    [Senate Hearing 105-171]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 105-171

                S. 314--FREEDOM FROM GOVERNMENT COMPETITION ACT

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

                                    HEARING

                                   before the

                          SUBCOMMITTEE ON OVERSIGHT OF

                     GOVERNMENT MANAGEMENT, RESTRUCTURING,

                          AND THE DISTRICT OF COLUMBIA

                                     of the

                                  COMMITTEE ON
                              GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                           ONE HUNDRED FIFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 18, 1997

                                   __________

          Printed for the use of the Committee on Governmental Affairs

                           U.S. GOVERNMENT PRINTING OFFICE
     41-738 cc                    WASHINGTON : 1997
    _______________________________________________________________________
                  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
    SUSAN M. COLLINS, Maine              JOHN GLENN, Ohio
    SAM BROWNBACK, Kansas                CARL LEVIN, Michigan
    PETE V. DOMENICI, New Mexico         JOSEPH I. LIEBERMAN, Connecticut
    THAD COCHRAN, Mississippi            DANIEL K. AKAKA, Hawaii
    DON NICKLES, Oklahoma                RICHARD J. DURBIN, Illinois
    ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI, New Jersey
    BOB SMITH, New Hampshire             MAX CLELAND, Georgia
    ROBERT F. BENNETT, Utah
                 Hannah S. Sistare, Staff Director and Counsel
                     Leonard Weiss, Minority Staff Director
                        Michal Sue Prosser, Chief Clerk

                                     ------

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

                        SAM BROWNBACK, Kansas, Chairman
    ARLEN SPECTER, Pennsylvania          JOSEPH I. LIEBERMAN, Connecticut
    ROBERT F. BENNETT, Utah              MAX CLELAND, Georgia
                            Ron Utt, Staff Director
          Laurie Rubenstein, Minority Staff Director and Chief Counsel
                          Esmeralda Amos, Chief Clerk

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Brownback............................................     1
    Prepared statement:
        Senator Lieberman............................................   175

                                   WITNESSES
                            Wednesday, June 18, 1997

    Hon. Craig Thomas, a U.S. Senator from the State of Wyoming......     3
    Hon. John J. Duncan, Jr., a Representative in Congress from the
      State of Tennessee.............................................     5
    John A. Koskinen, Deputy Director, Office of Management and
      Budget.........................................................     9
    Samuel D. Kleinman, Director, Center for Naval Analysis..........    22
    Captain Burton Streicher, CEC, U.S. Navy, Director, Navy
      Outsourcing Support Office.....................................    25
    Charles S. Davis III, Chamberlain, Davis, Rutan and Valk,
      formerly the Associate Administrator for Operations, General
      Services Administration........................................    28
    L. Nye Stevens, Director, Federal Management and Workforce
      Issues, General Government Division, U.S. General Accounting
      Office.........................................................    35
    John N. Sturdivant, National President, American Federation of
      Government Employees, AFL-CIO..................................    38

                         Alphabetical List of Witnesses

    Davis, Charles S. III:
        Testimony....................................................    28
        Prepared statement...........................................    64
    Duncan, Hon. John J., Jr.:
        Testimony....................................................     5
        Prepared statement...........................................    49
    Klienman, Samuel D.:
        Testimony....................................................    22
        Prepared statement...........................................    53
    Koskinen, John A.:
        Testimony....................................................     9
    Stevens, L. Nye:
        Testimony....................................................    35
        Prepared statement...........................................    74
    Streicher, Captain Burton:
        Testimony....................................................    25
        Prepared statement...........................................    60
    Sturdivant, John N.:
        Testimony....................................................    38
        Prepared statement with attachments..........................    90
    Thomas, Hon. Craig:
        Testimony....................................................     3
        Prepared statement...........................................    47

                                    APPENDIX

    Prepared statements of witnesses in order of appearance..........    47
    Copy of bill, S. 314.............................................   177
    Prepared statements from:
        American Congress on Surveying and Mapping, Bethesda,
          Maryland...................................................   123
        International Association of Environmental Testing
          Laboratories, Alexandria, Virginia.........................   133
        Edward O. Groff, P.E., President, American Society of Civil
          Engineers..................................................   135
        Robert M. Tobias, National President, The National Treasury
          Employees Union............................................   138
        Management Association for Private Photogrammetric Surveyors.   146
        Careerware, Career Development Alliance, Boulder, Colorado...   151
        Business Coalition For Fair Competition......................   159
        R. Bruce Josten, Senior Vice President of Membership and
          Policy, U.S. Chamber of Commerce...........................   162
    Letters to Senator Brownback from:
        Tony Pagliaro, Director, Government Relations, ACIL..........   170
        Gary Engebretson, President, Contract Services Association of
          America....................................................   173
        Copy of bill, S. 314.........................................   177

              S. 314--THE FREEDOM FROM GOVERNMENT COMPETITION ACT

                                  ----------

                            WEDNESDAY, JUNE 18, 1997

                                           U.S. Senate,
         Oversight of Government Management, Restructuring,
                     and the District of Columbia Subcommittee,
                            of the Committee on Governmental Affairs,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 9:05 a.m., in
    room SD-342, Dirksen Senate Office Building, Hon. Sam
    Brownback, Chairman of the Subcommittee, presiding.
        Present: Senators Brownback and Thomas.

