a more cost-effective
    government, we should drastically improve contract management before
    moving to contract out billions more in services. Yet the legislation
    before us is silent on these vital issues.
        The legislation before us also seems to me to have a one-sided
    approach which favors the contractors, at the expense of Federal
    employees and the American public. The bill requires Federal agencies
    to create an inventory of functions which are not inherently
    governmental. It then allows ``interested parties'' to challenge
    omissions from this list--but not inclusions. Parties with a direct
    economic interest in particular activities could, under the Senate
    draft, sue in Federal court to challenge an omission. Affected public
    interest groups, employees organizations and the general public are
    given no similar standing if they feel a particular activity is an
    inherently governmental function and should not be contracted out. In
    addition, the bills seem to prohibit contracting in. Denying agencies
    the ability to compete and bring certain functions back in-house is
    inherently unfair to government employees. It also works against the
    very efficiency and cost-effectiveness the bill is supposed to achieve.
        Finally, Mr. Chairman, we need to establish a truly level playing
    field if we are to embark on the course this bill envisions--including
    comparable pay, benefits and working conditions between Federal
    employees and contractor employees. The authors of this legislation
    claim it will save substantial sums of money. I am not convinced that
    is the case, but any savings must not be on the backs of American
    workers, and dedicated Federal workers should be held harmless if they
    lose their jobs.
        I welcome our witnesses and thank you Chairmen.

                                   __________
      PREPARED STATEMENT OF HON. JOHN J. DUNCAN, JR., A REPRESENTATIVE IN
                      CONGRESS FROM THE STATE OF TENNESSEE
        Chairman Horn, Chairman Brownback and Members of the House and
    Senate Subcommittees, it is my pleasure to appear before you today. As
    the sponsor of H.R. 716, the Freedom From Government Competition Act, I
    am delighted that the Subcommittee is conducting this hearing to
    explore legislative strategies that could and should be implemented to
    save tax dollars, empower the private sector, eliminate unfair
    government competition with and duplication of private firms, focus
    loyal and hardworking Federal employees on those important functions
    that only the government can and should perform, and to truly have a
    government that works better and costs less.
        As you know, Senator Thomas has introduced the Senate companion
    bill to H.R. 716. I would like to thank him for his work on this
    legislation. Our bills have bipartisan support with 66 cosponsors in
    the House and 14 in the Senate. In addition, this legislation has been
    endorsed by a number of organizations including the U.S. Chamber of
    Commerce, the National Federation of Independent Business, and many
    others.
        I think the legislation that I have introduced with Senator Thomas
    is a very modest proposal. It does not require the Federal Government
    to contract everything out. We recognize that there are things that the
    government does best and there are functions that only the government
    should do. This bill does not require the government to contract out
    functions that are related to national security or those things that
    are related to the core mission of an agency. It requires only that the
    Federal agencies look at those things they do which are commercial in
    nature.
        The history of government competition is a long one. Based on my
    research, it is my understanding that legislation like mine was first
    introduced in Congress in 1954. Faced with the prospect of enactment of
    such a bill, the old Bureau of the Budget in the Eisenhower
    Administration issued a policy statement on reliance on the private
    sector. A bill was reported by the House Government Operations
    Committee, passed the House and was reported by the Senate Governmental
    Affairs Committee. The Executive Branch argued that legislation was not
    necessary, that it inappropriately would inject the Legislative Branch
    into the legitimate management functions of the agencies. So, in lieu
    of that legislation, an Executive policy was issued. And over the past
    40 years, Federal agencies have grown, the expanse of agency
    performance of commercial activities has proliferated, and the extent
    to which government activities duplicate, and indeed, compete with the
    private sector has become extensive.
        In fact, the genesis of contracting out legislation dates back even
    further. The history of government competition is best described by Dr.
    Allan V. Burman, President Bush's Administrator of the Office of
    Federal Procurement Policy. In testimony be-
    fore the Subcommittee on Human Resources of the Committee on Post
    Office and Civil Service, on January 25, 1990, he said:

            ``As far back as 1932, a Special Committee of the House of
            Representatives expressed concern over the extent to which the
            government engaged in activities which might be more
            appropriately performed by the private sector. The first and
            second Hoover Commissions expressed similar concern in the
            1940's and recommended legislation to prohibit government
            competition with private enterprise. However, there was no
            formal policy until 1955, when Congress introduced legislation
            to require the Executive Branch to increase its reliance on the
            private sector. Finally action was dropped only upon assurance
            from the Executive Branch that it would implement the policy
            administratively. Bureau of the Budget Bulletin 55-4 . . . was
            issued in 1955 prohibiting agencies from carrying on any
            commercial activities which could be provided by the private
            sector. Exceptions were permitted only when it could be clearly
            demonstrated in specific cases that the use of the private
            sector would not be in the public interest.''

        On January 15, 1955, the policy directive issued by President
    Eisenhower stated:

            ``The Federal Government will not start or carry on any
            commercial activity to provide a service or product for its own
            use if such product or service can be procured from private
            enterprise through ordinary business channels.''

        Dr. Burman told the Subcommittee:

            ``Since 1955, every Administration has endorsed the general
            policy of reliance on the private sector to provide commercial
            and industrial services.''

        Unfortunately, that policy has not been implemented. It is
    estimated that as many as one million Federal employees are engaged in
    commercial activities. While this policy has been endorsed by every
    Administration, Republican and Democrat, since 1955, enforcement has
    been poor.
        This Federal policy is now found in Office of Management and Budget
    Circular A-76. This circular is a miserable failure. It is completely
    up to the agencies to decide if they want to convert their in-house
    activities to contract. It is up to the agencies to decide if they want
    to do an A-76 study. It is up to the agencies to decide whether to
    perform an activity in-house or by contract.
        It is my view that legislation is both necessary and desirable. It
    is desirable because it has been estimated enactment of this bill could
    result in as much as $9 billion per year in savings without cutting
    services. It is necessary because the experience of the past 40 years
    has shown that without a legislative mandate, agencies will not take
    this action on their own. Numerous organizations have conducted studies
    on contracting out. In 1984, the Grace Commission recommended
    contracting out and estimated that $4.6 billion a year could be saved
    by using private contractors to perform the commercial activities
    currently accomplished in-house by Federal employees, while at that
    time OMB estimated the savings at up to $3 billion annually.
        In 1995, the Heritage Foundation issued a report, ``Cutting the
    Deficit and Improving Services By Contracting Out'' which stated:

            ``Contracting out government services to the private sector
            offers the new Congress the winning opportunity to make
            substantial cuts in Federal spending as much as $9 billion per
            year--without reducing essential constituent services.''

        The 1995 report of the Commission on the Roles and Missions of the
    Armed Forces, known as the ``White Commission'' indicated that in the
    Department of Defense

            ``at least 250,000 civilian employees are performing
            commercial-type activities that do not need to be performed by
            government personnel . . . we are confident our recommendations
            for greater use of private market competition will lower DoD
            support costs and improve performance. A 20 percent savings
            from outsourcing the Department's commercial-type workload
            would free over $3 billion per year for higher priority defense
            needs. . . . We recommend that the government in general, and
            the Department of Defense in particular, return to the basic
            principle that the government should not compete with its
            citizens.''

        In 1980, the first White House Conference on Small Business made
    unfair competition one of its top issues. It said:

            ``The Federal Government shall be required by statute to
            contract out to small business those supplies and services that
            the private sector can provide. The government should not
            compete with the private sector by accomplishing these efforts
            with its own or non-profit personnel and facilities.''

        The issue of government competition with the private sector has
    become so pervasive that the 1986 White House Conference on Small
    Business adopted as one of its leading planks:

            ``Government at all levels has failed to protect small business
            from damaging levels of unfair competition. At the Federal,
            State and local levels, therefore, laws, regulations and
            policies should . . . prohibit direct, government created
            competition in which government organizations perform
            commercial services New laws at all levels, particularly at the
            Federal level, should require strict government reliance on the
            private sector for performance of commercial-type functions.
            When cost comparisons are necessary to accomplish conversion to
            private sector performance, laws must include provision for
            fair and equal cost comparisons. Funds controlled by a
            government entity must not be used to establish or conduct a
            commercial activity on U.S. property.''

        The 1995 White House Conference on Small Business, again made this
    issue one of its top priorities. Its plank read:

            ``Congress should enact legislation that would prohibit
            government agencies and tax exempt and anti-trust exempt
            organizations from engaging in commercial activities in direct
            competition with small businesses.''

        The National Policy Forum, said:

            ``In reducing the size and scope of government, it is time for
            Washington to learn from the lessons of the State and local
            governments. In Indianapolis, Jersey City, Dallas, Charlotte
            and Philadelphia, city governments under Democrat as well as
            Republican administration are turning to privatization to do
            more with less. In some cases, governments are getting out of
            the business of doing things they never should have done in the
            first place. In other cases, private companies compete with
            public employees to provide service at the highest quality and
            the lowest cost.

                                  *    *    *

            ``The Federal Government can learn much from the new breed of
            mayors and governors who are responding to the call from their
            friends and neighbors to put government back in the hands of
            the people who found it, to rethink the role of government; to
            get out of businesses it doesn't belong in. . . .''

        My bill, H.R. 716, the ``Freedom from Government Competition Act''
    and S. 314 by Senator Thomas, would require each agency of the Federal
    Government to obtain goods or services from the private sector through
    ordinary and appropriate Federal acquisition processes if a competition
    between the government agency and the private sector results in a
    better value in contractor performance. I want to make that clear. In
    past sessions of Congress, my bill followed the old 1955 policy that
    the government should not compete. Senator Thomas and I modified our
    bills in this Congress to inject the concept of competition between the
    government and private sector on a level playing field. This was
    suggested by GAO, OMB, government employee unions and many others. The
    concept of public-private competitions is also championed by the books
    ``Reinventing Government'' and ``Banishing Bureaucracy'' by David
    Osborne, and in the Administration's National Performance Review. So
    there should be bipartisan support for this idea.
        Our bill, as well as your committees' draft substitutes, establish
    important exemptions, including activities where:

         Lin-house performance is necessary for national defense,
         Lthe activity is so inherently government in nature that
    it is in the public interest to require performance in-house,
         La declared national emergency, or
         Lthere is no capable private source.

        When we look for ways to cut the size of government, we should look
    first at those activities which can be done by the private sector.
    There is no reason for Federal employees to design roads and buildings
    or do surveying and mapping when there are architecture engineer firms
    and other private sector professionals that can do this work by
    contract. There is no reason for agencies to operate motor pools when
    maintenance of cars can be done by private contractors. There is no
    reason for the government to operate laboratories or computer centers,
    when the private sector can do it more efficiently. There is no reason
    for the taxpayers to pay the salaries of Federal employees to operate
    cafeterias, guard posts, perform janitorial services, painting,
    printing, electrical work, and scores of other activities that can be
    obtained from the private sector, including and especially small
    businesses, woman-owned businesses and minority enterprises, if those
    services can be performed better, cheaper and faster in the private
    sector.
        I believe we can and should enact H.R. 716. I believe that when
    private enterprise is permitted to compete in the marketplace for the
    right to win a contract to perform a commercial-type service or provide
    goods for the Federal Government, that competition will result in the
    best value for money. And that is what the taxpayers demand and
    deserve.
        I commend you for the leadership you have shown. I appreciate this
    hearing. I strongly support the direction you are going in improving
    the bill I first introduced. You are making it a better bill.
        Let me end with a story. As you know, I have the honor of chairing
    the Aviation Subcommittee of the House Committee on Transportation and
    Infrastructure. Fixed wing air flight began with the Wright Brothers in
    1903 in Kitty Hawk, North Carolina. Airplanes developed in the ensuing
    years and air flight became an important part of World War I. The Post
    Office Department realized the benefits of air flight and worked with
    the Army Signal Corps to test the concept of air mail service. In 1910,
    Congress enacted the Air Mail bill to determine the feasibility of
    scheduled air transport of mail. The tests were a success. By 1918, it
    was recognized that this was a civilian, not military function, and the
    service was transferred to the Post Office. In 1925, Congress looked
    forward to turning Post Office air mail routes over private operators--
    I do not think the words privatization or contracting out or
    outsourcing were used in those days. But legislation known as the Kelly
    Act was passed to authorize the Post Office to negotiate the transfer
    of air mail routes to commercial operators through competitive bidding.
    A man named Walter Varney operated a small air-taxi operation known as
    Varney Air Lines. He bid on a contract to carry mail by air between
    Elko, Nevada and Pasco, Washington via Boise, Idaho. He won the
    contract and successfully operated the route. Another route was won by
    Eddie Hubbard and Philip Johnson. Those experiments in government
    contracting not only established Air Mail as a service, but gave way to
    the creation of America's great private airline and aircraft
    industries. You see, Varney Air Lines is now known as United Air Lines
    and Mr. Hubbard and Mr. Johnson joined with a Seattle businessman named
    William Boeing to become officers of the Boeing Corporation.
        Mr. Chairman, how many innovative, risk-taking small business men
    and women are there across America just waiting for the chance to grow,
    flourish, create jobs and become the future United Air Lines and
    Boeings. It can all start with a single government-contract. Our
    predecessors in Congress had the vision to contract for air mail
    service. I hope we will have the vision to create thousands of new
    opportunities for a new generation of Americans in the new millennium.
    That is what this legislation is all about.

                                   __________
    PREPARED STATEMENT OF HON. STENY H. HOYER, A REPRESENTATIVE IN CONGRESS
                           FROM THE STATE OF MARYLAND
        Chairman Brownback, Chairman Horn, Ranking Member Lieberman,
    Ranking Member Kucinich and Members of the Joint Subcommittees, I want
    to thank you for the opportunity to address you this afternoon.
        As a Member of Congress who represents nearly 60,000 Federal
    employees I have some serious concerns with the House draft legislation
    entitled ``Competition in Commercial Activities Act'' and its Senate
    counterpart the ``Fair Competition Act.''
        I'd like to take just a few moments to point out some problems I
    see with the draft legislation.
        My first concern is that the premise of both bills is that there
    are too many Federal employees and that the private sector is being
    unnecessarily excluded from work currently being performed by the
    public sector. Both these premises are false.
        Since the enactment of the Workforce Restructuring Act the
    government has eliminated 320,000 positions. The Federal Government is
    the smallest since the Kennedy administration. Additionally, as a
    percentage of the total workforce, the Federal component is the
    smallest since 1931.
        The second premise that the private sector is being shut out is
    also false. The fact is that the Federal Government already contracts
    out with the private sector at least $120 billion a year; fully $12
    billion more than the entire Federal payroll including pay and
    benefits.
        In fact, according to OMB in its 1994 report on contracting
    practices, it found that the acquisition of services from the private
    sector is the ``fastest growing area of procurement.''
        Clearly this legislation would cause a significant increase in the
    amount of Federal activities performed by, and money spent on,
    contractors. Unfortunately, contract oversight is currently not being
    managed as well as it should.
        According to OMB's testimony before the Civil Service Subcommittee
    this January, we have no idea how many contractors the Federal
    Government employs, which agencies they work for, where they work, or
    how much they are paid.
        Both OMB and GAO have been very critical of the Federal
    Government's contract management. Just last week, DOD's Inspector
    General testified before the Senate Armed Service Committee that DOD
    paid $76.50 each for nearly 2,000 screws that usually sell for only 57
    cents a piece at a hardware store.
        I'm sure that Bobby Harnage, Bob Tobias and Mike Styles can provide
    you with even more examples of poor oversight and abuse.
        The legislation would also require agencies to create a
    ``contractor catalogue'' at taxpayer expense. Any function not deemed
    inherently governmental would be reviewed for contracting out with 5
    years.
        Aside from the tremendous expense and effort this would require,
    the bills allow contractors as ``interested parties'' to challenge
    omissions from the list of commercial activities.
        Regrettably, public interest groups, unions, and the general public
    are not allowed to challenge an agency's decision to list an inherently
    governmental function on the commercial activities list.
        The Senate draft would go even further. It gives contractors the
    right to challenge omissions in the U.S. Court of Federal claims. This
    provision has the potential of hamstringing agencies under a mountain
    of contractor lawsuits.
        Notwithstanding my ardent support of Federal employees and the
    outstanding service they perform. I recognize that the private sector
    can, and often does, perform some work at less cost and better quality
    than the public sector.
        However, contracting out is not a panacea and this legislation is a
    solution in search of a problem.
        Competition is already taking place. It needs to be conducted in a
    manner that provides the taxpayer with the best value while allowing
    Federal employees to compete on a level playing field.

        Senator Brownback. Our first panel of witnesses will be Ed
    DeSeve, OMB Acting Deputy Director for Management; Skip Stitt,
    former Deputy Mayor of the City of Indianapolis, who is here to
    testify on behalf of Mayor Steven Goldsmith. They will be our
    two panelists on this next panel.
        I believe the House has them sworn in.
        Mr. Horn. Unlike the Senate, our tradition is to give the
    oath to all witnesses, except Members, gentlemen. Do you swear
    the testimony you are about to give these joint Subcommittees
    is the truth, the whole truth, and nothing but the truth, so
    help you, God?
        Mr. DeSeve. I do.
        Mr. Stitt. I do.
        Mr. Horn. The clerk will note that both voted in the
    affirmative.
        Senator Brownback. Thank you very much, gentlemen, for
    joining us today. We appreciate your willingness to come here
    and testify on your concerns and interests and, hopefully
    support, ultimately for this bill.
        With that, Mr. DeSeve, I would be happy to give you the
    floor. Thank you for joining us.