                OPENING STATEMENT OF CHAIRMAN BROWNBACK

        Senator Brownback. Thank you all for coming today. I want
    to welcome you to the first hearing to investigate the
    opportunities for greater competitive contracting within the
    Federal Government as well as other privatization projects at
    the national level.
        After years of talk and debate, the Federal Government
    appears to have finally joined a worldwide trend when it
    committed itself to an aggressive privatization program during
    the 104th Congress. During those 2 years we enacted more
    privatization into law than had occurred during the previous 12
    years.
        The support for those initiatives was bipartisan and they
    were accomplished with the cooperation and support of the
    President. When finally implemented, they will lead to an
    improvement in services and savings to the taxpayer.
        While the most prominent privatization initiatives of the
    last Congress focused largely on the divestiture of assets and
    commercial-like enterprises, such as the Naval Petroleum
    Reserve and the Uranium Enrichment Corporation, many believe
    that the greatest opportunities at the Federal level involve
    the competitive contracting of thousands of routine commercial-
    type services that the government provides to itself and to the
    public. Although many such services are already contracted out
    at the Federal level, a casual review of most government
    departments indicates that much more can be done, and that we
    have only scratched the surface in subjecting government's vast
    array of commercial activities to the benefits of the
    competitive marketplace.
        As several of today's panelists will testify, when
    competitive contracting has been tried at the Federal level,
    the savings have often been substantial. Department of Defense
    has averaged savings of 30 percent with its A-76 program, while
    similar results were obtained at the General Services
    Administration during its ambitious competitive contracting
    program in the early 1980's.
        Beyond these two agencies, however, not a whole lot has
    happened at the Federal level, and the legislation introduced
    by Senator Thomas and Representative Duncan is designed to
    rectify that neglect by providing strong statutory
    encouragement to the Federal establishment. Their legislation
    is also designed to address another longstanding problem, and
    one that may have worsened in recent years--the proclivity of
    Federal departments to provide commercial-type services to
    third parties in direct competition with private businesses.
        While such arrangements were permitted under limited
    circumstances by the Economy Act of 1932, new legislation
    enacted in the 103rd Congress has expanded that mandate by
    creating franchise funds within Federal departments. The law
    allows for the creation of six demonstration funds and
    encourages them to seek contracts from other departments in
    competition with the private sector.
        Recently the private sector contracting community was
    outraged to discover that the Department of Agriculture won a
    contract with the Federal Aviation Administration for data
    processing services. In addition to private companies bidding
    on the contract, the Department of Transportation also
    submitted a bid.
        These events raise fundamental questions about the proper
    role of the Federal Government and the core missions of our
    departments. Are we to believe that their core missions have
    been fully satisfied, thereby freeing up management and staff
    for entrepreneurial activities that replicate services widely
    available in the private sector? If that is the case, then
    perhaps further savings from these agencies are in order.
        I suspect that some of our witnesses today will be
    commenting on this event, and I look forward to hearing these
    views. I think we will be joined later by other Members, as
    well. We have panels that will be making presentations, and we
    will have to take a break at 11 o'clock and reconvene, I
    believe, probably for the last panel at 12:30 p.m.
        To open us up today, the first panel will be the Hon.
    Senator Craig Thomas, who is joining us, and the Hon. John
    Duncan, a Member of the U.S. House of Representatives. These
    are two gentlemen that have been leading figures in working
    with this privatization push and also the competitiveness
    within the Federal Government agencies competing with private
    sector, and taking a new look at that problem.
        Gentlemen, rather than me talking longer, I want to turn it
    over to you, and we would be happy to take your testimony and
    comments. I don't know which of you would care to go first in
    your presentation, if you have----
        Mr. Duncan. It makes no difference to me.
        Senator Brownback [continuing]. Made any distinction.
    Senator Thomas, I have you listed down on the panel first. If
    you make no distinction, I am going to go with the order on the
    list. Thanks for introducing this bill, thanks for being here,
    and we look forward to your testimony.

      TESTIMONY OF HON. CRAIG THOMAS,\1\ A U.S. SENATOR FROM THE
                            STATE OF WYOMING

        Senator Thomas. Thank you, Mr. Chairman, and thank you for
    having this Subcommittee hearing to talk about this important
    issue. I am here to discuss a simple concept: The idea, and
    most people agree to the idea, that government ought to be as
    small and lean and efficient as possible.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Senator Thomas appears on page 47.
    ---------------------------------------------------------------------------
        Most people believe that, to the extent possible, we ought
    to take advantage of private sector expertise whenever that is
    appropriate. My bill simply identifies those areas that are
    commercial in nature, that would be applicable to contracting,
    and then choose whoever does it the best, the private sector or
    the Federal Government. That is not a new idea. That is not a
    new concept.
        I am pleased to be joined by my colleague, John Duncan. He
    and I served together in the House, and I am delighted that he
    is here and pushing this issue in the U.S. House.
        For the past 40 years, Mr. Chairman, it has been the
    administrative policy of the Federal Government to rely on the
    private sector for its commercial needs. The policy was issued
    in the Eisenhower Administration, in reaction to a bill very
    similar to what we are talking about here today, and the policy
    is now found in OMB Circular A-76. Unfortunately, it is
    routinely ignored.
        Today there are an estimated 1.4 million Federal employees
    engaged in functions that are generally known as commercial
    activities, goods and services that often could be obtained
    more cost effectively from the private sector. The Federal
    Government performs many of these functions, from the mundane
    to the high tech, from laundry services to informational
    technology. Congress should question the practice of taxing
    private enterprise in order to maintain a similar, but often
    less efficient capability within the government. The bottom
    line is that government competition with the private sector
    costs taxpayers billions of dollars annually, stifles economic
    growth, kills private sector jobs, erodes the tax base and
    siphons off resources, as the Chairman mentioned, for the core
    mission of the government.
        The primary point I want to make today is that there needs
    to be some statutory provisions to enforce the notion and
    indeed the policy that has been in existence for over 40 years.
    To inject competition into government monopolies, Congressman
    Duncan and I have introduced the Freedom From Government
    Competition Act, legislation based on the premise that the
    government should not unfairly compete with its citizens.
        It codifies the 40-year-old policy that the government
    should rely on the private sector whenever possible for its
    commercial needs, giving some preference to the private sector.
    Of course there are exceptions to the policy: Functions that
    are inherently governmental; National security; if the
    government can provide a better value, if the private sector
    cannot provide the goods and services.
        I recall last year when I testified before this
    Subcommittee, some had the notion, ``Well, you want to do away
    with the government and have the private sector do
    everything.'' Obviously that is not the case, but there are
    many commercial functions which seem to be more appropriate for
    private sector performance.
        This bill also establishes a process by which OMB will
    identify government functions that are commercial in nature and
    implement a plan to outsource those activities to the private
    sector. It also establishes an Office of Commercial Activities
    within OMB to implement the bill.
        The problem partly has been that the fox has been in charge
    of the henhouse. I understand why that is--there is no real
    incentive for an agency head to outsource, and so it doesn't
    happen.
        Federal agencies and the private sector will use the new
    office as a resource to facilitate transition to this system,
    and that is what we need, is to make a transition. The bill
    also establishes provisions to help the transition of Federal
    employees into the private sector.
        Last year, as I mentioned, the Governmental Affairs
    Committee held a hearing on this bill. Based on the input of
    Senators Stevens and Glenn, OMB, GAO, private industry and
    labor unions, we have hopefully made this a better bill.
        For example, we added a ``best value comparison'' which
    will allow Federal employees and the private sector to compete
    on a level playing field, based on several factors. One is a
    fair comparison of cost, which is a very important component;
    qualifications; and past performance. We've also added some
    ``soft landing'' provisions for Federal employees. In fact, 90
    to 95 percent of Federal employees who are displaced move on
    into the private sector, retire, or get another government job,
    but we recognize that that is an important function.
        Testimony later today will unequivocally demonstrate that
    outsourcing non-core functions works. It works in the private
    sector, it works at the State and local level, it works
    internationally, and it can work for the Federal Government.
    American taxpayers can reap the benefits not only from budget
    savings but also from government doing a better job. In fact,
    several studies have shown that we could save up to 30 percent
    by outsourcing, saving billions of dollars annually.
        Mr. Chairman, we talk a lot about making changes around
    here, fundamental changes. We talk about reinventing government
    and see, frankly, relatively little change. I think this is an
    opportunity for us to make some fundamental reform. So I do
    appreciate the opportunity to be here.
        In summary, outsourcing and privatization of commercial
    functions work. What we need is a statutory basis to make it
    work for the Federal Government. It creates jobs. It helps
    small business. I think I mentioned that in the last several
    meetings of the White House Conference on Small Business, this
    has been one of the issues that has been at the top of the
    agenda, to stop unfair government competition with the private
    sector.
        So I thank you again, and certainly would look forward to
    answering any questions you might have.
        Senator Brownback. Thank you, Senator.
        Representative Duncan, thank you very much for coming
    across the Capitol and joining us here today.
        Mr. Duncan. Thank you.
        Senator Brownback. I enjoyed serving with you in Congress,
    and look forward to your comments.