     TESTIMONY OF G. EDWARD DeSEVE,\1\ ACTING DEPUTY DIRECTOR FOR
            MANAGEMENT, U.S. OFFICE OF MANAGEMENT AND BUDGET

        Mr. DeSeve. Thank you, Mr. Chairman. I am glad to be back.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. DeSeve appears in the Appendix on
    page 65.
    ---------------------------------------------------------------------------
        I am here to discuss proposed revisions to S. 314,
    currently being cited as the Fair Competition Act of 1998, and
    to H.R. 716, currently being cited as the Competition in
    Commercial Activities Act of 1998.
        We share with you the goal of seeking the most efficient
    and cost-effective source for the provision of commercial
    support activities required by the Federal Government.
        Five years ago this month, the President announced and the
    Vice President led an effort to fundamentally change the way
    government operates. At the time, it seemed almost impossible.
    Red tape, poor financial management systems, rigid hierarchies,
    poor performance incentives, a procurement system in desperate
    need of repair, systemic problems in our ability to acquire and
    integrate information technology and senseless rules and
    procedures separated Federal employees from managers, separated
    managers from their missions, their responsibilities and their
    employees, and separated the taxpayer from their government.
    Today, reinventing government is the longest-running, most
    dramatic and most successful government reform effort in our
    history. Together, with you, we have streamlined our
    infrastructure, eliminated business lines, created partnerships
    with our employees to contribute to reform, eliminated red
    tape, changed business practices, eliminated duplication, and,
    yes, opened our commercial support activities to significantly
    expanded levels of competition.
        As of the end of fiscal year 1997, the administration had
    cut the civilian Federal work force by over 316,000 employees,
    creating the smallest Federal work force in 35 years, and as a
    share of total civilian employment, the smallest Federal work
    force since 1931.
        Almost all of the 14 Cabinet departments have cut their
    work forces. Only Justice and Commerce have growing work
    forces. Through these and other reinvention efforts, the
    administration has saved $137 million over these past 5 years.
        The key to this success in working together with you,
    because many of these were legislative accomplishments, not
    simply administrative accomplishments, has been our ability to
    overcome the rhetoric and work together to identify needed
    reforms. In our view, the House and Senate drafts contain a
    number of important improvements over last year's Freedom from
    Government Competition Act. We appreciate that the revised
    bills no longer center on who may or may not be eligible to
    perform Federal work. Nothing is more ``unfair'' than to limit
    or otherwise arbitrarily exclude a viable offerer, public or
    private, from the competitive process. Each of us seeks to
    expand the level of competition for both in-house and
    contracted work in an effort to improve quality and reduce the
    cost of services to the taxpayer.
        This process works. The differences that remain are not
    about goals, but, rather, are about how best to achieve them.
    Contracting out is a tool, a tool for downsizing, a tool for
    streamlining, and a tool for better performing work.
        In the Defense Department, for example, over 150,000 full-
    time-equivalent employees have been scheduled for competition
    with the private sector over the next 5 years. DOD has realized
    that given its budget pressure and the need to continue its
    mission that it is going to significantly utilize the A-76
    process during this period. Any legislation should contribute
    to this process and move it forward.
        Since we do not have a single bill to react to, let me
    discuss some of the fundamental principles that a final bill
    should embody, including some aspects that we hope could be
    avoided.
        First, the government must be permitted to choose the
    alternative, public or private, which is most cost effective,
    and in the best interest of the taxpayer.
        Second, any legislation should avoid judicial involvement
    in management decision regarding whether or not to out-source.
        Third, the management documentation, employee
    participation, costing, and source selection rules for the
    competition must be well understood and able to be enforced and
    impartial.
        Fourth, source selection processes must permit efficient
    and effective competitions between public and private offerers
    for work presently being performed by the government or by a
    private contractor.
        Fifth, when an activity currently being performed in-house
    is converted to performance by contract, the in-house employees
    must be afforded the opportunity to compete to retain the work.
        Finally, we must acknowledge that out-sourcing is just a
    tool along with other reinventing and management improvement
    initiatives. It is not an end in itself, and we must not let
    out-sourcing delay or cause unnecessary administrative burdens
    on agencies who are using a variety of tools to meet their
    management challenges.
        We would also have concerns with legislation that required
    the head of an agency to undertake competitions in accordance
    with a schedule mandated in law. This is not a good idea. We
    are concerned that such schedules could be unduly burdensome
    and may preclude agencies from considering a mix of
    reinvention, reengineering, consolidation, privatization,
    evolution, and cost comparison efforts.
        In conclusion, I have tried to point out some of the
    principles that we would all want to draw on. We do not believe
    the proposed revisions to S. 314 and H.R. 716 will achieve the
    quality improvement or cost reduction goals that I know you are
    seeking.
        Federal employees are some of our Nation's most highly
    trained and dedicated employees. They operate within a complex
    system of rules, regulations, and laws. They respond to a vast
    array of missions, public concerns, and operational
    requirements. They deserve, as does the private sector, the
    opportunity to compete for their jobs on a fair and level
    playing field. This means that the managerial complexities of a
    public-public and public-private competition need to be
    recognized. We do not believe that this legislation meets that
    requirement. We are concerned that the proposed revisions can
    result in higher costs to the taxpayer.
        Thank you very much, and I would be happy to answer any
    questions that you might have.
        Senator Brownback. If I am understanding you, you say you
    have got a list of criteria that you think need to be met in
    this bill, but you do not think they are in this bill. You are
    willing to work with us on seeing if some of these items can be
    put in, and then you could be supportive of this bill. Is that
    right, Mr. DeSeve?
        Mr. DeSeve. Yes, sir. I think at this point, we oppose the
    bill, but we think that the ideas embodied in the bill are
    subject to being able to be worked together with you.
        Senator Brownback. OK. And have there been ongoing
    discussions at this point in time?
        Mr. DeSeve. Yes. Senator Thomas alluded to one even last
    week where we met with the Senator and his staff for that
    purpose.
        Senator Brownback. Good. Glad to hear that those are taking
    place.
        Mr. Stitt, thank you very much for joining us, and the
    microphone is yours.

       TESTIMONY OF SKIP STITT,\1\ FORMER DEPUTY MAYOR, CITY OF
     INDIANAPOLIS, TESTIFYING ON BEHALF OF HON. STEVEN GOLDSMITH,
                      MAYOR, CITY OF INDIANAPOLIS

        Mr. Stitt. Mr. Chairman, Chairman Horn, and Members of the
    Subcommittee. My name is Skip Stitt, and I am here today on
    behalf of the Indianapolis Mayor, Steven Goldsmith.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Goldsmith submitted by Mr. Stitt
    appears in the Appendix on page 72.
    ---------------------------------------------------------------------------
        For most of the last 6 years, I had the privilege of
    managing the Mayor's Competitive Government Initiative in
    Indianapolis. I am pleased to provide this testimony to the
    Subcommittee as part of its consideration of the Fair
    Competition Act of 1998.
        When the Mayor was elected 6 years ago, he ran on an
    aggressive platform of privatization. Over the years, we have
    modified that preliminary platform into a rigorous public-
    private competition model. The model requires head-to-head
    competition between public and private sector providers. In
    Indianapolis, services that have been subjected to competition
    include the operation of the Indianapolis International
    Airport, our wastewater treatment plants, and our sewer
    collection system, fleet service operations, printing, copying,
    filling potholes and solid waste collection.
        After 75 competitions, these efforts have generated savings
    of nearly $420 million. The number of city workers, excluding
    police officers and firefighters, has been reduced dramatically
    in Indianapolis. Nonetheless, no union employees have lost a
    job as a result of our competition efforts. Employee grievances
    in several competed areas have actually fallen by as much as 90
    percent, and workplace injuries in several competed areas have
    been reduced dramatically as well.
        We believe the central focus of this bill, that focus being
    competition, is appropriate. We have found no better tool to
    help control the cost to government services, while at the same
    time ensuring their quality in Indianapolis.
        We would also concur with your efforts to break up the
    Federal monopoly on service provision, but to still let Federal
    employees compete for that work.
        As someone who has been in the trenches of the competitive
    government effort for 6 years at the municipal level, let me
    make a few general comments about the bill.
        We operate on the assumption and the belief in Indianapolis
    that government is full of very good people, most of whom are
    caught in very bad systems. The regulations that will
    inevitably be promulgated to implement this bill will need to
    be very simple, very concise, and focus on results rather than
    processes.
        By reducing the rules and regulations, while simultaneously
    increasing the decisionmaking authority and flexibility of your
    talented employees, we believe you will see enormous benefits,
    irrespective of whether the work is ultimately provided
    privately or by incumbent employees.
        Second, this bill and your efforts will likely be in vain
    unless there is a very strong commitment at the top of your
    organization to competition and smaller government.
        We have studied many, many competition efforts around the
    world and have yet to find one that has been successful without
    strong leadership at the top. To fulfill that need and to serve
    as an adjunct to the efforts outlined in this legislation,
    Congress may even consider developing its own list of
    activities for competition.
        This bill also specifically addresses the need to develop
    systems that support the make-or-buy decisionmaking process.
    Doing this correctly will be essential to your progress. These
    systems will likely include activity-based costing or a similar
    costing methodology, as well as rigorous performance
    measurement systems that focus on quality and quantity goals
    for services.
        Next, be sure to recognize that your incumbent employees
    are a tremendous and extraordinary resource. We would encourage
    you to be very thoughtful, where transitions occur, to pay
    attention to employee needs, to salary ranges, to benefits, and
    similar activities.
        In Indianapolis, we also found that it was important to
    reward employee performance when they produced, competed, and
    won. Nothing got city employees more focused on the bottom line
    and on serving customers than when we implemented an incentive
    pay plan funded with operating savings they had identified.
        Next, we would encourage you to connect these cost-saving
    and service-enhancement efforts to positive outcomes. In
    Indianapolis, we used the savings from our competition efforts
    to lower our property tax rate and put more police officers on
    the street.
        I anticipate you will find, as we did, that most citizens
    care very little about the concept of competition, but they
    care a lot about safe streets, low taxes, and high-quality
    government services.
        Next, I would encourage you not to get caught in the
    intellectual trap that lowing the cost of services will
    necessarily lead to lower quality. Our experience with
    competition in Indianapolis, when it is done right, has
    indicated that it is possible in some circumstances to spend
    less and still get more.
        Next, this bill excludes activities involving fewer than 10
    full-time employees. I understand and appreciate your emphasis
    on larger budgets. However, one of the most productive
    byproducts of our competition effort was the positive effect it
    had on small, minority and women-owned businesses who competed
    for and won many of these contracts. We would encourage you to
    consider ways to extend more Federal market opportunities to
    these small businesses.
        Early on, some Indianapolis vendors confidentially
    expressed concerns about our process. Many of these concerns
    were eliminated once the vendor community saw our commitment to
    continual, open, rigorous, fair, and comprehensive competition.
    Although I do not have an answer for how you might protect
    against this, I would anticipate that some Federal service
    vendors might likewise be reluctant early on to challenge an
    omission from the list of activities open to competition.
        There may also be a concern over the increase in the number
    of bid protests that would result from an increased number of
    competitions. As you think both about this bill and about the
    regulations that will be promulgated to implement it, I would
    encourage you to focus very carefully on creating an open and
    public process that maximizes competitive opportunities,
    minimizes disputes, and eliminates politics from the
    decisionmaking process.
        We also believe it is important to separate staff
    procurement decisions from staff production decisions. Our
    experience has shown that it is very difficult for an incumbent
    administrator to remain unbiased in a make-or-buy procurement
    decision when their organization both consumes and produces the
    good or service.
        The final point is a comment with respect to A-76. The bill
    discusses exempting certain A-76 cost comparisons from this
    process. While we would not argue with that exemption, we feel
    that A-76 more often frustrates competition than facilities
    competition. Our experience in successfully privatizing the
    Indianapolis-based Naval Air Warfare Center, which was done
    outside of the A-76 process, generally supports that
    conclusion.
        We believe the Fair Competition Act of 1998 is one
    preliminary step in the process of improving the quality of
    government services, while at the same time lowering the cost.
    As a companion effort, we would suggest that it is important to
    identify the other legal, systemic, cultural, and
    organizational barriers that exist to improving further
    governmental efficiency.
        To that end, Mayor Goldsmith has previously suggested to
    the House leadership that a commission be formed specifically
    to identify obstacles to fair and open competition.
        We thank you for the opportunity to be here today and would
    be happy to answer any questions you may have.
        Senator Brownback. Thank you very much, Mr. Stitt, and
    thank you for coming out from Indianapolis to testify at the
    Subcommittee.
        What we will do is we will run the time clock on a 5-minute
    basis, and bounce back and forth, if that is all right. We will
    have another panel that will follow this one as well. So, if we
    can get the clock ticking here, we will make sure to keep it
    tight on time.
        Mr. DeSeve, I really appreciate you coming here, and your
    statement earlier that you would be willing to work with us on
    getting this pulled together. It strikes me that we are talking
    about the number of employees here involved, 316,000 fewer
    civilian employ-
    ees that you have already worked with, and, yet, half-a-million
    that are doing commercial type of work or non-inherently
    governmental work. We have got even some further distance to go
    along the track and the goal that you have, and certainly that
    this Congress would like to see taking place. So I think it
    really is important, if we can, to get this moving on forward
    and us collectively working together.
        The working days that we have in this Congress are not
    going to be long at length. So we need to really get this
    moving forward, if you folks can see fit to helping us out on
    that, or if the figures that Senator Thomas put together is
    fairly accurate of half-a-million employees involved.
        Mr. DeSeve. I think it is 475,000 at the last count in
    1996. We will do another inventory this year, probably starting
    in about 30 days and lasting through the fall.
        You have to take out of that the number that the Defense
    Department is currently putting up for conversion or for review
    for competition at this point. So we will not know until we get
    the numbers back in October.
        People have always felt it was a conservative estimate,
    that is, on the low side, but you do have the DOD proposal to
    review for competition. We want to be very clear. We favor
    competition and reviewing these jobs for competition. At the
    end of the day, I think as Mr. Stitt has indicated, some of
    them may be retained in-house. About half the time when the
    jobs are competed, they are retained in-house. So what we want
    is a level playing field for competition on commercial
    activities.
        Senator Brownback. My concern was in looking through those
    numbers is that the Department of Defense--that one would think
    of as having generally a higher percentage of jobs that are
    inherently governmental--is the one that comes up with this
    enormous number of jobs that they say are not inherently
    governmental, and, yet, all these other agencies didn't come up
    with very many. I mean, it struck this observer of that
    information that the others really were not too forthcoming on
    their internal analysis. If you do not have the leadership at
    the top pushing it, it is going to be a tough row to hoe.
        Mr. DeSeve. Sure.
        Senator Brownback. So we are really going to need your help
    not only with the legislation, but with the implementation as
    this moves on forward.
        Mr. DeSeve. Yes. We will be happy to push it, as I say,
    during the inventory this year.
        One of the things about DOD, because they provide housing,
    because they provide commissary services, because they provide
    other forms of PX and other services, they kind of handle the
    soldier from beginning to end. They do a lot more things that
    are, in essence, commercial than a lot of the other civilian
    agencies. So you are right. You would expect more of the
    civilian agencies, but DOD is always going to be the leader in
    this because of their beginning-to-end service to the soldier.
        Senator Brownback. Don't you suspect that some of the other
    agencies did not quite look very sharply on some of these? We
    had a couple that did not even participate. So I would hope you
    would think so in those areas.
        Mr. DeSeve. I hate to guarantee you anything, but we will
    certainly heavily encourage 100-percent participation in the
    survey this time.
        Senator Brownback. I do not know if my time is up or not.
    It is like running a basketball game without a clock, but we
    will move on to the next one.
        Mr. Kucinich.
        Mr. Kucinich. Thank you very much, Mr. Chairman. Mr. Horn,
    it is a pleasure to join you and Mrs. Maloney here. I am
    grateful to have a chance to be on this Subcommittee and to
    have the opportunity now to serve as the Ranking Member of the
    Government Management, Information, and Technology
    Subcommittee. I know how important the issues are which come
    before this Subcommittee, and I also know that part of the
    great debate which is reflected in this legislation here is
    considered to be pretty much over.
        Listening to the testimony of Mr. DeSeve, quoting you, it
    is really not about goals, but how to achieve them; that
    Federal employees are some of the Nation's most highly trained
    and dedicated employees. They operate within a complex system
    of rules, regulations, and laws. They respond to a vast array
    of missions, public concerns, and operational requirements.
    They deserve, as does the private sector, the opportunity to
    compete for their jobs on a fair and level playing field.
        I really understand where that is coming from, and because
    I do, I would like to pose this question, Mr. Chairman, just to
    everyone here, for that matter. You can all answer in the
    silence of your manifest positions.
        I do not think the debate is over, with all due respect,
    Mr. DeSeve. I say that with 30 years of involvement in public
    life, off and on as an office-holder. I do not think the debate
    is over.
        So let me bring the ants to the picnic. You talk about it
    is not about goals, but how to achieve them. I think that there
    needs to be a debate again about what the proper role of
    government is because I would contend that the role of
    government is distinct from the role of the private sector. The
    role of government is to provide a service, and taxpayers pay a
    lot of money to make sure they get service. The role of the
    private sector is to make a profit.
        Now, I am sure in some unique situations, those two goals
    may be mutually inclusive, but often we will find that they are
    not. We see in the GAO's report on the Department of Energy's
    contract management which put them in 1990 at the high-risk
    series. We know the Department of Energy contracts out 91
    percent of over $19 billion in obligations in the 1995 fiscal
    year. We have got the Department of Defense contract
    management, same thing, high-risk series. We have got the
    Committee on Government Operations in 1991 issuing a report on
    major aerospace contractors, problems with falsification and
    fraudulent testing.
        Now, my background is in municipal government, and I know
    that people want to make sure that the garbage is picked up,
    that the potholes are filled, that the police respond when
    people call. Those are all things that people expect from
    government, and when we start contracting out services
    wholesale, it is illusory to think that suddenly we are going
    to see an increase in service at a reduced cost. What is more
    likely to happen and what is a more in-
    structive paradigm is the HMO paradigm. Whereas, we transmitted
    to HMOs in medical care, services have been cut and then
    profits of the industry have gone up.
        Now, I think there is a legitimate role in some places for
    the private sector in participation with government, but when
    we start from a presumption that it is not about goals, but it
    is about how to achieve them, you are leaping over this whole
    debate about what the purpose of government is.
        Frankly, Senator Brownback, my feeling is that when we view
    government as the enemy here, government's bad politics, bad
    public employees, we are missing an opportunity to refresh
    ourselves about the purpose of government in itself, which is
    to provide service and it is to be responsive and it is to have
    the public have direct control.
        Privatization changes all that, and so I make that as a
    statement. You have already answered my question. I know how
    you feel about it. I know what your goals are. I understand the
    Indianapolis model, but I am letting you know there is at least
    one Member of the House of Representatives who thinks
    differently on this, and I will be continuing to provide you
    with a challenge to show me--and I am not from Missouri, I am
    from Ohio--to show me as to where the benefits are because I
    remain unconvinced, and I am not convinced that this just is
    not another way to relieve the American people of the assets of
    their government and increase the price they pay for it. So I
    thank you for listening to me.
        Thank you. I yield back.
        Senator Brownback. Congressman Horn for 5 minutes.
        Mr. Horn. Let me ask the gentleman from OMB, Mr. DeSeve,
    how do you feel about the Defense programs in a number of
    areas? For example, should they be contracting out things that
    relate directly to the readiness of the fleet? Should they be
    handling critical ammunition? Where would you draw the line
    over there in defense?
        Mr. DeSeve. We actually try to let the Defense experts draw
    the line, Mr. Chairman. We ask them to distinguish between
    inherently governmental functions and those functions which are
    essentially commercial activities.
        There are some functions which the Defense Department deems
    as core to their mission, which they do contract out in a
    commercial way as well, but we do not try in an A-76 to come in
    and say this one is and this one is not. We try to leave that
    to the folks at the Defense Department.
        Mr. Horn. How would you feel as a citizen if apparently OMB
    is not going to review judgments in the Defense Department when
    you have got ships of the Pacific Fleet that need new
    ammunition supplies? Do you want them contracted out to a
    private agency where the employees could go on strike at any
    time?
        Mr. DeSeve. I guess, again, even as a private citizen, I
    would look to my admirals and generals to try to do the thing
    that they thought best along the way. I would not try to
    second-guess them.
        Wellington said, ``I can either fight a war or report to
    the clerks in London,'' and Wellington did a pretty good job in
    the war that he fought. So I use the judgment of the admirals
    and the generals and those who are entrusted with making those
    decisions and rely upon them, even as a citizen.
        Mr. Horn. Well, ultimately, the commander-in-chief is
    responsible, not the admirals and the generals. Now, you happen
    to be in the agency that handles the budget, and hopefully one
    of these days will handle the management of the Executive
    Branch of the Federal Government. Now, it seems to me, you are
    working for the President, not the generals and admirals, and
    that is as it should be in a constitution that provides for
    civilian authority over the generals and the admirals.
        Mr. DeSeve. Correct. And one of the things you have told
    me, sir, is that I will never get along very well unless I
    delegate. I have heard that from your own lips in another room.
        So what we try to do is say to Secretary Cohen, to Deputy
    Secretary Hamre, to Controller Lynn and others who are the
    civilian oversight, make sure that, as the generals and
    admirals make these decisions, you provide oversight.
        We will certainly comment if they come to us and say we
    would like to do this, we would like to do that, and so, in a
    specific situation, we certainly give them guidance, but, as a
    general matter, we do not go in and oversee those decisions.
        Mr. Horn. One of the criterion in this whole discussion for
    40 years has been what is inherently governmental and what is
    not inherently governmental.
        Mr. DeSeve. Correct.
        Mr. Horn. Now, I would say that when you are handling
    nuclear weapons and when you are handling ammunition that might
    explode everywhere, if you do not have skilled people doing it,
    I do not understand why that is not considered inherently
    governmental.
        Mr. DeSeve. I want to go to your ``have skilled people
    doing it.'' I think skilled people could be either contractors
    or public employees. There is no skill in handling either
    ammunition that is certainly made by private contractors or
    nuclear weapons that are made by contractors.
        It is very often the case, if you go to NASA where rockets
    are launched, but it is difficult to tell the skills of the
    contractors from the skills of the public employees.
        Mr. Horn. Well, public employees and private employees all
    need a lot of training to do their job.
        Mr. DeSeve. Correct.
        Mr. Horn. I guess my question is, when you have people that
    have dedicated 10, 20, or 30 years of their life and they have
    had no accidents that would explode and blow up a city near it,
    that would be a pretty good record, wouldn't you say?
        Mr. DeSeve. Yes, sir, and we want to make sure that those
    public employees have every availability to continue that good
    record of service to their government. We feel very strongly
    about that.
        And the bills before us limit that ability. If there is
    work that is currently in the private sector, a public offeror
    would not be able to make a bid on that work, even though they
    had traditionally done that work. We think that is wrong. We
    think those public employees in those circumstances should be
    able to bid.
        Mr. Horn. One of the things government employees--and I
    realize this has been intruded upon at the municipal level--do
    not do is strike, and that is very important. It seems to me,
    when you are waging a war and you have ships of all varieties
    come in to get ammunition put on or to get it taken off if they
    have to be repaired, since you could not have people with
    welding and all the rest that goes on, on a ship, and having
    charged ammunition in storage there. Wouldn't that kind of
    situation concern you?
        Mr. DeSeve. It certainly would, and we would hope that the
    contract, if it were a contract item, would absolutely preclude
    that sort of thing for national defense purposes.
        Mr. Horn. Well, I hope when you go back to your office in
    my favorite building in Washington, which is the Executive
    Office Building, built under Ulysses Grant's administration and
    a great building--and any of you that have not seen it, you can
    tour it on Saturday now and you will see Mr. DeSeve and all the
    Presidential assistants in very nice areas over there--we hope
    it promotes thinking.
        Mr. DeSeve. We try not to work Saturday, but we usually
    fail. We usually fail.
        Mr. Horn. We hope it promotes thinking, but when you go
    back there, you might ask the U.S. Navy why are they trying to
    contract out at the Seal Beach Ammunition Depot, and by what
    standard of safety and concern do they have to do it. I think
    that is a typical example of where some people finally get
    around to doing something and then they do the wrong thing, not
    the right thing.
        [The information referred to follows:]