     TESTIMONY OF HON. JOHN J. DUNCAN, JR.,\1\ A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF TENNESSEE

        Mr. Duncan. Mr. Chairman, thank you very, very much. I
    would simply like to thank you and the Members of the
    Subcommittee for holding this hearing today. I would also like
    to thank Senator Thomas for his very hard work on this issue.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Duncan appears on page 49.
    ---------------------------------------------------------------------------
        I have a full statement I would like to submit for the
    record. You and Senator Thomas have made outstanding statements
    and have adequately described this legislation.
        As you know, in the House, I have introduced companion
    legislation to Senator Thomas's S. 317, the Freedom From
    Government Competition Act. This legislation has strong
    bipartisan support, with 46 cosponsors in the House and 13
    cosponsors in the Senate.
        It has been endorsed by a number of organizations,
    including the U.S. Chamber of Commerce, the National Federation
    of Independent Business, the Business Coalition for Fair
    Competition, the Contract Services Association, and at least 30
    other major organizations. I have attached a list of these
    associations to my statement.
        In addition, as Senator Thomas just mentioned, the last
    time the White House Conference on Small Business met, it
    listed unfair competition as its No. 1 concern. I think this
    legislation that I have introduced with Senator Thomas takes a
    very modest first step in helping alleviate this problem.
        It does not require the Federal Government to contract
    everything out. We recognize that there are things that
    government does best, and that there are functions that only
    the government should do. This bill would not require agencies
    to contract out functions that are related to national security
    or those things that are related to the core mission of a
    particular agency.
        It requires only that Federal agencies look at those things
    they do which are commercial in nature. As Senator Thomas
    mentioned, the CBO has estimated that 1.4 million Federal
    employees presently perform activities that are commercial in
    nature. If these commercial goods and services can be obtained
    from the private sector in a more efficient and cost-effective
    manner, then, and only then, would the agency be required to
    contract out that work.
        Mr. Chairman, the history of government competition is a
    long one. It was described by President Bush's Administrator of
    the Office of Procurement Policy, Dr. Allan Burman, in 1990
    when he testified before the House Post Office and Civil
    Service Committee he stated: ``As far back as 1932, a Special
    Committee of the House of Representatives expressed concern
    over the extent to which the government engaged in activities
    that might be more appropriately performed by the private
    sector.''
        Since the Eisenhower Administration in 1955, it has been
    official U.S. policy that ``the Federal Government will not
    start or carry on any commercial activity to provide a service
    or product for its own use if such product or service can be
    procured from private enterprise through ordinary business
    channels.''
        However, the problem is, as Senator Thomas has pointed out,
    we have really simply paid lip service to this policy instead
    of giving it practical effect. And I would say basically that
    the reason for this bill is that it is hard enough for small
    businesses to survive in this country today against ordinary
    competition, but when they have to take on the Federal
    Government to boot, it becomes an extremely difficult and
    sometimes an impossible task.
        Every administration, Republican and Democrat, for the past
    40 years has endorsed this policy, but unfortunately it has
    never really been implemented. A report released by the
    Commission on the Roles and Missions of the Armed Forces, known
    as the White Commission, stated that ``at least 250,000
    civilian employees of the Department of Defense are performing
    commercial-type activities that do not need to be performed by
    government personnel.''
        Numerous organizations have conducted studies on
    contracting out and have found that the Federal Government
    could save a huge amount of money by relying on the private
    sector. In fact, just last year the Defense Science Board found
    that $30 billion could be saved annually if the Department of
    Defense did more contracting out.
        Mr. Chairman, in a free-market society businesses must
    compete with each other to provide the best possible product or
    service in a cost-efficient way. However, we only have one
    government, and it has no competition. Therefore, when it
    provides goods or services, it has no incentive to do so in a
    cost-effective manner. I believe the government should only
    provide those goods or services which private industry cannot
    provide.
        I think all of us would agree that the American public
    wants the Federal Government to improve the services it
    provides without increasing taxes. I also think we would agree
    that almost everyone would like us to reduce the size of the
    Federal Government. This bill, if enacted, would help do that
    in a very efficient and cost-effective way.
        I would like to close, Mr. Chairman, by quoting from a book
    that was written by a prominent Democratic Member of the House
    many years ago. He said this: ``He says that that thin line
    wavering between liberty and despotism is surely crossed when
    government ceases to regulate and begins to manage, ceases to
    be an impartial umpire in the economic game and becomes a
    player; when government competes with its citizens in the
    production of wealth; when government becomes the untaxed donor
    of property not necessary for strictly governmental
    functions.''
        I think that pretty much sums up the reasons for mine and
    Senator Thomas's bill. I think it is a modest first step toward
    something that has been needed to be done for a long, long
    time. I appreciate your very fine statement at the start of
    this hearing, and I appreciate Senator Thomas for all he has
    done in regard to this. Thank you very much.
        Senator Brownback. Thank you both for coming forward and
    testifying. Just a couple of questions, if I could, and I think
    you probably have the information there. Maybe it is in the
    written statement.
        Senator Thomas, you cited a 30 percent savings as a
    potential figure out there in some areas. Do you have any
    dollar figures of what outside studies have said that we could
    potentially save by contracting out services?
        Senator Thomas. I think the figure that I mentioned was a
    $30 billion annual savings in the Defense Department. Some say,
    well, that is inflated. Say it is inflated; say it is only $20
    billion a year. But there are obviously substantial savings,
    and I think CBO is doing a study now that it hasn't finished
    yet, that actually will come up with some figures which should
    be available to us soon.
        Mr. Duncan. I might say in that regard, Senator, that the
    Coalition for Fair Competition has made an estimate of $40
    billion government-wide, and they tell us that that is a very
    low-ball, conservative estimate. If the White Commission
    estimates that $30 billion could be saved in the----
        Senator Thomas. Department of Defense.
        Mr. Duncan [continuing]. Defense Department alone, then the
    $40 billion I think is a very conservative figure.
        Senator Brownback. Let me ask you both, this is something
    that the private sector has engaged in broadly over the last 10
    to 15 years, where they are contracting out everything. I mean,
    whether it is data processing or food services, anything that
    is outside of the core mission they seem to be willing to look
    at rapidly and say, ``Can we contract this out?''
        And they do it, and the incentive for them is clear. They
    save their money. They are able to put that towards the bottom
    line within the corporate profits or within other investments
    that are in the core function of the company.
        Do we just not have the right incentives in the Federal
    Government to push this, and do you think we are going to get
    at those incentives with the bill that you are putting forward
    to stimulate this to happen? I mean, this needs to happen. The
    figures are there. It is occurring in the private sector in
    large organizations, but it is not occurring near to the
    necessary speed or amount in the Federal Government.
        Mr. Duncan. Well, I think one of the reasons that it has
    not been carried out is because we haven't had legislation like
    Senator Thomas and I have introduced, and this bill would set
    up a specific office with the primary responsibility within OMB
    to make sure that these procedures and policies are carried
    out.
        It is more than just contracting out. There are many ways
    every day that government agencies are competing with small
    businesses, and that is really what this bill is more aimed at.
    I mean, even just yesterday I had a call from a meat-packing
    company in Knoxville, and the Tennessee Valley Authority was
    running an ad in conjunction with another meat company and was
    doing more or less free advertising for this one company. You
    have got daily examples like that happening throughout the
    country.
        I think that if this bill could be enacted, so it would set
    up a specific office to carry this out, that would provide some
    of the incentive that you are talking about, and we would see
    real action from this for the first time. It has just been
    words so far, but this would be action.
        Senator Thomas. Mr. Chairman, I think when you look at the
    whole issue, it is not some evil scheme on the part of the
    Federal Government or federal employees.
        Say you are in charge of a forest, and you say, ``Well, why
    don't we contract out the management of the campgrounds?''
    However, you can have more control over the campgrounds if you
    don't. You are accustomed to doing it. It is a habit not to do
    it. There is no real incentive to do it. In the private sector,
    if you do it, maybe you make some more profit or you get a
    bonus. That is not true in the government.
        I think the Federal Government is different. The success in
    contracting we ought to do, but we are going to have to do it
    in a little different way because the incentives that are there
    in the private sector are not available, it seems to me, in
    this structure. Part of it is habit, part of it is lack of
    incentive.
        Furthermore, it seems to me if we really want to enjoy the
    benefits of outsouring, you have to change the structure of
    Federal agencies. I happen to be chairman of the Parks
    Subcommittee, and we have got some real problems in our
    national parks. They have an $8 billion backlog in maintenance
    needs, and we are going to have to find some new ways to do
    things. I think it is an excellent example for this bill. You
    have park professionals whose real training and background is
    managing the resource, but they spend most of their time doing
    the commercial functions. That's the problem. We need to keep
    these people doing what they are trained to do.
        I guess what I am leading up to saying is if you want to
    outsource these functions, efficiently, then the agency has to
    convert a little bit to be better at putting out the contract,
    overseeing the contracts to make sure they are done right,
    change their activity a little bit, doing it to be overseers of
    contracts, the same way you do it in the private sector.
        I think we have to recognize that it doesn't happen as
    easily in the government, but I think once accomplished, the
    people then can divert themselves back to what they really want
    to do rather than the commercial things that they end up doing,
    and there would be a good deal of support for this concept.
        Senator Brownback. My question is born out of some
    experience when I ran a little State agency and we privatized
    several functions, and the only thing we got in the process was
    grief. Because you are cutting back on employees of the agency,
    and so that is not exactly enjoyable within the culture of the
    agency. You didn't get anything back in return. I mean, I
    wasn't able to give bonuses out to people. I wasn't creating
    opportunities internally.
        And I was losing some control that I had as long as this
    was in my purview. Also, then, there is the common issue of a
    power base. I used to have X number of employees; now I have X
    minus 50 employees. All the incentives went the other way and
    said, ``Well, why would I do this? Plus, if it doesn't work,
    I'm going to get hammered in this process.''
        So I have wondered if in looking at these things, I think
    the office is a good idea, but is there a way to incentivize
    the public sector? Can you give bonuses for savings, the way
    you give bonuses for increased earnings? Have you looked at--
    and I don't know if there is, that is why I am asking you
    gentlemen--is there a way of changing that?
        Senator Thomas. Have you ever tried politically to give a
    bonus in a government deal? It is hard, you know.
        Senator Brownback. Well, that is why I am asking you.
        Senator Thomas. It is hard, but we do need to find some
    more of an incentive to do it, because the concept will work if
    you want to make it work.
        But you have just described exactly--and that is why I say
    it is not a Machiavellian scheme on the part of government
    managers to not do it. The incentives are to stay where you
    are. The incentives are not to take a risk. The incentives are
    to build up the number of people in your agency. That is the
    way it is, so----
        Mr. Duncan. Senator, for years I have thought that we
    should at least try on an experimental basis with some agency,
    and tell this particular agency that if they can save X amount
    of dollars in the course of a year off their budget, that half
    of it would go to the employees in the form of a bonus and half
    of it would go back to the Treasury to apply toward the debt.
        I really think that if we could try that on an experimental
    basis, I think something like that would work, and we might be
    able to work it in conjunction with this bill. We could
    change--we could make some additions to this bill to provide
    something like that, possibly.
        Senator Brownback. We may look at doing that with you if we
    could structure it right, because there are big political
    pitfalls, too, which is what Senator Thomas identified, and I
    am cognizant of those, too.
        Mr. Duncan. Right.
        Senator Brownback. Thank you gentlemen both for taking your
    time and your interest and your focus on this. It is really
    appreciated.
        Mr. Duncan. Thank you.
        Senator Thomas. Thank you very much.
        Senator Brownback. I call up the next panel, which is the
    Deputy Director of the Office of Management and Budget, John A.
    Kosiken. I don't know if I pronounced your name correctly--did
    I get that right?
        Mr. Koskinen. Koskinen.
        Senator Brownback. Mr. Koskinen, I appreciate very much
    your willingness to join us today. As you could gather from the
    last panel, we want to be as informal and free-flowing as
    possible. OMB has a lot of interest in this particular issue,
    and I think has an extensive track record of looking at it.
        So with that, appreciate your testimony. You can summarize
    if you would like, and handle it however you would like to.
    Thanks for coming.