                         Insert supplied for questions
              1. The Navy announced a competitive A-76 study of Ocean
            Terminal operations at Naval Ordnance Center Seal Beach on 15
            January 1998.
              2. A Naval Ordnance Center is full service activity for the
            storage, assembly and maintenance of Naval ordnance. A Naval
            Magazine is a smaller facility principally used for storage of
            ordnance. As a general matter, neither a navel ordnance center
            or a naval magazine is considered an inherently government
            operation. As these types of ordnance, including our nuclear
            arsenals, are manufactured and delivered to us by contractors,
            the handling of such materials has not been a safety issue nor
            is it considered inherently governmental.
              3. This effort is similar to the A-76 conversion of the Ocean
            Terminal functions at Naval Magazine, Leuleulei, Hawaii to
            contract performance. A contract operation was put in place in
            1985. This function has remained in the private sector since
            then.
              4. There have been concerns expressed regarding contract
            performance of these kinds of activities. The Navy remains
            satisfied, however, with the contract work at Naval Magazine
            Leuleulei, During Operation Desert Storm the Naval Magazine at
            Leuleulei, like other mobilization and shipping points in the
            military infrastructure, was at it's busiest level in memory.
            One of the numerous ships the Leuleulei Naval Magazine
            contractor was tasked with loading was the ``Cape Judy.'' This
            was a break bulk ship which was to be loaded with 5''/54 gun
            ammunition. This ship was delayed approximately 2 weeks beyond
            it's scheduled sailing date. This was the only significant
            delay during this period at Leuleulei.
              To load this ship the contractor had to clean the ship to the
            cleanliness standards required for ordnance since the ship had
            previously carried a cargo of rice which had spilled
            everywhere. The contractor then had to remove temporary
            bulkheads within the cargo holds and build new ones which were
            suitable for ordnance. Then, finally, the ship had to be loaded
            with the ammunition. The contractor did not pay a performance
            penalty for this delay as it was caused principally by the Navy
            setting an overly optimistic schedule for the load. The Navy
            actually paid the contractor a $126,000 adjustment as
            compensation for the additional work and materials used
            building up the interior bulkheads.

        Mr. DeSeve. And I would be delighted to go back and look at
    that. I have heard about that today for the first time, and I
    will be delighted to address that concern. And we will formally
    give you an answer as to what is going on there as quickly as
    we can.
        Mr. Horn. Good. Thank you very much.
        Senator Brownback. Thank you.
        Congresswoman Maloney.
        Mrs. Maloney. Thank you very much.
        I would like to ask Mr. DeSeve--you have testified about
    the success of Vice President Gore's Reinventing Government,
    where we now have the smallest work force since 1931 with a
    savings, you said, of $137 billion and a reduction in our work
    force of 316,000 people. I would like to ask you and Mr. Stitt
    how did you achieve this, and is the method that you are doing,
    which is really the goal that Mr. Stitt mentioned, is we need a
    smaller, more accountable, professional work force that gets
    the job done professionally? Just comment on your approach and
    Mr. Stitt's approach, both of you. How did you believe this
    success, and do you need a competitive bid to make it happen?
        And, second--you obviously do not because you already made
    it happen--I would like to touch on the question that was
    raised by Mr. Kucinich which is really quality control.
        One thing with Federal workers, you have control over the
    quality of work that is coming out of them, their honesty, the
    way they treat people, the way they get their job done, and how
    do you control that with a private contractor? And I think that
    all of us bring to this table some of our past experiences in
    government.
        I recall in New York City, we at one point trying to drive
    up our collections, something that Chairman Horn and I have
    worked on, a debt collection, we contracted out to private
    contractors, and they used such extreme cruel methods that
    really violated the sense of decency, even for New Yorkers,
    that we had to curtail that, and we now have a lot of debate
    now in Congress with Vice President Gore and Mr. Clinton
    talking about a consumer bill of rights so that HMOs don't go
    over that fine line, and, truly, when you have a government
    worker, you can control the end product. So how do you control
    that if you are going to a contracted-out type of situation? So
    those two questions, I would like you both to comment on them.
        Mr. DeSeve. OK. Let me take them in order. First, one of
    the things we tried to do in reinventing government was to
    decide what things we needed to do.
        If you are going to contract something out, if you really
    do not need to do it at all, you have achieved a significant
    savings by not doing it. What do I mean? If we look at the
    investigations function in OPM, we decided that that was not
    inherently governmental. We did not even need to be in that
    business anymore. Training was the same way. We did not need to
    be in the training business. There are a lot of people at the
    Cato Institute, the Brookings Institution, and colleges and
    universities who can do training. There are private sector
    offerors who can conduct investigations as they are needed. So
    we did not need to be in that business. We simply got out of
    the business; in one case, through an ESOP, which Chairman Horn
    and Mr. Mica were very helpful in creating. In the second case,
    we simply divested the training function. It was picked up
    first by the U.S. Department of Agriculture, and now I guess
    others are doing that as well.
        So we went through--we identified those things which we did
    not need to do anymore, and also those things which we could do
    with fewer people, whether those people were in-house or
    outside the house, contracted out, whether it is the Department
    of Housing and Urban Development, GSA. We could go down the
    whole list. There are fewer people because we do not need----
        Mrs. Maloney. So, if I could just--so you really were
    accomplishing the intent of this bill by self-determining those
    places where you feel could be contracted out or done cheaper,
    but the difference is this bill would force you possibly to
    contract out in areas that you do not think it would be a cost
    benefit or result benefit for the American taxpayer. Is that a
    correct----
        Mr. DeSeve. It would take away the discretion of a manager,
    to some extent, and force him by using valuable staff time to
    conduct according to a schedule, a set of cost comparisons and
    out-sourcings. He would have less time to spend in the other
    kind of reengineering that we believe has already yielded
    savings.
        Mrs. Maloney. So it would force the out-sourcing, whereas
    you have already been doing it. I think we have $900 billion in
    procurement now with the Federal Government? It is a huge
    number.
        Mr. DeSeve. Yes, it is.
        Mrs. Maloney. And--so go on.
        Mr. DeSeve. So what we tried to do is by reengineering and
    getting rid of some of the old functions and even devolving
    some of the functions to State and local governments. They have
    picked up a significantly greater role in combatting food stamp
    fraud, and they were happy to do that because they knew that
    they could prosper along the way.
        So EBT, which we have also talked about, electronic benefit
    transfer, enabled them to do things better and enabled us to
    eliminate certain kinds of functions we did not need to do.
        The second question you asked was about----
        Mrs. Maloney. Could I ask, what are your further plans for
    reinventing government? Are you continuing to do this, or have
    you met your goals?
        Mr. DeSeve. No, we are continuing to do it. We are
    continuing to streamline. The President's Management Council,
    in its April meeting, will be talking about internally the
    various streamlining efforts.
        We have heard today that the Defense Department has,
    indeed, decided to contract out, or at least to expose to
    competition--not to contract out, but to expose to competition,
    and that is the thing we think is core. Other agencies are
    likely to make that same judgment. Once they have gotten down
    to the right functions, then they have to decide how to best
    perform those functions, and we are getting closer and closer
    to the right functions.
        Mrs. Maloney. Now, you mentioned that government had grown
    in two areas. One was Commerce, which is hiring really for the
    Census----
        Mr. DeSeve. That is correct.
        Mrs. Maloney [continuing]. Which is once every 10 years.
    What was the other area you mentioned?
        Mr. DeSeve. The Justice Department. Both the Bureau of
    Prisons----
        Mrs. Maloney. The Justice Department.
        Mr. DeSeve [continuing]. And the FBI have grown
    significantly----
        Mrs. Maloney. I know.
        Mr. DeSeve [continuing]. And the Immigration and
    Naturalization Service.
        Mrs. Maloney. Right, and we hired 100,000 additional police
    officers, too.
        Mr. DeSeve. Right.
        Why don't I let Mr. Stitt comment on the first question,
    and then we will do the second.
        Mr. Stitt. The first question I had down: Is competition
    necessary? In Indianapolis, at the municipal level, we felt
    that it was. I have debated this issue for 6 years with both
    managers and my AFSCME colleagues. We have not found a tool
    that has been as effective as competition.
        We had a longstanding TQM program at the city for many
    years, which essentially yielded no results. So we think it was
    helpful in our community.
        Mrs. Maloney. May I ask for a clarification?
        Senator Brownback. Well, if we could get the witnesses to
    directly, quickly respond to your two questions, and then I
    think we will have to move it on.
        Mrs. Maloney. All right. Are you alone in this----
        Senator Brownback. If you would like to change the
    question, we can----
        Mrs. Maloney [continuing]. Or are there many----
        Senator Brownback [continuing]. We can do it that way,
    then.
        Mrs. Maloney [continuing]. Municipalities doing the same
    thing that you are doing?
        Mr. Stitt. There are a number of municipalities around the
    country that are looking at the concept of managed competition.
    I think Indianapolis has probably done more, and done it more
    quickly than other communities. But it is something that we are
    seeing more and more at the municipal level, particularly in
    utility service areas.
        Mrs. Maloney. What about quality control?
        Senator Brownback. Well, let us go back to another round of
    questions.
        Mrs. Maloney. OK.
        Mr. Horn. Yes. I would like to get into it at some time.
        Senator Brownback. I want to go to Congressman Horn and
    then we will go back to Congressman Kucinich and then back to
    you again for questions.
        Mr. Horn. Let me ask you. You mentioned, Mr. DeSeve, that
    there were two agencies that did not file a plan because they
    have not had a cut in civilian employment, and that was Justice
    and Commerce?
        Mr. DeSeve. That was not the reason they did not file.
    Those are happenstances.
        Mr. Horn. And they have a growing work force, you said?
        Mr. DeSeve. They have a growing work force, but that does
    not relate to their not filing a plan.
        Mr. Horn. Well, I assume Justice's growing work force is
    based on all the independent counsels that have been appointed
    by the court. So I can understand that one.
        I look at NOAA, which is 60 percent of the budget of the
    Department of Commerce, which I still want to get rid of--not
    NOAA, just the rest of the Department--put it out and privatize
    a lot of it, which reminds me of the Coast and Geodetic Survey;
    35 or 40 years ago when I was on the Senate staff, I remember
    we had--and this is before the Eisenhower--yes, it was a little
    after the Eisenhower Declaration. It was 1960, 1962. We were
    after the Coast and Geodetic Survey to contract things out
    because they were simply duplicating which was already being
    done by the private sector. The map-makers would remember the
    firm. I think it is Jepson in Denver, Colorado. And the reason
    we got into it, it was a subsidiary of the Los Angeles Times.
    That was my first taste of where government employees were
    doing work that is not inherently governmental; that can be
    done just as well in the private sector, and it was not being
    done. I just wonder if the OMB has looked at Commerce, when
    they do not file any plans, and say, ``Hey, the little bit you
    have got left around here, there are some things that could be
    contracted out.''
        Mr. DeSeve. I want to assure you that I will work very
    hard, and we will ask Secretary Daley to make sure that a plan
    is filed in this round of evaluations.
        Mr. Horn. Thank you.
        Senator Brownback. Mr. Kucinich.
        Mr. Kucinich. I would like to use this time to continue my
    homily about the importance of democratic control of the
    process as exemplified by the systems of service which
    government delivers.
        The whole concept in this country of a United States
    presupposes there is some unity in the States, and we were
    brought together out of a community of interest. I mean, I
    happen to believe that we, in fact, have an American community.
        Government systems at every level reflect the needs of the
    community. That is why those systems of support are organized
    to extend services. The ability of government to control those
    services is the ability of government to make sure that its
    structures maintain democratic values.
        We cannot look to the corporate world for democratic
    values, even though we may have many fine leaders in the
    corporate world who may practice democratic principles in their
    daily life. We cannot look to the corporate sector to secure
    democratic values. We have to look to the government and the
    execution of the laws and the political process to do that.
        So, when we have drawn an equivalency here between the
    public sector and the private sector and, in effect, the
    equation has put us in a position where we have equated the
    work of the public sector and the work of the private sector,
    we are basically ignoring that they have two separate goals
    that are often mutually exclusive as opposed to what I said
    earlier, where there might be some areas where their goals
    might be inclusive mutually.
        This is about goals, and you may have your plans to go
    ahead and execute private contracts, but to tell government
    employees that they have to start competing for their jobs is
    in and of itself threatening not to just those employees and
    their jobs, but it threatens the entire democratic system of
    which they are a part.
        I view public employees in a slightly different way. I do
    not see them as widgets in some kind of autonomic machinery. I
    see government employees as being an extension of democratic
    values. We then have some control over that system.
        Now, the honorable gentleman from Indianapolis mentioned
    the contracting out of utility services. I will tell you, and
    remind you, that there are over 2,000 municipally owned
    utilities in this country, and one of the reasons we have that
    is not only so people can have lower electric rates, which they
    do, without any exception, and in those cases where they do not
    have lower rates, it is usually because of the interference of
    the private sector, but also because they have some control
    over the system. They have the ability to be able to have input
    in the process.
        This whole idea of privatization, I would suggest to you,
    notwithstanding the urgings of the administration, needs to be
    looked at again in terms of the implication it has for
    democratic values.
        In the last few decades, there has been an attack on
    government to cause people to be estranged from their
    government, but if this is, in fact, a government of the
    people, by the people, and for the people, as Lincoln's prayer
    was so many years ago, then, in fact, when we attack
    government, we are attacking ourselves. And unlike the
    challenge of Poto that we have met the enemy and he is us, it
    is up to us to recognize that this is our government. We can
    make it work, not by dismantling it piece by piece, but by
    finding ways for those systems to work in order to get the
    people to do their job better, not by threatening them with
    loss of their job, but by showing them how their jobs are
    essential to the unfolding of the democratic process.
        As a Member of this Subommittee and as a Member of the
    Congress, I am going to continue to insist that we review again
    and again the underlying premises which promote wholesale
    privatization in the government because, in a democratic
    society, government has to be there to protect democratic
    values. We cannot look to the corporate sector to protect
    democratic values.
        I yield back.
        Senator Brownback. Thank you very much.
        I would note that the bill has nothing to do with the role
    of government. It is just that if there are activities which
    could be done by a contractor, the agency should determine how
    to get the best deal, is what the structure of the bill has
    tried to be. So I am hopeful we are being sensitive to your
    point of view on this, and that we are just trying to get the
    best deal we possibly can here.
        Congresswoman Maloney.
        Could this be our last question? We have a huge panel after
    this one.
        Mrs. Maloney. Back to my last question, quality control,
    how do you maintain quality control with a private contractor?
        Mr. Stitt. I can only speak to our experience in
    Indianapolis, and as we have been visited over the years by
    many folks who talk about our competition initiative, one of
    the things we have told them is that it is not a cookie-cutter
    approach. What worked in Indianapolis may not work in Miami or
    the Twin Cities.
        We inherited a system in Indianapolis that, although it was
    regarded as one of the country's most well-run cities, it had
    some pretty serious challenges. There was no effective quality
    assurance, quality control mechanism over local government when
    we got there. There was very, very little performance data, and
    as I talked with municipalities and, quite frankly, State
    employees around the country, that is common. They do not know
    how much they produce or the quality of it in many
    circumstances.
        We set about developing a rigorous performance measurement
    system that asked those questions, what did we produce, what do
    our customers expect, and what is the quality we produce. We
    have used that as we have gone into the marketplace to ask
    employees and vendors to compete for that work.
        Our experience has been that post-competition, whether
    provided by public employees or a vendor, we generally see
    improvements in the quality of those services. And in cases
    where employees continue to provide that service, we
    established quality benchmarks, much like we would in a private
    vendor's contract. Today, we track on a monthly basis about 250
    performance measures in our community.
        Mrs. Maloney. Could you cite some examples of services you
    contracted out that the employees, the government employees
    won?
        Mr. Stitt. Probably, the example that I am proudest of
    involves the Indianapolis Fleet Services Garage, a group of
    employees who maintain our 2,000-vehicle fleet. We asked them
    to go head-to-head with the best vendors in the country. They
    said, ``We will do that, but you have got to get some of these
    bureaucratic structures off our back. We cannot be in a system
    where it costs us more to buy a battery than it does the
    private vendor or it takes longer to get training done or a new
    employee brought in or the legal department will not let us do
    anything creative and entrepreneurial.'' They competed and won
    a 3-year contract to provide that service. They barely won that
    contract, I might add, and as part of their proposal to us,
    they asked us to implement an incentive plan that said if they
    out-perform that contract, they could share in the savings. We
    agreed to that, and the results were really quite remarkable.
        Grievances fell by about 80 percent. Time lost to injuries
    fell from about 6,000 hours a year to about 200 hours a year.
    Customer complaints dropped dramatically. We saw an increase in
    the number of line employees relative to managers. Productivity
    grew by several hundred hours per employee, and I have had the
    privilege of handing out incentive checks between $600 and
    $1,100 a year to that employee group, while still generating
    several million dollars of savings for taxpayers.
        Mrs. Maloney. It seems, Mr. Chairman, that both have very
    similar plans, with the only difference is that you are
    forcing--or this bill would force a competition whether or not
    there was a management decision, whether it was necessary or
    not. Is that correct? You are forcing a competition on
    everything that is ``commercial''? Whereas, Mr. DeSeve, if I
    heard you correctly, you are making de-
    cisions over what is, you think, something that can be reduced
    or contracted out or kept with government?
        So, in a sense, the bill could cost more money by forcing a
    competition if there is a belief that it should not take place
    or is not necessary. Is that an accurate statement, Mr. DeSeve,
    or not?
        Mr. DeSeve. I think that is what we have testified. We are
    concerned, especially with some of the rules and regulations
    that are inherent in the bill and the nature of judicial review
    of management decisions that we could end up in that kind of a
    situation.
        Mrs. Maloney. Do you agree, Mr. Stitt?
        Mr. Stitt. We did not implement a legislative or rulemaking
    system. We were a billion-and-a-half dollars in the hole and
    had a mayor who had promised not to raise property taxes. So we
    were pretty aggressive about this approach because we did not
    have another choice.
        We would prefer to create systems that drive performance.
        Mrs. Maloney. When did you start this approach?
        Mr. Stitt. Six years ago.
        Mrs. Maloney. Six years ago.
        Mr. Stitt. We preferred to change the systems in which
    employees work rather than legislate it; employee incentive
    plans, pay for performance, incentive pay, rigorous performance
    measures, and regular, routine and open public competition,
    with the exception of those areas that we deemed to be
    inherently governmental at the municipal level.
        Mrs. Maloney. Mr. DeSeve, you have had an outstanding
    success, reinventing government. I think it has not received
    the attention it should, from the public. I think it has been a
    tremendous success, and I know that OMB has really been the
    implementer in that program.
        Do you support this bill? Do you think this bill is
    helpful, or do you think it would be costly and problematic?
    What is your feeling on it, based on your years in government?
        Mr. DeSeve. First of all, I want to say that we really did
    try to form a partnership. Dr. Kelman is with us today, and
    will be testifying a little later with these Subcommittees, the
    Subcommittees we are before today. FASA, FARA, ITMRA, the Debt
    Collection Act, and GPRA are all cases. GMRA, which I will
    testify on next week in Mr. Horn's Subcommittee--they are all
    partnerships. So, we oppose elements of the bill as it stands
    today. We support the idea of competition, and when I refer to
    a goal, the goal I was referring to was on the first page of my
    statement. We share the goal of seeking the most efficient and
    cost-effective sources for the provision of commercial support
    activities required by the Federal Government to get the best
    deal for the taxpayer. That is what we are seeking to do, and
    we think that the way that the bill is structured, providing
    this kind of a legislative framework does not do that.
        Mrs. Maloney. Do you see a problem with quality control?
        Senator Brownback. We are at 5 minutes. So, if we could
    answer that one, and then let us go on from there.
        Mrs. Maloney. OK.
        Mr. DeSeve. What we try to do is we try to implement what
    are called performance-based service contracts, very similar to
    the no-
    tion that Mr. Stitt had, that it is inherent in the contract
    itself to specify the level of performance.
        We see recently, for example, the Department of Education
    competed a set of data centers and reduced their cost by more
    than 50 percent from the prior contract. It had been a private
    contractor. It stayed a private contractor, but the
    performance-basing made the difference.
        Mrs. Maloney. OK, thank you.
        Senator Brownback. Thank you both, gentlemen, very much for
    coming here.
        Mr. DeSeve. Thank you, Mr. Chairman.
        Senator Brownback. We look forward to working with you.
        Mr. Stitt. Thank you, Mr. Chairman.
        Senator Brownback. If we could call up our third panel:
    Bryan Logan, Chief Executive Officer of Earth Data
    International; Larry Trammel, Corporate Vice President and
    General Manager, Science Applications International Corp.;
    Douglas K. Stevens, Jr., Partner of Information Technology
    Services Group, under Grant Thornton, LLP, representing the
    U.S. Chamber of Commerce; Dr. Steve Kelman, Weatherhead
    Professor of Public Management, Harvard University; Robert
    Tobias, National President, The National Treasury Employees
    Union; Bobby Harnage, President of the American Federation of
    Government Employees; and Michael Styles, National President of
    Federal Managers Association. So the rest of the room is up and
    testifying.
        Could the witnesses all stand to be sworn in, please?
        Mr. Horn. Mr. Chairman, before I swear them in, let me just
    put two documents in the record with the previous portion. One
    is a letter from David M. Gentry, American Federation of
    Government Employees, AFL-CIO, at the Weapons Support Facility
    in Seal Beach. Since I raised the question of Seal Beach, I
    would like his letter by unanimous consent to be at the end of
    my question to Mr. DeSeve on that topic.
        The letter referred to follows:

                          DRAFT LETTER FROM MR. GENTRY
            American Federation of Government Employees
                                   Affilliated with the AFL-CIO
                                                          16 March 1998
    Local 2161, Weapons Support Facility
    P.O. Box 2340, Seal Beach, CA 90740

    Dear
        We would like to communicate to you our concerns on the decision to
    open the Navy Ordnance Receipt, Storage, Segregation and Issue (RSS&I)
    Core functions for Commercial Activities (CA) Study, which consistently
    has been an inherently governmental function. As tax payers and Federal
    employees we understand the initiative to streamline government through
    competition with the private sector. However, we must register strong
    opposition to recent efforts by the Navy and Congress to outsource
    (contract out) critical core logistics capabilities. It is essential
    for the national defense that these capabilities be conducted by
    government personnel to ensure effective and timely response to a
    mobilization, national defense contingency situation and other
    emergency requirements. By contracting these capabilities out the
    United States Defense is vulnerable to contractor default, strike, or
    non-response.
        The Weapons Support Facility Seal Beach provides critical core
    logistics to the fleet. Specifically, we directly support the fleet by
    loading Naval ships with ordnance or munitions, such as Tomahawk
    weapons, at our facilities at Seal Beach, Port Hadlock, Concord and
    Fallbrook. The Nation cannot afford to become vulnerable because this
    capability is contracted by the private sector. The necessity to
    provide this critical service in the safest and most efficient manner
    for the Navy and the surrounding Community is the guiding principle
    that the employees of the Weapons Support Facility Seal Beach and its
    detachments have lived by for the past 50 years.
        History has shown that specific depots which were outsourced to
    contractors, failed to answer the bell when called upon during times of
    national defense. One such installation was the Naval Magazine located
    at Leuleulei, Hawaii. During Operation Desert Storm, the contractor at
    Leuleulei agreed to pay fines to the Navy, rather than load the ships
    destined for the Persian Gulf, in a timely, as scheduled manner.
    Leuleulei's ``economic'' decision adversely impacted the Navy's ability
    to prevail in the Persian Gulf crisis. At the same time, other Naval
    Weapons Stations operated by government civil service workers met the
    challenge, carried their load and aided the Navy in completing its
    mission.
        In addition to the Weapons Support Facility Seal Bach providing the
    Fleet critical core logistics, we continually strive to provide our
    services to the fleet in the most cost effective manner possible. We
    regularly bench mark our functions with the private industry and
    systematically look for ways to re-engineer our processes. We are a
    Naval working capital funded business oriented activity. As such, we
    have conducted re-engineering processes. Over the past 10 years we have
    re-engineered, streamlined, benchmarked, and implemented productivity
    improvements.
        As a government civil service manned activity, Weapons Support
    Facility Seal Beach is recognized as one of the ``best of class'' in
    Malcolm Baldridge National Quality Award criteria. Seal Beach,
    consecutively achieves the highest level of Safety and Customer Service
    during its years of operation. In addition, Seal Beach has achieved
    numerous citations and awards, the following are just a few:

            1995 Hammer Award, Vice President Gore's Reinvention of
            Government
            1995 Bronze Eureka Award, California equivalent of the Malcolm
            Baldridge
              Award
            1996 Hammer Award
            1996 Silver Eureka Award
            1997 Silver Eureka Award
            Munitions Carrier's Superior Achievement Award

        We feel that this type of dedication, service, and integrity cannot
    be achieved by Outsourcing. A contractor will only provide minimal
    requirements and service at best. We strive for excellence. With your
    continued support of Federal employees we will assure that the Navy can
    meet its challenges today, tomorrow and in the future.
        We would like to extend an invitation to you to come and visit our
    world class facility. You will have an opportunity to see a streamlined
    government manned, operation. We would like to make an appointment to
    see you in the near future at your office if convenient.
                Sincerely,
                                                David M. Gentry

                                   __________
        Mr. Horn. The other matter just came to my attention, which
    I find an excellent document. This is the Procurement
    Roundtable,\1\ and it happens to be chaired by a person we all
    respect, regardless of party, Elmer B. Stats, former Controller
    General of the United States, former member of the Old Bureau
    of the Budget, who knows more about government than, I guess,
    the next 20 people in this town. This document is also prepared
    under the acting chairmanship of the Procurement Roundtable,
    Frank Horton, a very distinguished former Member of Congress
    from New York. I would like unanimous consent to have this
    published at the end of the first panel.
    ---------------------------------------------------------------------------
        \1\ The document referred to above appears in the Appendix on page
    346.
    ---------------------------------------------------------------------------
        Senator Brownback. Without objection.
        Mr. Horn. It has some excellent ideas, and we will use
    them.
        Gentlemen, our tradition in the House is to swear all
    witnesses under oath. If you would, raise your right hands. Do
    you swear the testimony you are about to give the joint
    Subcommittees is the truth, the whole truth, and nothing but
    the truth, so help you, God?
        Mr. Logan. I do.
        Mr. Trammell. I do.
        Mr. Stevens. I do.
        Mr. Kelman. I do.
        Mr. Tobias. I do.
        Mr. Harnage. I do.
        Mr. Styles. I do.
        Mr. Horn. I will note that the seven witnesses have
    affirmed, and the clerk will enter that in the record.
        Senator Brownback. Thank you all very much for joining us.
    We will be on a 5-minute time frame. We have lights here. So
    the yellow light comes on when you have 1 minute left to go.
        There has been a request by Congresswoman Maloney that we
    have Dr. Kelman go first, as she has to leave and wanted to
    make sure--not that everybody's testimony isn't very important
    and needed, but she had a particular request for that.
        Mrs. Maloney. And we had not received his prepared
    statement in advance, so I do not know what he is going to say.
        Senator Brownback. So we have decided to go ahead and
    concede with that. It will be a 5-minute testimony, and then we
    will go ahead and start down the line.
        Welcome, all of you. I hope you do not feel slighted for us
    jumping out of order on this. We would like to keep your
    testimony pretty tight. We can take the full testimony into the
    record. So you can summarize, if you would like. Thank you very
    much for joining us.
        Dr. Kelman.