       TESTIMONY OF JOHN A. KOSKINEN, DEPUTY DIRECTOR, OFFICE OF
                         MANAGEMENT AND BUDGET

        Mr. Koskinen. Thank you, Mr. Chairman. I am happy to be
    here today and have the opportunity to discuss with you the
    proposed Freedom from Government Competition Act. As you
    suggest, I will submit my full statement for the record and
    summarize it here.
        Senator Brownback. Without objection.
        Mr. Koskinen. In light of our current budgetary
    restrictions and our move to implement the balanced budget
    agreement, all of us are anxious to ensure that the government
    operates as efficiently as possible. Our guiding principle for
    determining when the government engages in commercial
    activities and when it considers outsourcing, privatization, or
    competition should be to ensure, as you all have just been
    discussing, that we get the best deal for the American
    taxpayer.
        We need to bear in mind that the Federal Government has
    always obtained a vast array of products and services from the
    private sector and expects to continue that policy. In fiscal
    year 1996, for example, we spent over $114 billion on
    commercial support service contracts--contracts with the
    private sector.
        In addition to the substantial volume of contracting out
    already taking place, we are currently engaged in the largest
    effort ever undertaken by the Federal Government to compete our
    in-house commercial support workload with the private sector.
    Over 40,000 full time equivalent positions are currently under
    OMB Circular A-76 review in the Defense Department alone.
        Furthermore, pursuant to the implementation of the
    Government Performance and Results Act, we are holding managers
    more accountable for results. We are asking that managers
    justify their decisions to perform work by in-house, contract,
    or interservice support agreement through full and open
    competitions designed to achieve the best value and lowest cost
    to the taxpayer.
        To achieve this new level of accountability, we are
    encouraging a broader range of competitions, and we favor
    encouraging new organizations to enter those competitions. As
    you noted, Congress authorized us to develop franchise fund
    pilots and to expand the competitive environment that exists
    for reimbursable activities government-wide.
        The private sector is now being invited to participate in
    new markets and new levels of commercial workload that had
    previously been the province of simple cross-servicing
    arrangements between agencies. And I would note that under the
    revised OMB Circular A-76, an expanded cross-servicing activity
    by any franchise funds must be cost competitive with the
    private sector.
        Finally, we do not believe that these competitions should
    be one-time events. To ensure that the taxpayer continues to
    get the best deal, we need to periodically re-examine our
    outsourcing, cross-servicing, and in-house performance
    decisions.
        If the function was kept in-house, is the public sector
    continuing to provide the best deal? If the private sector is
    performing the service, is the current offeror the best one for
    the job, or has the government developed a competitive
    approach? Competition should be used on a regular basis to
    review the situation and to determine who can best provide
    required services.
        Ultimately, our goal is to restore the public's faith in
    government by managing our resources more effectively, and by
    giving citizens and taxpayers more value for their dollar. By
    issuing the March 1996 OMB Circular A-76 Revised Supplemental
    Handbook, we have established a streamlined approach to permit
    full and open competition--on a level playing field--to
    determine who should do the work.
        In this context, it is important to remember that, when
    faced with competition, Federal employees have been extremely
    cost-competitive. Approximately 50 percent of the competitions
    conducted to date have been won by the government. At the same
    time, the private sector has won about 50 percent of the
    competitions, which is a strong indication that this process
    works.
        While we are encouraging agencies to compete to provide
    services to other agencies, as Congress contemplated with the
    establishment of the franchise fund pilots, we also agree that
    unfair government competition, to the extent that it exists,
    should be identified and eliminated.
        A clear distinction needs to be drawn, however, between the
    government's involvement in private sector or even State and
    local markets, and the need to manage our own resources on a
    cost-effective basis. A substantial statutory and policy
    framework already exists that carefully limits the Federal
    Government's involvement in the private economy and in State
    and local service markets. We continue to support those
    policies.
        The possibility of legislation in this area needs to be
    viewed against ongoing reinvention efforts. Our concern with
    the legislative proposal embodied in S. 314 is that it mandates
    a particular approach to this situation, rather than letting
    customer agencies themselves examine their current in-house to
    contract mix, including the use of reimbursable support
    agreements with other agencies, to make the best management
    decision.
        If we have a need for legislation, it is to remove existing
    barriers to competition. S. 314, for example, does not
    specifically repeal the restrictions imposed on the Defense
    Department in 10 U.S.C., sections 2461 to 2469.
        Finally, we are concerned that S. 314 will result in a
    significant new level of litigation, caused by the conversion
    of what are essentially management implementation decisions
    into a statutory obligation that would be subject to judicial
    review.
        The preamble to S. 314 states that the government's current
    mix of in-house and contract resources is ``unacceptably
    high;'' that the existence of reimbursable arrangements between
    agencies is inappropriate; that such consolidations divert the
    government's attention from its core mission; that small
    business is being hurt; and that current laws and regulations
    have proven ineffective in controlling govenrment's growth.
    While individual anecdotes can be offered to support these
    findings, there is no quantitative data to establish or support
    them.
        In fact, as I noted earlier, the amount of outsourcing is
    now $114 billion a year and it has increased moderately over
    the last 4 years, as the government has downsized by 300,000
    employees. So if anything, the ratio of the amount of work
    being done outside the government to the amount being done
    inside has increased.
        S. 314 requires that certain information be made available
    to the public, including the development of inventories of
    commercial activities performed by the agencies. The March 1996
    A-76 Revised Supplemental Handbook already requires that
    agencies conduct annual inventories of their commercial