     TESTIMONY OF STEVE KELMAN,\1\ Ph.D., WEATHERHEAD PROFESSOR OF
                 PUBLIC MANAGEMENT, HARVARD UNIVERSITY

        Mr. Kelman. You are putting a lot of pressure on me, but,
    all right, I will do my best.
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        \1\ The prepared statement of Mr. Kelman appears in the Appendix on
    page 81.
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        Actually, I apologize I do not have a formal statement. The
    logistics are a little more complicated now. Back in academia,
    I am now answering my own telephones, and I have one-third of a
    staff-assistant time, stuff like that. So the logistics are a
    little bit more difficult. So I apologize. It is very nice to
    be back in front of the Subcommittee again.
        With any luck, I will do this in less than 5 minutes. I had
    just two big-picture messages that I wanted to try to
    communicate today regarding this bill and regarding the whole
    issue of competition and out-sourcing. The first is that I
    really do think that it is time to lower the level of rhetoric
    about out-sourcing and contracting out. I really do not believe
    that this is about do you like big government or do you like
    small government. It is not a question of big government or
    small government, whether the payroll checks for soldiers and
    other employees of the Defense Department are cut by government
    employees or by private sector employees. Nor is it a question,
    I think, of do you like or do not like the Federal work force.
        Luckily, I was in town today to be able to come and testify
    before the Subcommittee. I spent the morning interviewing
    front-line procurement professionals at the Census Bureau in
    the Department of Commerce for some research I am doing on
    procurement reform, and those folks I spoke with this morning,
    the front-line procurement professionals, are the kinds of
    people I got to know while I was in government. We have a
    fantastic Federal work force, and this is not about do you like
    Federal workers or don't you like Federal workers.
        I mean, the fact is the vast majority of out-sourcing that
    takes place in the United States takes place between business
    firms. It is commercial to commercial out-sourcing within the
    commercial world, not even involving government, where one
    commercial firm out-sources some work to another commercial
    firm, that is growing extremely rapidly in the private sector.
        If you read investment analysts, one big investment theme
    in the stock market right now is investing in companies that
    are in out-sourcing businesses, that out-source functions to
    other commercial companies, and the reason that out-sourcing is
    growing so rapidly commercial to commercial, again, just not
    involving the government, is managers. Executives of firms have
    increasingly realized that it is good management practice to
    stick as much as you can to your own core competency as an
    organization, to keep management time focused as much as
    possible on your core mission and your core responsibilities,
    and let the non-core responsibilities be taken over by other
    organizations who themselves have as a core competency in
    payroll, check-cashing, or things like that, which are not in
    the core competency or core mission of the organization that is
    doing the contracting out.
        So, for years, obviously--and we do not even think of this
    as contracting out--most commercial firms have contracted out
    writing advertising, and a lot of their legal services. These
    have taken place for decades, and in recent years, the amount
    of contracting out and out-sourcing within the commercial world
    has expanded dramatically.
        Let us take one very mundane example, and I take it because
    it involves a company that does not even do business with the
    Federal Government. There is a company called Carabiner
    International. It is very rapidly growing, publicly traded
    company. The mission of their company is to out-source meetings
    and conferences for private organizations, Ford Motor Company,
    or whatever. And what they do is they go to those organizations
    and say, ``Your core business is not running meetings and
    running conferences. That is what we specialize in. That is
    what we are good at,'' and, again, this company does, so far as
    I know, no business with the Federal Government. That is a very
    rapidly growing business. So the first point is this is about
    good management, and it should not be seen, in my view, as an
    ideological issue.
        Second, without having considered every word of the
    proposed bills as they have been revised, it does seem to me
    that the two bills, by and large, have done a good job walking
    a tightrope and walking a line between various bookend or
    extreme positions on this issue.
        I think that it is good that the revised bills make it
    possible for Federal workers to compete for these jobs. I think
    they should be allowed to compete for these jobs.
        I believe that when Federal workers compete, we do need to
    worry, and I think OMB's Circular A-76 revisions a few years
    ago made some progress on this, about proper accounting for
    indirect costs. I believe that the past performance of
    government entities should be taken into consideration in these
    competitions.
        One feature from a quick read that I do not like in the
    bill--and I agree with my former colleague, Ed DeSeve, on
    this--is the various judicial review provisions. I do not think
    it is necessary to have these management decisions second-
    guessed by any sort of judicial review.
        Last point, and I will be under the red light, I hope, is
    that we really need to make an effort as government and
    private, whether private business or private trade union folks,
    to try to manage this transition, as I think they have tried to
    do in Indianapolis, that when something is out-sourced, to hold
    the existing Federal work force harmless insofar as possible,
    through right-of-first-refusal provisions and other kinds of
    things. That is one area that I hope the Executive Branch, as
    the Executive Branch starts doing more out-sourcing, will
    continue to pay attention to.
        Thank you for your attention.
        Senator Brownback. Thank you very much, Dr. Kelman, and we
    will look forward to, hopefully, some questions and thoughts
    for you, well recognized in this field.
        Bryan Logan, Chief Executive Officer, Earth Data
    International.

      TESTIMONY OF BRYAN LOGAN,\1\ CHIEF EXECUTIVE OFFICER, EARTH
                           DATA INTERNATIONAL

        Mr. Logan. Mr. Chairman, Mr. Horn, and Members of the
    Subcommittee, I would like to put my full statement in place on
    the record.
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        \1\ The prepared statement of Mr. Logan appears in the Appendix on
    page 84.
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        Senator Brownback. Without objection.
        Mr. Logan. One thing that is said--and I have 5 minutes
    here--today we are going to try to put some high tech into my
    5-minute speech here. So I will ask you to don some glasses in
    a moment or two and dim the lights.
        Senator Brownback. There will be no cameras in the audience
    when we put these glasses on.
        Mr. Logan. Right. [Laugher.]
        The other thing is that a photograph says a thousand words,
    and as I am restricted to 5 minutes, I am hoping this is going
    to help my testimony.
        As the past president of the Management Association of
    Private Photogrametric Surveyors, MAPPS, a national association
    of private mapping firms, I was also a delegate to the 1986
    White House Conference on Small Business, where the problem of
    government competition was a major issue both in 1980 and 1986
    and 1995. I, today, would just like to focus on the fact that
    what we are looking for in our particular field is free and
    fair competition, and we do not believe that that exists at
    this point in time.
        If you want to look at an area where free and fair
    competition does not work, we need to look at the mapping
    industry and the GIS profession. As early as 1933--yes, 1933--a
    report of a special House committee found the mapping business
    subject to unfair government competition by government. For
    years, government studies have found that an accomplished and
    qualified private sector in surveying and mapping exists, and
    recommended increased contracting.
        In fact, in 1973, OMB reports said private cartographic
    contract capability is not being used sufficiently. OMB's
    fiscal year 1990 budget said specific areas where the
    government could place greater reliance on the private sector
    providers include map-making activities. That statement was
    intended to target the surveying and mapping of OMB Circular A-
    76 studies. Since the mapping initiative was included in fiscal
    year 1990 budget, not a single Federal agency has conducted an
    A-76 review for surveying and mapping activities.
        Recently, OMB has changed A-76 to actually permit agencies
    to do work for other agencies without conducting a cost
    comparison, and that is what has led to Senator Thomas' floor
    amendment to the Treasury Appropriations bill in 1996 and 1997.
        Why has contracting out of mapping not increased
    significantly? I believe it is because the principal tool for
    moving services from government performance to the private
    sector is OMB A-76, and the decision on whether or not A-76
    studies are actually undertaken rests with the agencies.
        What we have today is a monopoly, and I would like to say
    that there were some people on the Hill a few weeks ago in the
    software industry who would think that 95 percent of the
    business undertaken in the mapping business, undertaken by the
    government would be a monopoly even in their terms. That is
    about the number right now. There is $1 billion a year spent by
    Federal agencies on surveying and mapping activities. There is
    about 6,000 employees involved in that, and the private sector
    gets about $58 million worth of business per year from that.
    About 5.8 percent of the work that the Federal Government
    requires for surveying and mapping is actually done by the
    Federal Government itself.
        What we would like to see is that the Federal Government
    rides the wave rather than makes the wave. There is no need any
    longer for the wave to be made by the Federal agencies. The
    private sector can certainly do that for them.
        I would rather not have to compete against the government.
    I would rather have a true, free system where we can, in fact,
    look at individual projects that the government is undertaking
    and put forward a proposal to undertake that work. That is
    happening, I must add, with a number of agencies, such as the
    Army Corps of Engineers, the Air Force, and the Navy. They have
    traditionally contracted out, and, in fact, are contracting out
    more.
        In recent years, the USGS and NIMA, the new National Image
    and Mapping Agency, have launched new programs for the private
    sector.
        As a result of that, we have moved quite a considerable
    amount of work to the private sector, and my firm alone has
    employed in the last few years over 20 Federal employees from
    NIMA, TVA, USGS, and the Corps of Engineers and the military.
        Presently, we have more than 40 positions in the firm that
    can be filled by Federal employees who wish to move to the
    private sector, and we will do so, should out-sourcing by NIMA
    and NOAA and other agencies come to fruition. If this bill is
    enacted and we, in fact, do get free and fair competition, I
    think we will triple that number again.
        I see my orange light has come on. So I would quickly
    like--if we could bring the lights down--and I have got Nick
    Palatiello over here who is on his out-to-work day from school,
    who is going to make this all happen for us.
        The first image here shows a comparison. The image on the
    left is a government satellite, an older technology, 30-meter
    resolution. In other words, any point on the ground 30 meters
    or greater can be seen. The image on the right is going to be a
    new private sector satellite that will be put into service this
    coming year where we can see 4-meter resolution. As you can
    see, the private sector here is certainly leading the
    technology with regard to the image quality. Next slide,
    please.
        This is a typical map from the U.S. Geological Survey. It
    is a somewhat static map, and on average, they tend to be out
    of date by sometimes up to as much as 35 to 40 years.
        The next image is a project that we are presently doing for
    the District of Columbia and NCPC, a Federal agency, and if we
    had time today, we could zoom in on the Capitol Building there
    and see the actual tourists on the front steps of the Capitol.
    This database is being built on which all the utilities, etc.,
    for the District Government will be handled in due course. Next
    slide, please.
        This is a NOAA chart, and, again, you can see from this
    chart, it is fairly basic, but if we look at the next slide, we
    can see the detail of the same area, and this detail will allow
    us to hide buildings and obstacles that would be potential air
    obstacles for aircraft and/or sea obstacles for shipping and
    navigation.
        And the last slide, which we are going to move into, is
    when we need the glasses, and if you look at this image here,
    with your glasses on, please, you will actually see, I hope,
    that the image turns into a three-dimensional model. For the
    rest of the audience, you will not see that, but that three-
    dimensional model is produced by technology that we have in the
    private sector and have developed, admittedly with help of R&D
    from Federal agencies, but what I would like to see is that
    this technology that we have spent a considerable amount of
    time on being replicated with the Federal agencies, State, and/
    or local government agencies.
        So, again, this technology is what we are bringing forward.
    It shows that we can compete, and to summarize what we really
    want today is to be in a position where we can compete for this
    type of work and move people from government into the private
    sector where they can have first-rate jobs with great benefits
    and a great picture.
        Thank you, Mr. Chairman.
        Senator Brownback. Thank you, Mr. Logan.
        Next will be Larry Trammell, Corporate Vice President and
    General Manager, Science Applications International Corp. Mr.
    Trammell, welcome.

        LARRY TRAMMELL,\1\ CORPORATE VICE PRESIDENT AND GENERAL
           MANAGER, SCIENCE APPLICATIONS INTERNATIONAL CORP.

        Mr. Trammell. Thank you. I am pleased to be here today to
    speak on behalf of industry groups, and I thank you very much
    for your invitation, Mr. Chairman, and Subcommittee Members.
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        \1\ The prepared statement of Mr. Trammell appears in the Appendix
    on page 88.
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        By way of introduction, I am employed by Science
    Applications International Corp. to manage its services
    company. SAIC is primarily a scientific and information
    technology company who has provided services to the Federal
    Government for almost 30 years. We are members of many industry
    associations, including several of those represented today.
    From this perspective, I will be providing my views on the
    Federal Government marketplace.
        In order for Congress to require agencies to meet its
    balanced budget requirements, we believe there must be
    legislation that supports the concepts embraced in the bills
    before us today. We know that efficiency is required for
    survival in the competitive private sector. Likewise,
    government agencies owe it to the American taxpayer to be
    efficient.
        My discussion today is going to focus on six key principles
    pertinent to this legislation, and they are provided on the
    board to your right for reference.
        On the first point, let me say that industry supports the
    OMB guidance of what is and is not inherently governmental, and
    we acknowledge the need to retain core capabilities in the
    government. We in industry want smart, capable, and well-
    informed customers to ensure that we meet the right objectives
    to accomplish their mission. Our government partners must have
    the capability to conceive and oversee the work to accomplish
    its core mission.
        We also believe that there is no place for an agency to
    compete in the public market. As an industry, it is important
    for each agency to focus on its core mission and to procure
    from other sources those items which are non-governmental.
        We believe fundamentally that work which is not inherently
    governmental should be performed by industry. However, we
    concede to enter into a competition with the government
    activity for these non-core functions.
        On item two, industry's perspective on the current process
    for identification and selection of the right source is
    cumbersome and inefficient. It unfortunately focuses only on
    low cost. We understand that this legislation phases out these
    procedures in favor of a best-value selection of the right
    source to perform required services.
        In regard to item three, competition, even public-private
    competition, promotes general efficiencies and ultimately the
    most efficient organization. We know that quality is the key to
    effective and efficient performance, and higher quality may be
    worth a higher price. We need legislation to allow latitude to
    purchase at other than low price, and we are pleased to see the
    emergence of this concept in this legislation in order to
    assure that the American taxpayer receive the best value for
    the tax dollar.
        Item four, as mentioned, we advocate best-value awards and
    seek to ensure a level playing field for evaluation. The
    current approach does not require all costs of an activity to
    be reflected in the public estimate of a cost. We need a common
    approach to cost collection and reporting for both government
    and private sectors. Government has already embraced this
    concept, and industry supports that position.
        It will be a challenge for government to adapt to activity-
    based costing as it has been for our industry, but we are
    pleased to see the emergence of this concept in this and in
    previous legislation in order to assure a level evaluation.
        Item five, sometimes what we do not know can hurt us. This
    is the case with the current process in contracting out. There
    is no current requirement for an agency to identify all its
    opportunities to compete for efficiency. Industry supports this
    legislation which does require evaluation of all agency
    functions for competition.
        And, last, we understand that this will be a program which
    must have a time-phased implementation, and we believe the
    schedule set forth in the legislation is fair and reasonable to
    accomplish this important mission.
        Having made these key points, I would like to commend you
    and your Subcommittee for hard work on this important and long-
    needed legislation, and I offer our continued support.
        That concludes my remarks. I thank you again for this
    opportunity and stand ready to address any questions.
        Senator Brownback. Thank you very much, Mr. Trammel. We
    appreciate your being here, and I am certain we will have some
    questions.
        Douglas K. Stevens, Jr., Partner of Information Technology
    Services Group, under Grant Thornton, LLP, representing the
    U.S. Chamber of Commerce. Mr. Stevens, thank you for joining
    us.

    TESTIMONY OF DOUGLAS K. STEVENS, JR.,\1\ PARTNER OF INFORMATION
         TECHNOLOGY SERVICES GROUP, UNDER GRANT THORNTON, LLP,
               REPRESENTING THE U.S. CHAMBER OF COMMERCE

        Mr. Stevens. Thank you, Mr. Chairman. I have submitted
    written testimony, and would just like to make some brief
    comments, hopefully not too redundant with some that we have
    heard previously.
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        \1\ The prepared statement of Mr. Stevens appears in the Appendix
    on page 91.
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        Senator Brownback. Your testimony will be a part of the
    record.
        Mr. Stevens. I would like to comment on three very
    important points: First, very briefly on the state of the
    language of the draft bills that we have reviewed; second, on
    some of the problems with the current version of OMB Circular
    A-76; and, finally, on the activity-based costing language that
    is included in the House version of the draft bill.
        The current bills include two very major, very substantial
    changes from previous bills. The first is the addition of
    language about management competition, including the
    incorporation of activity-based costing, and the second is the
    inclusion of out-sourcing reporting requirements under the
    Government Performance and Results Act.
        The addition of the managed competition language should
    remove, in our view, previous objectives by the various players
    in this process, including the GAO, the OMB, and the Federal
    employees and their unions who wanted an opportunity to compete
    for work currently performed by the public sector and
    designated as commercial, rather than automatically awarding
    the work to a private sector organization.
        The inclusion of agency reporting requirements under the
    Performance Act is a critical mechanism, in my view, for proper
    congressional oversight of the conversion process without
    creating an entirely new reporting burden on the agencies.
        In the area of the problems with the current A-76 circular,
    the first problem that the proposed legislation addresses is
    the fact that the A-76 competition process is converted from a
    voluntary activity to a mandatory one.
        Chairman Brownback has heard testimony before his
    Subcommittee on this bill that government managers who have
    voluntarily decided to perform A-76's have found that a career-
    ending move. Therefore, government managers tend to avoid
    conducting A-76 competition and use excuses like lack of staff,
    budget time, or resources.
        Since the legislation before us not only makes the
    competitions for the agencies mandatory with the force of law,
    but it also provides reporting under the Performance Act, we
    believe that under the legislation, agencies will no longer be
    able to make excuses to Congress, and, very importantly,
    government managers will have the cover of a statutory mandate
    to perform the A-76 competitions.
        Second, the current version of A-76 allows for, but does
    not require a standard cost-accounting methodology such as
    activity-based costing. Thus, historically, agencies have had
    the option to adjust numbers to arrive at a desired outcome by
    using a different accounting system than the private sector
    organization competing is forced to use.
        The legislation before us requires that the agency consider
    as many as possible of the same cost that a private sector
    bidder would consider in a competition, and, really, it goes a
    long ways toward leveling the playing field in an A-76
    competition.
        The third problem with the existing legislation that we see
    is the inadequate inventory of commercial activities that is
    maintained by OMB, and the business community applauds the
    legislation's requirement that agencies prepare, maintain, and
    publish in the Federal Register a catalog of all the commercial
    work being done in-house.
        Finally, about activity-based costing and cost accounting,
    the House and Senate draft language on the issue of cost
    accounting is very different, and my comments pertain to the
    draft language from the House. We urge that the House language
    be incorporated in the Senate bill to make sure that the
    playing field is, indeed, level, and this opportunity to adjust
    cost figures is eliminated.
        The point of using activity-based costing is to ensure that
    any comparable analysis between a government bid and a private
    sector bid used a comparable and comprehensible cost-accounting
    methodology. While there are a number of cost-accounting
    methodologies that could be used, we believe that activity-
    based costing provides the easiest method for obtaining similar
    information from both parties and information that can be
    easily understood.
        A couple of, perhaps, technical points. We believe that the
    cost-accounting standards board ought to be included in the
    commenting process on the bill. The cost-accounting standards
    board is the entity that governs cost-accounting standards for
    private sector companies, and, therefore, ought to have a
    legitimate role because it makes the rules that oversee the
    government contractors that will be bidding.
        Finally, there is an issue about recognizing the cost of
    taxes in a private sector bid, and our approach is to simply
    recommend that both the government and private sector bids not
    include taxes as a cost item, so that the measurement is
    straightforward.
        Thank you.
        Mr. Horn [presiding]. Well, we thank you for that excellent
    statement. I particularly appreciate you tying it into the
    actual legislation and what should be incorporated and moved
    wherever.
        We now begin with the various employee groups. Robert
    Tobias is president of the National Treasury Employees Union.
    Mr. Tobias.

       TESTIMONY OF ROBERT M. TOBIAS,\1\ NATIONAL PRESIDENT, THE
                   NATIONAL TREASURY EMPLOYEES UNION

        Mr. Tobias. Thank you, Mr. Chairman.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Tobias with attachments appears
    in the Appendix on page 97.
    ---------------------------------------------------------------------------
        NTEU is very concerned that the legislation we are here to
    discuss today represents a philosophical predisposition, rather
    than a data-driven decisionmaking process concerning who can
    deliver products to the taxpayers faster, better, and cheaper.
    There is no data. There is no evidence that the private sector
    is automatically better just because it is the private sector.
    Rather, there is a great deal of evidence that just the
    contrary is true.
        It is also important to keep in mind that contracting work
    to the private sector does not make it private sector work. It
    remains government work performed by the private sector under
    the supervision of the government for the benefit of the
    public.
        The issue is who will perform the work and at what cost,
    not whether the work will be performed. Therefore, the
    appropriate question is who can perform the work faster,
    better, and cheaper.
        It is not as though the Federal Government does not use
    contractors with the private sector, $108 billion is spent in
    salary and benefits for Federal employees, and the minimum
    amount spent on private sector contracting is $120 billion, and
    some estimate it is three times that amount.
        And we know that the current contracts have led to
    astronomical amounts of waste and fraud that have been well
    documented by both GAO and OMB. The GAO has brought to
    Congress' attention examples of millions of dollars of missing
    government property that has been turned over to contractors,
    and they admit their numbers are probably understated by
    millions of dollars. They have documented instances of
    unallowable and questionable overhead costs, and they have
    suggested that this matter is a significant and widespread
    problem, costing Federal agencies and the American taxpayers
    potentially hundreds of millions of dollars annually.
        I have with me today just a few of the relevant GAO and OMB
    documents on this topic, and I ask that they be made part of
    the record.\1\
    ---------------------------------------------------------------------------
        \1\ The documents submitted by Mr. Tobias appear in the Appendix on
    pages 116-275.
    ---------------------------------------------------------------------------
        Mr. Horn. Without objection, so ordered.
        Mr. Tobias. They raise serious issues, and they cannot be
    ignored.
        Both GAO and OMB have repeatedly pointed out that the
    Federal Government is unable to adequately supervise all the
    contracting it undertakes now. They have provided detailed
    examples of contracts where the Federal Government could save
    roughly 50 percent by performing the work in-house. They
    highlight contract cost overruns, poor or nonexistent
    oversight, lax management of contracts, as well as outright
    fraud and abuse in the billions of dollars.
        Some of these reports are more than 5 years old. Some are
    relatively new. Yet, nothing has been done to address the
    problems they highlight. Contract management and oversight are
    not only within the jurisdiction of these Committees, they are
    part of the names of these Subcommittees. Yet, when we ask why
    the abuse and waste detailed in these studies is not addressed
    in this legislation and why procedures are not put in place to
    prevent such abuses in the future, we have been told simply
    that this is beyond the scope of this bill.
        We believe that contract reform must start with reform of
    the oversight of the existing contracts before there is any
    consideration of additional contracting out. This legislation
    would also do away with A-76 which currently governs
    contracting out. We fear that this will only lead to more
    contracting with less cost comparisons.
        Currently, 40 percent of contracts are let without
    competition and cost comparisons. We need more competition, not
    less. Congress should mandate the use of A-76 before any
    contract is considered, not eliminate A-76.
        This legislation would effectively remove congressional
    oversight, allow work performed by the U.S. Government to be
    done in foreign countries, and contains no safety net for
    current Federal workers who might lose their job.
        Finally, the legislation does not allow the Federal
    Government to compete for the work once it is contracted out.
        Administrations come and go. Congresses, too, come and go.
    I suggest that we do not want the spirit of public service to
    come and go. There are many services the public sector provides
    that it should provide. We should not, on a political whim,
    decide that our sons and daughters will be forced to depend on
    a succession of private sector contractors to provide
    government services, maybe reasonably, maybe not, maybe more
    efficiently, maybe not. This legis-
    lation would truly shut down the Federal Government, not all at
    once as legislation eliminating Federal agencies would do, but,
    over the long term, the effect would be the same.
        The system in place now may not be perfect, but it is
    accountable, and contracting out Federal services must continue
    to be evaluated on a case-by-case basis. To do otherwise
    ignores the problems pointed out time and again by GAO, OMB,
    and the many private organizations who have completed their own
    studies. I encourage the Members of the two Subcommittees
    present today, as well as this Congress, to reject the
    legislation that is before you.
        Thank you very much.
        Mr. Horn. Thank you very much.
        Our next witness is Bobby Harnage, the president of the
    American Federation of Government Employees. Your statement
    will be automatically included in the record.

         TESTIMONY OF BOBBY L. HARNAGE,\1\ PRESIDENT, AMERICAN
                   FEDERATION OF GOVERNMENT EMPLOYEES

        Mr. Harnage. Thank you, sir.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Harnage appears in the Appendix
    on page 276.
    ---------------------------------------------------------------------------
        Chairman Brownback, Chairman Horn, and Members of the
    Senate and House Government Management Subcommittees, I want to
    thank you for allowing me this opportunity to give AFGE's views
    on the latest version of the Freedom of Government Competition
    Act.
        Chairman Brownback, my predecessor, the late John
    Sturdivant, testified before your Subcommittee last year on
    this legislation, and he later told me, after he appeared at
    your Subcommittee, that you did conduct a very fair hearing on
    the legislation, even though you happened to be one of the co-
    sponsors, and I thank you for that, as well as the insights
    that the Majority staff on the full Committee have shared with
    AFGE prior to this hearing.
        Senator Brownback. I remember him as just an outstanding,
    wonderful member, a person with this great soul, too. He was a
    wonderful man.
        Mr. Harnage. Yes. We miss him.
        And, Chairman Horn, let me thank you for your willingness
    to work with AFGE on your recent travel card legislation, as
    well as the interest you have shown in making child care more
    affordable for lower-income Federal employees.
        When AFGE last testified on the legislation that we are
    concerned with today, we had several constructive suggestions:
    Improving OMB Circular A-76 and requiring cost comparisons for
    all service contracting; lifting arbitrary personnel ceilings
    which cause wasteful contracting out; developing a better
    understanding of the contractor work force; improving contract
    administration; ending contractor's incentive to avoid unions
    and shortchange workers on their pay and benefits; and
    encouraging labor-management partnerships to make the
    government even more effective.
        I regret to report today that not even a single suggestion
    AFGE has made managed to sneak into the draft legislation we
    are considering today. Consequently, I am baffled that this
    legislation is actually being characterized as a compromise.
        I am even more baffled to hear contractors continue to
    complain about not getting enough taxpayer dollars. The
    government already contracts out for services in excess of $110
    billion annually, an arbitrarily low number which does not come
    close to indicating the private sector's deep involvement with
    the Federal Government.
        With an administration that has consistently racked up the
    highest service contracting-out bills in the Nation's history
    and a series of Congresses that cheer on privatization more so
    than anyone which preceded them, contractors should be
    celebrating their good fortune in grand style.
        Attributing the failure of contractors to dig even deeper
    into Treasury to a conspiracy not to use A-76 often enough to
    suit the private sector, the legislation under consideration
    today includes provisions that would put most of the government
    up for sale over 5 years. Contractors are obviously frustrated
    at the increasing success of Federal employees in competition
    under OMB Circular A-76. Formerly, Federal employees lost 7 out
    of 10 competitions. Now we are winning 50 percent of those
    competitions. This is not the result of unfair competition for
    the contractors. It is the result of reinvention-of-government
    initiatives and MEOs. Contractors want to junk OMB Circular A-
    76 in favor of a more pro-contractor framework. This is not
    about saving taxpayers' dollars. It is about privatization at
    any cost.
        It is said that this legislation simply establishes a
    process by which the Executive Branch can create a fair system
    for public-private competition. Since the framework which would
    succeed A-76 itself is not yet formed, the legislation sponsors
    are imploring a don't-worry-be-happy strategy. To Federal
    employees, your concerns will be dealt with later. Well, I was
    taught at a very early age not to buy a pig in a poke. I am not
    about to change my way this late in life.
        Federal employees are justifiably apprehensive at the
    prospects of a competitive framework that politicians and
    contractors might devise in place of A-76. At a time when some
    politicians' minds are impaired by notions that the public
    sector can do nothing right, now is not the time to rewrite the
    rules for Federal service contracting, public-private
    competitions, if we truly want to save money for the taxpayers
    and ensure that inherently governmental services continue to be
    performed by Federal employees. And the often one-sided
    approach of this legislation providing detailed instructions
    about how to calculate in-house overheat, but conspicuously
    solid on contracted in and the most efficient organization
    process, it only increases our suspicions.
        Let us talk about the most important reason why this
    legislation is not designed to ensure fair competition, its
    complete and total failure to even address in-house personnel
    ceilings that force agencies to contract out work, even at
    higher costs because of shortage of Federal employees, a
    practice which has been extensively documented by GAO, OMB, and
    other agencies.
        Finally, I note that this legislation does absolutely
    nothing about the dismal state of Federal contract
    administration. The details are provided in my testimony, but,
    clearly, there is no doubt that we are losing billions of
    dollars every year because of waste, fraud, and abuse in
    Federal contracting. Lawmakers considering this legisla-
    tion need to ask themselves a very simple question. If it is
    manifestly clear that the taxpayers are being billed for
    billions of dollars in contractor waste, fraud, and abuse every
    year as a result of the $110 billion in service contracting
    currently undertaken, just what sort of extraordinary budget-
    busting losses will we see when over a 5-year period the total
    Federal Government is put up for bid?
        Mr. Chairman, I appreciate the opportunity to appear before
    you today, and I look forward to answering your questions.
        Mr. Horn. Well, we thank you for that very full statement,
    and we appreciate the timeliness with which you could deliver
    it. I have never seen a panel so good as all of you that have
    come within the 5-minute side, and it is sort of ironic. We are
    in Senate territory, and on the House territory, I can never
    get you to stop, but we thank you all for what you have done on
    this.
        We now have our last panelist, and then we will have
    questions. Michael Styles is the national president of the
    Federal Managers Association. Mr. Styles, it is a pleasure to
    have you here.

    TESTIMONY OF MICHAEL B. STYLES,\1\ NATIONAL PRESIDENT, FEDERAL
                          MANAGERS ASSOCIATION

        Mr. Styles. Thank you, Mr. Chairman.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Styles appears in the Appendix on
    page 337.
    ---------------------------------------------------------------------------
        In an effort to stay within the 5 minutes, I would like to
    just comment briefly on the statement and some of the comments
    that were made here today by other presenters.
        One thing I would like to say, I am sorry that
    Congresswoman Maloney left because I was born and raised in the
    Bronx, and current privatization and contracting-out policies
    have offended my sensibilities as well.
        And I also think that Congressman Kucinich said it best
    when he said ``of the people, by the people, and for the
    people.'' That is what government is all about, and I think
    what we have now is a misconception.
        What we are talking about with the right-sizing of
    government, we say that we are shrinking the size of
    government. The American taxpayer believes that as we shrink
    the Federal work force, we are actually shrinking the size of
    government, and my premise is this, that moving work from one
    sector to another does not, in fact, shrink the size of
    government. It just moves the work from one sector to the
    other.
        I believe that there are more than 1.8 million people
    working for the Federal Government. I believe there are
    approximately 10 million people. I do not know for sure, but I
    think it is something that we should look to because everyone
    who has contracted or had contracted work with the Federal
    Government works for the Federal Government.
        A question was asked earlier about reinventing government.
    I remember that we went through this in several phases. The
    first phase was to say let us cut 272,900 Federal employees.
    That was an arbitrary number that was brought about by the
    administration to go out and cut Federal employees. The second
    phase said to go up into the 400,000 range, and along with the
    second phase, people said, ``And, by the way, let us take a
    look at the agencies that these people work for and consider
    their mission.'' I think we had it kind of backwards, and I
    think what we are responsible for is providing the best
    service, the best quality service for the lowest price to the
    American taxpayer.
        If you take a look at some of the organizations that we
    have downsized to date, recently at a National Partnership
    Council meeting at our national convention, we had a
    presentation that was made by NAVAIR. In that presentation, we
    talked about cutting the infrastructure by 56 percent, cutting
    the work force by 49 percent, and most people would say to you
    that we were shrinking the size of government, becoming more
    efficient, quite the contrary in the sense that we are now
    contracting out more of the services that were performed at
    those installations, and, more importantly than that, we have
    undermined our ability to provide immediate response capability
    and surge capacity in those arenas.
        I think that as we look at the overall issue of contracting
    out, we have to look at some of the challenges that face us.
    There are two primary concerns that FMA has. One is the fact
    that contractor strikes can be imminent. We have in our
    testimony several examples of that, but I would like to share
    with you one on a personal note.
        I went to an FMA-FAA conference-convention, and while we
    were there, we were given a presentation by Airways Corporation
    of New Zealand, and they talked about the privatization of the
    New Zealand FAA. It was quite an impressive presentation. When
    I asked of the presenter whether the now-privatized New Zealand
    FAA controllers could go on strike, he said sure. I said,
    ``Well, what happens if they do?'' He said, ``They are above
    that.''
        Well, that was in October of that year, and I got a
    Christmas card which I brought with me, which I thought is kind
    of neat because it was approximately 2 months later. It says,
    ``Mike, you may have heard that the New Zealand controllers
    went on strike over the conditions for their contract. It is a
    long story with many interesting features and some personal
    agendas. I will be writing to Bill,'' and blah, blah, blah,
    ``to let you know how it comes out.''
        I think it is important for us to take a good look, a good
    hard look at what it means to have a very competent skilled
    work force working for us that is a strike-free work force.
        Another point that we have issue with is the fact that we
    do not very effectively track the cost of contracting. In our
    recommendations, and I will get to them in a little bit, we do
    recommend that we track the cost of contracting, and I believe
    Congressman Cummings has put forth a bill before the House to
    do exactly that.
        Along with this, I believe that if you take a look at Seal
    Beach Weapons Station--I was going to call them ``Chapter 55.''
    I apologize. The situation that you mentioned earlier when you
    talked about the weapons station at Seal Beach is a very
    important one. We talk about the skilled labor that we have
    within the Federal work force, and if you take a look at the
    awards that have been won by the managers and supervisors at
    that installation and the employees, you are talking about the
    Government Hammer Award in 1995 and 1996, the Bronze Eureka
    Award, California's equivalent to the Malcolm Baldridge Award
    in 1995, and the Silver Eure-
    ka Award in 1996 and 1997, and they have just recently learned
    that they will be a part of this process.
        Now, I realize that you have excluded the depots from this
    process, and we appreciate that very much, but we are worried
    about those other military entities as well who fall within
    that definition that I provided before about immediate response
    capability and surge capacity. I think these are issues that we
    must look to, and I hope that we do in the future.
        Thank you very much.
        Mr. Horn. Well, we thank you.
        I am now going to yield my time, 5 minutes, to the Vice
    Chairman of the House Subcommittee on Government Management,
    Information, and Technology, Mr. Sessions of Texas.
        Mr. Sessions. Thank you, Mr. Chairman.
        Dr. Kelman, I would like to address some of my questions to
    you, if I could, first. I heard your testimony and have read
    part of what you provided here. I think you were talking about
    a balance in order to achieve this legislation.
        I have heard from people here who are also equally on both
    sides of this issue. Can you play out for me to the benefit of
    the taxpayer--you have served on both sides, academic and
    within the administration--what you believe those advantages
    and/or disadvantages, once again, both sides could be?
        Mr. Kelman. Yes. I think that we do need to keep in mind
    the big picture, which is that the overwhelming amount of
    evidence, both at the Federal level, the State and local level,
    and even, again, the private-to-private level, to the extent we
    have evidence. Is that when you subject activities such as
    these to competition, costs tend to go down, typically quite
    dramatically, 20-percent declines are not at all uncommon, and
    quality tends to get better?
        I mean, the idea of competition, which is the base on which
    our marketplace system functions, also has its place in the
    public sector in non-core functions.
        I agree with Congressman Kucinich, there are core
    government functions, core missions, decisions that we make as
    a people democratically that should be implemented by Federal
    employees, but that does not apply to grounds operations,
    payroll checks, a lot of the medical services that are
    delivered in-house by the Defense Department, and lots of the
    commercial activities that are currently delivered in-house
    without competition do not fall within that category. So I
    think the benefits of competition are pretty straightforward.
        I guess I was surprised to hear from some of my colleagues,
    the union witnesses, these statements about the Federal
    Government is unable to oversee these contracts. I am surprised
    that they have such a disparaging view of Federal workers. I
    believe that our Federal work force is perfectly capable of
    overseeing these contracts. They are overseeing the contracts.
    I am also surprised to hear cited a number of IG and GAO
    investigations. These are exactly the kinds of studies that
    when they are done about Federal programs, friends of
    appropriate government, friends of government say, correctly,
    these are extreme examples, these are unusual examples, do not
    assume they are typical, the sort of thing that is on
    ``Fleecing of America'' that many of us, I assume, the union
    witnesses and I, often blanche at seeing.
        I am somewhat surprised and disappointed to hear some of
    the union witnesses cite similar kinds of ``horror stories''
    with reference to contract oversight. Almost all of those
    examples of problems in contract oversight that were cited by
    some of the earlier witnesses involve some of the more esoteric
    kinds of contracts, often sometimes sole source for various
    reasons. These are not the mainstream of commercial activities,
    which it is very, very feasible using performance-based
    contracts, gain-sharing, fixed-price contracting. There are
    well-known techniques that the administration has been
    promoting as part of procurement reform that allow us perfectly
    well to oversee these contracts.
        Mr. Sessions. Thank you.
        Mr. Stevens, there were some discussions, and I believe it
    was Mr. Logan who talked about the mapping. Was it you, Mr.
    Logan?
        Mr. Logan. That is correct.
        Mr. Sessions. Can you please tell me some of those
    functions that might mean to you--what were they? Core and out-
    sourcing? Not referring to Mr. Logan, but Dr. Kelman. Was it
    the core?
        Mr. Kelman. Yes, core and non-core.
        Mr. Sessions. OK. Can you tell me in your opinion what
    might be core and not core, just in a brief minute or so,
    please? Then, Mr. Styles, I would like to ask that you and Mr.
    Harnage answer that also, please.
        Mr. Stevens. I really would rather not comment on that. I
    am here largely as a technician and simply can tell you that
    once those things are defined, if the playing field is level
    and the proper methodologies are used, the competition will be
    fair.
        Mr. Sessions. Because, evidently, the agencies will be
    determining these things.
        Mr. Harnage, do you have any comment on that, or concerns?
        Mr. Harnage. What was your question again?
        Mr. Sessions. Well, essentially, in this legislation, there
    will be a determination made of what is core and then, in
    essence, what is for competition. I have heard you talk about
    the concerns that you have. Do you have any concerns about that
    utilization or how that would be used that might be to a
    disadvantage for a government employee?
        Mr. Harnage. Well, I think our first concern was going to
    be the amount of litigation that this bill is obviously going
    to create whenever that can be challenged. What is decided to
    now be inherently government is now subject to the courts of
    where it is not before, and, oddly enough, the only thing that
    can be challenged is when it is not decided to be contracted
    out. It cannot be challenged if it is decided to be contracted
    out. I think that is a very unfair advantage to the contractor
    or disadvantage to the Federal employees, but we are not about
    more litigation. We do not think this belongs in the courts. We
    think this belongs in the upper management decisions. We think
    this belongs in Congress and in making their decision and
    passing the laws that look into these matters. I just do not
    agree that litigation is the process.
        Mr. Sessions. Mr. Styles.
        Mr. Styles. Yes, sir.
        Mr. Sessions. Mr. Chairman, if I might----
        Mr. Horn. Yes. As long as you ask the question in the time
    period in which you did, we let anybody that wants to answer
    it, and we will do the same with the gentleman from Ohio.
        Mr. Styles. I thank you very much.
        U.S. law, Title X, Subtitle A, Part 4, Chapter 146,
    specifically designates,