    activities performed with in-house resources. The Federal
    Procurement Data System provides information regarding which
    work is now performed by contract. All of this information is
    available to the public upon request, and private sector
    companies are free to make offers to perform commercial work.
        In contrast, and of major concern to us, S. 314 suggests
    that the private sector and employee unions may have a legal
    right to review these inventories and seek judicial review of
    agency determinations with respect to whether the function is
    inherently governmental, commercial, or has otherwise met the
    cost-effectiveness standards of the statute. Having these
    issues subjected to legal challenge will delay, not expedite,
    competition and contracting out.
        We also should not view outsourcing narrowly. For example,
    the Treasury Department, the Internal Revenue Service and the
    Social Security Administration, along with the Labor
    Department, recently signed an agreement to collaborate on a
    streamlined wage and income reporting system. Agencies also
    cooperated in responding to the Oklahoma bombing, the crash of
    TWA Flight 800, Hurricane Hugo and other disasters.
        These joint efforts include the provision of services that
    are generally considered commercial in nature and, in many
    cases, the work is being done directly by agency employees. In
    other cases, it is being accomplished through reimbursable
    agreements, contractors, or a mix of in-house and contract
    employees. If passed in its present form, this legislation will
    put in place additional legal and other administrative
    obstacles to our ability to respond to these kinds of
    situations.
        Ultimately, the question is whether S. 314 provides
    anything better than that already provided by Circular A-76 and
    its Revised Supplemental Handbook. These documents provide a
    clear preference for private sector performance of new and
    expanded work requirements; require agencies to develop
    inventories of commercial activities; establish prohibitions
    against the government's entering into non-Federal support
    markets; restrict the development of new or expanded
    interagency support agreements to those justified by full and
    open competition; and provide for independent administrative
    oversight within the agencies. We believe that this process not
    only works, but is beginning to encourage real competition for
    government work.
        In sum, it is full and open competition that has made the
    American economy the envy of the world. We support the
    provision of government services by those best able to do so,
    whether in the private sector or within the government.
        Rather than opening up existing markets or enhancing the
    dynamics of competition, S. 314 may restrict the number of
    competitors. Trying to put existing agencies, franchise funds,
    and cross-servicing arrangements out of the market is likely to
    result in the enactment of many more agency-specific
    prohibitions against outsourcing and competition, such as those
    that now apply to the Defense Department.
        The bill will also spawn a whole new level of compliance
    litigation, resulting in higher costs to the taxpayer.
        Mr. Chairman, that concludes my summary. I would be happy
    to address any questions that you or Senator Thomas might have.
        Senator Brownback. Thank you very much for your testimony,
    and I would like to ask unanimous consent to allow Senator
    Thomas to join in and sit in on the Subcommittee today. I am
    certainly not going to object.
        Mr. Koskinen. So it is unanimous.
        Senator Brownback. I appreciate your willingness to join us
    and sit in on this important topic, and thank you as well for
    your comments.
        In looking at this overall Federal effort to privatize, I
    understand that you have some real questions with the bill. At
    the same time, I don't think you would say that we are near the
    level of contracting out of services that we ought to be within
    the Federal Government. Would that be a correct statement, or
    do you think we are where we ought to be?
        Mr. Koskinen. I don't think there is a normative number
    that is an answer to that. As I noted in my testimony, we
    believe that issue continues to need examination on a service-
    by-service or contract-by-contract basis.
        Our past experience has been that, when these issues are
    confronted, they are sort of once-in-a-lifetime decisions.
    There is either a decision to contract out or a decision to
    keep an issue in-house, and then no one revisits that issue. We
    think that across the board, we need to continue to review
    whether the entity providing the service now is doing it most
    effectively.
        Senator Brownback. Do you have any nominees, then, now? I
    am not getting a real clear answer from you whether you think
    we are really at about the right level of contracting out at
    the $114 billion figure. Are you thinking that there are other
    opportunities that are going to come up?
        Mr. Koskinen. I think there are opportunities now. And I
    think there will continue to be opportunities. I think our goal
    is to, in fact, continue to challenge every commercial service
    in terms of whether it is being done by the most effective
    provider.
        We have talked a lot about contracting out. Some of the
    government organizations reviewed by GAO discovered that after
    contracting out over a period of time, they contracted some of
    those same services back in. So again, these should not be
    viewed as once-in-a-lifetime decisions, but as ongoing reviews
    of the competitive nature of service providing.
        Senator Brownback. Do you have any nominees that should be
    contracted out, activities that are currently being done by the
    Federal Government?
        Mr. Koskinen. As I noted, I think the Defense Department is
    trying to overcome a set of arbitrary statutory restraints on
    their ability to contract out. And, as I said, we have
    supported allowing the Defense Department to make decisions on
    the merits of whether to contract in or contract out certain
    functions. There are now statutory prohibitions against that.
        Senator Brownback. So yours would be exclusively in the
    Department of Defense. Is that where you are presently focused?
        Mr. Koskinen. In terms of whether there are statutory
    prohibitions, right. We think----
        Senator Brownback. No, on contracting out, what I am asking
    you is whether you have any nominees you think ought to be
    contracted out presently? And what I am getting from you is
    that you think there may be, within the Department of Defense,
    if we could remove some of the statutory barriers.
        Mr. Koskinen. We would do that, but again, part of my
    concern is that there is a presumption that the issue is
    contracting out. I think there are nominees--across the board--
    for continual competition to find out how we get services
    provided best--whether it is contracting out, contracting in,
    or contracting across agency lines.