              The necessity of the Department of Defense to keep core
            logistics functions within the U.S. Government. It is essential
            for the national defense that the Department of Defense
            maintain a core logistics capability that is government-owned
            and government-operated (including government personnel and
            government-owned and government-operated equipment and
            facilities) to ensure a ready and controlled source of
            technical competence and resources necessary to ensure
            effective and timely response to a mobilization, national
            defense contingency situations, and other emergency
            requirements.

        When I talk about immediate response capability and surge
    capacity, I am talking about the men, the women, the machines,
    and the drydocks. All of those things are essential to the
    readiness of this Nation.
        So, when we talk about core, we are talking about all of
    those entities. When you downsize and not right-size, when you
    contract out--and I will use an example here. I will use the
    shipyards, which is a good example. When we lost Brooklyn Navy
    Shipyard, let us say, all of those resources were given to the
    private sector. What happened was the drydocks and other things
    went into decay. We lost a resource.
        Now, understandably, we are in a new era. What we have to
    do, though, I believe, is as we are downsizing or right-sizing,
    as I would like to see it, when you talk about competition, I
    believe the public sector should be able to compete with work
    in order to maintain the skill levels at their depots and other
    organizations so that they do not lose that force and readiness
    at time of need.
        Mr. Tobias. Mr. Sessions, I think that the issue that we
    are talking about here is who defines ``core government
    function,'' and what this legislation would do would be to
    allow the courts to define ``core government function'' in the
    context of litigation, as opposed to the Federal Government and
    the Executive Branch defining ``core government function.'' I
    do not think that the courts ought to be defining what is a
    ``core government function,'' and this legislation would allow
    that to occur.
        Second, in response to Mr. Kelman, who was surprised about
    these horror stories----
        Mr. Sessions. Mr. Tobias, I asked that question, and I
    would not like to engage in anything that would be considered
    pitting one Member of this panel against another. And I do
    appreciate your comments. I would be pleased to hear that when
    we get finished, that you may give that to me, but I would----
        Mr. Tobias. Thank you.
        Mr. Sessions. Thank you.
        Mr. Horn. Well, for the next round. I now yield 5 minutes
    to the gentleman from Ohio, Mr. Kucinich.
        Mr. Kucinich. Mr. Chairman, thank you very much.
        In reviewing this testimony, I am struck by what I would
    call the epistemology of privatization, and, certainly, Dr.
    Kelman, as a Har-
    vard professor, understands the connotative as well as the
    denotative meanings of words and phrases.
        I was struck by your assertion that this is a non-
    ideological profession, and, yet, when I see language which
    speaks of the marketplace, leveling the playing field,
    downsize, that certainly carries with it a particular and
    peculiar kind of logic. How do you stand on your assertion that
    this is not ideological, when, in fact, it seems to be replete
    with references to a more corporate approach toward
    interaction?
        Mr. Kelman. I agree with your concern about what words
    connote as well as what they denote. With Professor Horn in the
    audience, you should maybe continue----
        Mr. Kucinich. I have done a little teaching myself.
        Mr. Kelman. I understand. So we have three teachers here.
        Here is what I would say. What I would say is--I am here
    speaking for myself--I care very deeply about the ability of
    government to work effectively because I believe that
    government performs some very crucial roles in our society.
        If you look at the polls, the biggest threat to the
    standing of government in the eyes of the American people--if
    you ask the American people--and you see all these polls about
    the high level of public dissatisfaction with government. If
    you look at the most recent Pew Foundation poll that was on the
    Federal page of the Washingotn Post a few weeks ago, what you
    will find is most Americans agree with the goals, more or less,
    that government is undertaking, but believe that government
    wastes a lot of money and is not managed effectively.
        I believe that we need to concentrate the effort of our
    Federal executives and leaders on taking overall responsibility
    for the core policy-making and policy implementation tasks of
    government.
        I believe that through increased use of out-sourcing, just
    as is done commercial-to-commercial in the commercial world, we
    can get government to be more effective, more efficient, and
    save and turn around the reputation of government in the minds
    of the American people.
        So I believe, actually--I say this not to be ideological
    because people who do not share my ideology might favor this
    for other reasons--but, speaking for myself, as a friend of
    government, as a former government employee, and as somebody
    who is teaching kids who are going to work in public service,
    who have chosen not to go to a business school, they have
    chosen to study public policy and to work in public service,
    that is what I have sort of devoted my life to. I care about
    these things.
        I believe that the appropriately increased use of out-
    sourcing even from an ideological perspective--this is not an
    ideological issue, but from my ideology, I would say that it is
    an important way to salvage the standing and status of
    government in the minds of taxpayers.
        Mr. Kucinich. I would like to ask you, Doctor. You spoke
    earlier about holding government employees harmless in a period
    off privatization. Could I ask you, does that go to supporting
    government employees, if they are in a transition, to a
    privatized function, having the same level of benefits, the
    same level of wages, the same pension rights? Do you support
    that?
        Mr. Kelman. That is a fair question to ask me.
        Mr. Kucinich. Do you support it?
        Mr. Kelman. Hold on. I think that has to be looked at on a
    case-by-case basis. Keep in mind that when----
        Mr. Kucinich. OK. I just want to point this out. Reclaiming
    my time, with all due respect, Doctor.
        Mr. Kelman. OK.
        Mr. Kucinich. On the one hand, one of the witnesses--I
    think it was Mr. Logan--said go to the private sector, get a
    great job. Well, terrific, let us do it, but if we are going to
    make that transition to the private sector, as Mr. Logan
    advocates--thank you--then your profession is that we want to
    hold--your words--hold harmless the government employees. Then
    why can't they have the same wages and same benefit levels and
    same pension levels?
        And I will tell you why they do not, because that takes the
    profit out of the deal. If you do that, there is no profit. So
    the profit here in privatization comes from the wages, the
    benefits, and the pensions of public employees, and a
    consequent service reduction. I mean, I have seen that happen
    in local government. So I just wanted to point out why it is
    very vexing for such an esteemed professor and doctor as you
    are, and you are, to be able to answer without qualification
    the question about what would happen with respect to government
    employees. It is a very difficult issue, Doctor.
        Mr. Kelman. No, I agree it is a difficult issue, and I
    think there are all sorts of pluses and minuses that might come
    to employees when they move into the private sector. They get
    part of a larger firm with more promotion opportunities and so
    forth.
        Mr. Kucinich. You are right. Doctor, the red light is on.
        Mr. Kelman. Fine.
        Mr. Kucinich. But may I say that, to use another private
    sector euphemism, it is called the bottom line.
        Mr. Logan. I would like to take exception with that. It was
    I who said there were opportunities in the private sector. I
    have employed people recently at higher wages and better
    medical benefits joining our firm from Federal agencies.
        And one thing that I would like to say is if we knew a
    better way to understand the Federal employees, knew a better
    way to understand what their various pension rights and whatnot
    are--and I should be promoting a program called Soft Landing
    that--that we would be able to get more people to leave the
    government and join the private sector, but there is confusion
    in that area right now, and I think there should be some help
    to the employees, the government employees, to help them come
    across to the private sector. But I must re-assert that those
    people are leaving the government and coming into my profession
    at higher salaries, with better benefits than they had when
    they left the government, or why else would they have
    voluntarily left the government?
        Mr. Kucinich. That is a fine example you are setting for
    the rest of the private sector.
        Mr. Logan. And I think that is not alone. I can tell you
    right now that there are 118 firms in my association, and there
    are Federal employees who could get jobs with all of them right
    now, in almost 50 States of this Union, if they wanted to go
    there and have a better career path than they had with
    government, and they will actually tell you that, if you
    sometime want to take time and come out and talk to some of my
    ex-Federal employees.
        Mr. Kucinich. I am impressed with your presentation, and I
    look forward to you setting the standards for the rest of the
    private sector. Thank you.
        Mr. Horn. I believe Mr. Trammel wanted to answer your
    question, also, and that is fair game.
        Mr. Trammell. I would just like to make a comment in regard
    to what Mr. Logan was just talking about. We, too, have one of
    the Soft Landing contracts from the government, which brings
    some of the Federal employees into the private sector, and I
    have had the exact same experience at our company (SAIC) as he
    just described in regard to being able to provide equal or
    greater-than benefits in every area, including vacations and
    holidays and health and welfare benefits, etc.
        Also, I would like to interject that our industry is
    governed by certain laws, including the Service Contract Act,
    which mandates certain wages to be paid to hourly employees,
    and contractors take that law very seriously.
        In fact, we can be debarred from doing any government
    business for not being in compliance with that law. I assure
    you that government service contractors take that law very,
    very seriously. In our associations, for instance, the Contract
    Services Association has developed a specific training course
    in consonance with the Department of Labor. Actually,
    Department of Labor officials teach that course twice a year
    here in the D.C. area. Every time we teach that course, we have
    an overflow of contractors and government employees which
    attend those sessions.
        Mr. Tobias. Mr. Kucinich.
        Mr. Horn. Excuse me. Mr. Tobias, and then Mr. Styles.
        Mr. Tobias. GAO's follow-up with employees who have been
    involuntarily separated or went to work with contractors reveal
    that over half received unemployment compensation or public
    assistance.
        Mr. Kucinich. Over half or under half?
        Mr. Tobias. Over half. Moreover, 53 percent who went to
    work for contractors said they received lower wages with most
    reporting that contractor benefits were not as good.
        Mr. Kucinich. What are you saying? Lower wages?
        Mr. Tobias. Moreover, 53 percent who went to work for
    contractors said they received lower wages with most reporting
    that contractor benefits were not as good. That is a GAO
    follow-up with work that is contracted out.
        Mr. Kucinich. I think the panel has established there are
    some people who want to pay people more, but we have to also
    establish for the record that there are some people who want to
    pay less.
        Mr. Logan. I would like to just say that I also disagree
    with your comment that the profit comes from paying people
    less. I believe the profit comes from better utilization of
    hardware or software, in our case, and better utilization of
    the work force.
        When we started to do some work for some Federal agencies,
    those specs we were given were maybe 2-foot high. We have
    reduced that now to two pages of everybody's effort, including
    the team from the government side, and we are able to produce
    data faster, better than ever before.
        Mr. Kucinich. Sir, if I may, you have acquitted yourself
    quite well as to what you do.
        Mr. Logan. I am not asking of myself personally.
        Mr. Kucinich. But when you show us these pictures--what
    altitude are they taken from?
        Mr. Logan. Well, which ones are you referring to?
        Mr. Kucinich. The one where you--the picture of the White
    House.
        Mr. Logan. That one was taken at 8,000 feet.
        Mr. Kucinich. OK. Well, when you show us those pictures
    that are taken at 8,000 feet and you give us testimony that you
    are providing a soft landing for your employees, I just wonder
    if there are some people who are being dropped from 8,000 feet
    or we have people who are making--53 percent making less money.
    They are not landing soft. They are landing with a thud. So we
    have to distinguish between people like you who are testifying
    as to your sincerity to make sure that your employees are going
    to be given top-notch treatment, and, that is the right thing
    to do, and I congratulate you for that.
        And, on the other hand, Mr. Tobias produces a GAO report
    which says not working for everyone. So just comparing
    records----
        Mr. Horn. Mr. Styles.
        Mr. Styles. There are two things that I would like to
    reflect on here. One, we keep coming back to this thought or
    notion that the Federal managers themselves are not doing a
    fine job in effecting the best quality service for the American
    people.
        Our work force, if anybody wants to take a look at it, is
    the finest work force assembled in the history of the world,
    and all we have done is berate and belittle that work force.
    Quite frankly, in public and in this House, I think we should
    show great respect for the things that are done on a daily
    basis by the American people working for the public sector.
        A little earlier, also, a Senator made a comment that we
    had to--the taxpayer. Well, guess what? All of us who work for
    the Federal Government are taxpayers as well.
        And I would also say that on those instances where we do
    pay more or pay a decent wage to our folks who are being
    privatized or contracted out, if you take a look at Louisville,
    Naval Weapons Station, or you take a look at Newark Air Force
    Base, then you look at the privatization aspect of it, and now
    it costs $40-something-million a year more to operate those
    facilities. So who is getting the biggest bang for the buck?
    Are the American people getting the biggest bang? Not hardly.
        Mr. Horn. OK. I thank you.
        Mr. Kucinich. Mr. Chairman, I must----
        Mr. Horn. Your time has long since expired.
        Mr. Kucinich. It has, and I understand that. I want to
    thank the Chair for his generosity and for helping to create
    the circumstances for this hearing.
        I have to go to another meeting right now, but I want to
    thank you for what you have done to create this moment, and
    also thank all the Federal employees who are out there for the
    work that they do. Thank you.
        Mr. Horn. I thank the gentleman and wish him well. I now
    yield to the Vice Chairman, the gentleman from Texas, Mr.
    Sessions.
        Mr. Sessions. Well, thank you, Mr. Chairman.
        The part of the discussion that has invoked my brain into
    asking questions that are probably off the legislation--and I
    do not know whether there is anybody that would object to the
    germaneness of this discussion, but the question begs to me, is
    there something that the Federal Government should do to help
    this Soft Landing? You are looking at a person who spent 16
    years working for a private firm, who left. I was not able to
    take my benefits with me, chose not to accept the government--
    and I do not know which side this is trying to help, but did
    not accept the health care that the government offers from the
    House of Representatives because it was worse than what I had
    in the free market, and have chosen to continue buying that,
    but are there things that we can do, Mr. Tobias, Mr. Harnage,
    and Mr. Styles, to make this Soft Landing easier within how the
    government treats a departing employee that we should look at?
    Mr. Tobias.
        Mr. Tobias. I think the answer to that is yes, Mr.
    Sessions. I think that, certainly, no employee who loses a job
    with the Federal Government is----
        Mr. Sessions. Through no fault of his own, especially, or
    her own.
        Mr. Tobias. Through no fault of his own, loses his or her
    job, is not entitled to pay at a level that is equivalent to
    the pay received in the Federal Government, is not entitled to
    benefits equivalent to the benefits of a Federal employee, and,
    in fact, is not entitled to a job at all.
        Some employees may be offered a job, but others not, at the
    discretion of the private sector employer. So there is no real
    safety net for folks who do lose their jobs as a result of
    contracting out.
        Mr. Sessions. I guess my question is, is there something
    inherently involved with employees who default the Federal
    Government, that we could change those circumstances that make
    it better and easier for them, unrelated to where they are
    going, but from what they are departing, from what they had? So
    I guess I am really talking about benefit plans, things that
    they had earned while in the government that they could begin
    taking advantage of earlier.
        Mr. Harnage.
        Mr. Harnage. Well, there probably are some, but I think if
    we get into that area, you are going to have two arguments, and
    we have argued about this fairness for years. And I do not know
    that we will ever agree on it, but if you are talking about
    being able to carry some benefits into the private sector, you
    are doing one of two things. Either the contractor is going to
    be arguing that it is no longer fair because they are incurring
    that additional cost that they otherwise would not, or the
    government is going to have to be subsidized. In that case, the
    taxpayer is paying for it, anyway, so why don't we go to the
    private sector to start with.
        Congress has been very good in the past in those areas of
    downsizing, reinventing government, developing Soft Landings,
    in the BRAC shutdowns, and retaining Federal employees. It has
    done well in that area, but it has done absolutely nothing when
    it comes to contracting out. I think we need to look at those
    experiences in reinventing government and downsizing to draw
    information from what can the government do.
        Mr. Sessions. Good. Mr. Styles.
        Mr. Styles. I think that especially in the Department of
    Defense, they have done well as far as placing people, training
    people, ensuring that there is a smooth transition for them. I
    think other agencies have to learn a lot from that. I think
    that cross-agency placement is essential if we are going to be
    successful, but I also think that what Mr. Harnage just said is
    something to look at.
        Contracting out should not be mandated. Contracting out
    should be a management tool to ensure the provision of the
    finest services to the American people. When we talk about what
    should be and what should not be contracted out, I think that
    should be a management decision within an organization.
        When I told you earlier that the NAVAIR organizations were
    cut 56 percent in infrastructure and 49 percent in personnel,
    they are still being mandated to contract out. Now, there is
    something wrong with that because, as I said before, you are
    now drifting past that point of no return.
        When the skills within the work force are gone, what you
    talked about, core is no longer with us, and that goes across
    the board throughout all of the agencies, if you will. Once you
    get past that, you cannot compete.
        Mr. Sessions. Mr. Chairman, I would like to state that for
    the people who are gathered before us, not only in panel, but
    also these people who are in this room, that I do believe that
    this hearing today has been very good. I believe that there are
    Members of this Committee and Subcommittee who will take very
    seriously the remarks that have been made today. I think the
    things that you have seen, the vigorous discussion that we have
    had, obviously, does ensue privately with us behind closed
    doors, and that I have great respect for each and every part of
    the testimony that has been made today.
        With that, I will tell you that I am through with my
    questions. Thank you, Mr. Chairman.
        Mr. Horn. Well, we thank you very much. We appreciate the
    testimony all of you had.
        Let me ask just one last question. Is there anything that
    you would like to get on the record in response to what any of
    the other witnesses said, just to clarify the situation? I
    believe in giving witnesses who spend their time coming here
    from a long ways--I believe in giving you everything you can to
    get in the record.
        So, Mr. Tobias, anything getting you in the craw that you
    heard and did not like that we have not covered?
        Mr. Sessions. And, Mr. Chairman, let me state, and I said
    it a minute ago, I had written Mr. Tobias a note here,
    presumably to allow him now this opportunity on the record. So
    thank you.
        Mr. Tobias. Thank you very much, Mr. Chairman.
        I do have a little bone to pick with Professor Kelman.
        Mr. Horn. That will teach you to leave the government,
    Steve. [Laughter.]
        Mr. Tobias. I am surprised at Professor Kelman's testimony
    that this represents a middle ground. There is no question that
    the issue of competition is an important one. The issue that
    competition lowers costs is an important idea and a well-
    recognized idea and an idea that I accept, but what I do not
    accept is the fact that under this legislation that the private
    sector defines core government functions; and the court defines
    core government functions.
        I do not accept the idea that the Federal Government now
    knows how to manage and does effectively manage the work that
    is contracted out. You can cast that as if I am disparaging
    Federal employees, but, rather, I am disparaging the system
    that is in place today to manage the work of the--some of the
    work of the private sector that GAO has reported.
        Finally, I do not think that I am referring to horror
    stories, but, rather, when GAO is asked to look at
    transactions--and they are not exceptions--what is found is
    that the private sector costs more, and part of that is because
    there have not been competitions, and the competitions that
    have been run have not been run well. So I think all of those
    are issues that have to be addressed, and many of them are not
    addressed in this legislation.
        Finally, I think that the idea that somehow a core
    government function can be, once and for all, defined over time
    is wrong. The government performs the work it is performing
    because people at one time decided that it ought to perform
    that work, and the idea that somehow all of those decisions
    were wrong and that over the next 5 years we are going to bid
    all of that work just because we ought to, I think, is a wrong-
    headed approach, both to government and managing the
    government.
        Mr. Horn. Mr. Logan.
        Mr. Logan. I just wanted to close by saying that A-76, and
    that has been core to this legislation, does not give or allow
    decisions either on the core aspect of government because it is
    in the hands of the agencies, and the agencies make the
    decision as to whether A-76. In our case, they are just not
    doing that.
        It strikes me as strange that some agencies do contract out
    exactly the same services that other agencies say cannot be
    contracted out. They are saying this because they say only the
    government can do it. Yet, we see from agency to agency the
    same services in our particular field, one saying one thing,
    one saying the other.
        I would also like to just comment on the $600 hammer that
    has come up again today. I believe a lot of that has happened
    because of mil-specs by the government requesting very, very
    unique services, and when you request very unique services and,
    as I have said, with 2-foot-thick specifications, you will end
    up with $600 hammers, but when you get it down to buying cots--
    and I have to thank Steve Kelman for promoting this very
    successfully--we have a situation with one agency right now
    who, when we started to do work, they said that our costs
    compared to their costs were approximately one-third more
    because we were in a learning curve, too. Within a year, they
    have pointed out that we are producing work for less than they
    can do in-house, but I come back to the A-76 program. It does
    not work because there is no incentive to make it work.
        Thank you very much.
        Mr. Horn. Thank you.
        Mr. Trammell.
        Mr. Trammell. Thank you. I will make a few quick comments
    on key points from an industry perspective in relation to this
    legislation. Industry is most interested in having an
    opportunity to compete for the most efficient organization. We
    do, indeed, believe that this competition does increase
    efficiencies. However, we also should be provided a level
    playing field in evaluation for these opportunities.
        The last comment that I would like to make is from both the
    perspective of my company--and industry. As we team with a
    number of private sector companies as well as with the
    government--my company and our industry endeavors to engage in
    a partnership with the government when we perform activities
    under contract to the government. We take that relationship
    very seriously. We promote it. We believe that our government
    counterparts embrace this concept. That is what I want to leave
    you with; that industry promotes that partnership.
        Mr. Horn. Thank you. I am going to skip Mr. Kelman and
    bring him in last in case the other three are going to attack
    him. I wanted to get you all in one place.
        Mr. Stevens.
        Mr. Stevens. Thank you, Mr. Chairman.
        Again, from an industry perspective, I want to underline
    that we believe that the draft legislation is a substantial
    improvement over the existing A-76 process. It corrects a lot
    of flaws, provides language that from a common-sense
    perspective ought to be acceptable to most, if not all, of the
    parties involved, and a warning that as in many things, the
    devil is in the detail, and one needs to pay good attention to
    how costs are calculated and measured and how they figure into
    the competitive process.
        Mr. Horn. Mr. Harnage.
        Mr. Harnage. Yes. Rather than trying to add more testimony,
    I think the opportunity was to address anything that may have
    been said by other witnesses that may have taken exception to,
    and what I would like to clarify, a previous witness talked
    about the statements made by the late John Sturdivant
    concerning AFGE's position on competition. I want that
    understood.
        When AFGE developed its policy on competition, I was
    chairman of AFGE's Privatization Committee of the Executive
    Board, which developed that policy. So I am very, very familiar
    with that policy.
        We were talking about in the context of reinventing
    government where we were playing a role, a partnership role, in
    trying to make the government the most efficient, the most
    effective government. We were also participating in a
    downsizing of the government as a result of the end of the cold
    war, and, again, we were talking about the soft landings and
    taking care of our people the best we could, recognizing that
    there had to be some downsizing of government, and also
    recognizing in today's world, there had to be better
    efficiencies developed.
        At the same time, we were participating in the revision of
    OMB Circular A-76. We did not get all that we wanted, any more
    than the contractors got all that they wanted, but at least we
    were al-
    lowed to participate, and we wanted to send the message clear
    to both Congress and to the administration that we were not
    fighting competition; that we wanted it fair, and we wanted it
    reasonable, and we wanted what was best for the taxpayers. And
    that was our interest.
        I now say that because we may appear to be changing our
    position on competition, it is like comparing me if I was to go
    out here in the Reflection Pool of the Lincoln monument in a
    rowboat and get out and say, ``Everybody ought to go rowing,''
    and then somebody wants to know why I do not take a kayak down
    the rapids. That is about the same comparison as me saying I
    support competition with this bill as opposed to saying we
    support the competition under the A-76 process, which is as
    fair as we have been able to get it today. And we recognize--we
    recognize that competition does bring about efficiencies, and
    we would not be acting in the best interest of the taxpayers if
    we totally opposed competition.
        I do have a problem. I do not agree that competition is
    right in all forms. I am a veteran, and I am very patriotic. I
    love this country, and I am very concerned about the most
    powerful government in the world, the leader of the free world,
    being a government for profit. I have a real concern with that,
    and at the same time, I am very concerned about the support of
    our war fighters, the support of our war fighters, our national
    security being subject to the low bidder.
        I have a problem with that, the same as Senator John Glenn
    had when they asked him how did he feel when they lit the fuse
    on that first rocket that he took, and he said he was thinking
    about that it was built by the low bidder. Well, I have that
    same concern when it comes to national security.
        So, please, nobody misunderstand us. We are not in favor to
    competition in every case, and never will be, but we are not
    opposed to competition in every case either.
        Mr. Horn. We thank you on that, and as a former State
    official, I certainly had my fill of low bidders that later
    tried to jack the price up a million ways.
        Mr. Styles.
        Mr. Styles. Yes. Thank you, sir.
        If there was anything that was said today that I took
    offense to, I think it was the fact that perhaps the government
    workers and managers do not do the job as efficiently as their
    counterparts in the private sector.
        Experience has shown me that we not only can compete, but
    we have won competitions consistently against the private
    sector, and I think when we do compete in the arena--and I will
    use an example here. I know that Warner Robbins Air Logistics
    Center in Georgia won a contract for the C-5 Galaxy transport,
    and they beat out Boeing and Lockheed Martin, and the closest
    private sector bid was $22 million more than the one turned in
    by Warner Robbins. I think that is pretty efficient management
    and effective workmanship.
        When I was in the Experience with Industry Program, I spent
    a year working with the private sector, and I will not mention
    the corporation I worked with, but while I was there, they were
    developing their total quality management philosophy, if you
    will, and putting it in place. We were using the North Island
    Rework Facility in San Diego, a Federal installation as an
    example for them to put in place their total quality management
    program.
        I also, by the way--and I wanted to bring this in, and it
    kind of works in here. We are talking about the biggest bang
    for the buck for the American people. When I was with that
    particular organization, I came across their pay schedule, and
    for several weeks, I was very disturbed because I knew I had
    thrown away my career because I was working for the wrong group
    of folks. This is a 1988, March 5, pay schedule from that
    private sector organization, and if you compare it to the
    Federal Almanac's pay schedule for our Federal employees who
    are very competent and equal at the task, that 1988 schedule
    has higher salaries than ours do today.
        So I think we should applaud the Federal employee and the
    Federal manager for the incredible job that they do day in and
    day out for our Nation, and I do not think the American people
    should ever be given a picture of us as being less than our
    counterparts on the other side of the fence.
        Thank you.
        Mr. Horn. We thank you. And now, Dr. Kelman?
        Mr. Kelman. Let me first just back up what Mr. Styles said
    at the end. I, too, have an enormous--as a taxpayer and as a
    teacher, an enormous appreciation for the Federal work force
    and for the qualities and public spirit and devotion to the
    public good of our Federal work force.
        I do not see that as being the issue here. It may be the
    issue for some idealogues who want to berate the Federal work
    force.
        Mr. Tobias asked why I felt the bill was a compromise. I
    see it as a, by and large, reasonable compromise because it
    incorporates a principle that was not in the bill as introduced
    last year, namely the ability of our Federal workers to compete
    for those activities that are competed.
        I agree with Mr. Tobias. The one provision, looking at the
    bill, that I do not like is the judicial review. I do not think
    that we should be having judicial challenges of these decisions
    about whether something is inherently governmental. I would
    want to keep that out of the courts.
        But to me, the only ideology--and I will not impose it on
    everybody else, but the ideology that I bring to this is an
    ideology that says government needs to be managed better, to
    restore the faith of the American people in the ability of
    government to do its important missions.
        Commercial companies themselves have found that
    significantly increased out-sourcing promotes their abilities
    as private firms to do their missions as private firms. I
    believe the same will occur if we encourage greater competition
    for more non-core government jobs.
        Mr. Horn. Well, I thank you all, and just to reflect on a
    little of this, I certainly agree with the point that has been
    made by both private sector representatives and public sector
    representatives that we have some excellent people, some very
    fine people, dedicated civil servants and public servants in
    government. As I listen to some of you and as we looked at the
    number of years people had served in various capacities, I
    noted that over the 40 years that I have worked, I spent 35 as
    either a Federal official or a State official, and I spent 4\1/
    2\ years with non-profit institutions known as Brookings and
    American University. I spent half-a-year working my way through
    college pumping gas for the Standard Stations, Inc., all jobs I
    happen to have enjoyed, and I certainly would agree that we
    want the best civil service we have. But I also agree with you,
    and you said it, in both the public and the private sectors,
    that competition can be a good thing for both Federal workers
    and the taxpayers and the Federal workers are paying as much
    taxes as anybody else, since we in the middle class are the
    ones that pay the bills.
        The poor, we took out in 1986, and the rich can find ways
    to get around the tax laws. So most of us in this room are the
    ones contributing to the salaries of everybody else in the
    room, and I want to thank you all for coming.
        We want to leave the record open for any of you that have
    any other comments to say. We will leave it open for about 3
    weeks, and we would welcome that, and we would welcome anybody
    else in the audience and any other groups that we have not had
    a chance to put at this table. We would certainly appreciate
    the comments because we do want to get together with the Senate
    and work out what makes sense and what will get the job done.
        I think the only alternative I can see to the court aspect,
    which is not in the House bill, it is in the Senate bill, is
    that you have a very strong office of management, which I am
    going to be proposing as opposed to an office of what is really
    budget not management, and they would have to, then, on behalf
    of the President, whoever that is at any point in time--they
    would have to be giving some of the direction and analysis on
    behalf of the President in his role as commander-in-chief, as
    well as his role as domestic general manager, to a degree, and
    assure that the various Cabinet Departments do take seriously
    that basic policy of competition in some areas.
        With the fleet control, for example, that the Army used in
    Europe, they saved millions of dollars in that. GSA has saved
    millions of dollars by careful bidding of a number of things,
    and those were Hoover Commission reports, essentially, of 1949,
    1952, that charged up the Executive Branch to take a look at
    some of these things. I think your testimony has been very
    helpful.
        I also recall that we are working on the commendation and
    appropriate salary to go with it for a procurement corps, and
    praise was given by one of the witnesses here today on the
    outstanding people we have in acquisition and procurement.
    Well, a lot of those people are being bought off by the private
    sector. We know we cannot keep everybody, but while the
    salaries might be lower in some of the public sector in
    relation to the private sector, you also have to look, to be
    fair about this, at the benefits that come with various types
    of public service that might not also come in the private
    sector.
        So, just as Mr. Sessions noted that he thought the House
    package on health care, which is exactly what the Federal Civil
    Service has, was not as good as what he had in the private
    sector, I know what that is. It was not as good as what I had
    in California State Government either. So there is a lot of
    competition going on for good people, and the government needs
    to keep up, and good people need to get involved.
        I have been very pleased with the excellent suggestions
    that have come from Members of the panel, and I look forward to
    working with you on this side. I am sure Chairman Brownback
    will be glad to work with you on the Senate side.
        Let me thank now the staff that has gone into having this
    excellent group and this dialog this afternoon. On behalf of
    the House Subcommittee on Government Management, Information,
    and Technology, our Staff Director and Counsel, J. Russell
    George, who has been sitting over there by the phone because I
    thought I would have to leave for a vote, but Mr. Shuster used
    his usual charm, and, unanimously, everybody reported out the
    bill, and I could stay here. Mark Brasher, our Senior Policy
    Director, behind me, worked very hard on this particular
    hearing, as did John Hynes, a professional staff member.
    Matthew Ebert, our clerk, worked very closely with the Senate
    clerk on this, and David Coher, our intern from USC has been
    helpful in that area. Mark Stephenson for the Minority has been
    his usual able self, and so has Dr. Julie Moses of Mr.
    Kucinich's staff, and Chris Bitsko, who is the court reporter.
    Also Earley Green, Minority Staff Assistant.
        Now we get to the Senate Subcommittee on Government
    Management, Restructuring, and the District of Columbia. We
    have Michael Rubin, Staff Director; Marie Wheat, Deputy Staff
    Director; Tom Palmieri, professional staff member; Joyce Yamat,
    professional staff member; Pete Rowan, staff assistant, and
    Esmeralda Amos, chief clerk for the Senate Subcommittee.
        With that, I will bring down this hearing at about exactly
    5 o'clock. Thank you.
        [Whereupon, at 5:04 p.m., the joint hearing was adjourned.]

                                A P P E N D I X

                                  ----------

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