        So I don't think you can say, ``Here is a target and it
    should be contracted out as a matter of fact.'' I appreciate
    the changes the Senator has made in his legislation to ensure
    that the issue be decided on whether one agency or entity is
    the low-cost provider or the best-cost provider of that
    service.
        So I don't think there are targets where you can say,
    ``This automatically ought to be contracted out.'' There are
    clearly functions across the government where we ought to have
    people continue to review who can provide those services most
    effectively.
        Senator Brownback. Well, let me give you a nominee, then.
        Mr. Koskinen. All right.
        Senator Brownback. Let's see how you would react. What
    about on the NOAA fleet? We have IG studies, GAO studies saying
    that these ships should be sold, and that we should contract
    for these services. Have you looked at any of that within OMB?
        Mr. Koskinen. Yes. We have encouraged the department to
    take a strong look at the privatization of that fleet. As you
    noted, over the last 2 or 3 years we have looked very hard and
    pushed very hard, on a number of fronts, for the privatization
    and actual sale of government entities and functions. So that
    clearly is a target of opportunity that needs to be analyzed.
        Senator Brownback. Good answer. That is one that we have
    been looking at.
        Let me ask one more question and then pass to Senator
    Thomas, because I don't want to take all the time here.
        I note your opposition to various sections of the bill, and
    I will be interested to see what you think we ought to be doing
    about the Defense Department so that we can open it up to
    further contracting, because certainly that would be something
    that would seem a good opportunity to me. Do we have just the
    wrong incentives in place in the Federal Government to
    encourage privatizing out?
        I think you were here earlier when I made my brief
    statement about running a small agency, and how I noted that
    all the incentives I had as a public sector employee encouraged
    me to leave the situation the way it was. I received no
    internal support for doing this. I received no monetary
    incentives to give the employees of the agency for doing this,
    and if it didn't work, I was going to get hammered in the
    press. Aren't all the incentives the wrong way?
        Mr. Koskinen. Historically, that has been a problem. One of
    the things that has changed in the present is that budgetary
    resources are now increasingly constrained, and will be over
    the next 4 or 5 years as we work to achieve a balanced budget
    by the year 2002.
        So in the past this was, in many ways, a more philosophical
    argument about where work could be done best. There was not an
    overriding incentive on agencies to, in fact, be constrained by
    their resources. Now, no matter what happens in the
    appropriations process this year, no program will be receiving
    the amount of money that it has requested or thinks it could
    use effectively.
        Therefore, virtually all of the agencies, with a few
    exceptions, are now in a position where--if they want to expand
    the reach or impact of their programs--they are going to have
    to perform more efficiently with the dollars they have. And we
    are working with them, through their strategic planning
    processes and other avenues, to take a hard look not only at
    contracting out, but at reengineering their workforce and the
    way they do their work. In many cases, we're encouraging them
    to look at downsizing without necessarily having work done
    somewhere else, downsizing by stopping some work.
        The other thing that is happening, and I encourage you to
    support it, is the implementation of the Government Performance
    and Results Act. The act will enable us to hold managers
    accountable for the effectiveness of their programs. What do
    managers achieve with the dollars we give them? And, how much
    does it cost?
        Again, I think the proper discussion is, ``All right, what
    were your goals? What have you actually accomplished with the
    resources we have given you, and how much more effective could
    you be in a context where resources are limited?''
        So, I think we are beginning to provide agencies with
    fairly significant incentives for becoming more efficient. And
    I think that as we look at the pilot programs with franchise
    funds, we are going to learn a lot about whether agencies are
    encouraging each other to take a hard look at cross-servicing
    as we go forward.
        But let me address your final point, and I think it is an
    interesting one, regarding agency-generated savings going off
    into the general fund. Even if you could use that money to save
    more money, the long-held theory--at all levels of government--
    was that any savings went to either reduce the deficit or into
    the general treasury, and the mayor, the governor, or the
    President or Congress reallocated those funds. That is not much
    of an incentive.
        We have increasingly been trying to encourage gain-sharing.
    Roughly 2 years ago, Congress passed the Debt Collection
    Improvement Act, which--for the first time--said that for the
    amount of increased debt collection, you could keep 5 percent
    in the debt collection program.
        In our 1998 budget discussions and reviews with the
    agencies, we have said, ``Here are your targets. Here is the
    amount of resources you can have. If by procurement reform, if
    by contracting out, if by doing your services in another way
    you can save money under those numbers, those funds can be
    redeployed to increase the impact of your program.''
        And it is the first time we have really approached it that
    way. So we are trying to give program managers and agency
    managers the incentive to say, ``Here is our balanced budget
    glide path. Here are the resources that your agency is going to
    have. If you can be more effective with those resources--
    however you do that--and provide more funds for your programs,
    we won't take that money away.''
        We won't say, ``All right, if you can save 5 percent
    through procurement reform, we'll take the 5 percent and spend
    it somewhere else.'' We're trying to provide agencies with a
    tool kit for managing in a balanced budget world. We want to
    say, ``Here is a set of reinvention opportunities, a way to
    operate more efficiently. To the extent you can take advantage
    of these opportunities, the funds you generate will be
    available for you, for the use of your programs.''
        Now it doesn't get down to the issue of personal
    incentives, where we could actually provide a bonus directly to
    an employee. But as we go forward, I think we need to look at
    our performance appraisal system and our performance
    compensation system; although my experience has been, within
    the private sector and in the government, that performance
    bonuses--particularly in the government--are the last incentive
    that people are looking for.
        Most people have come to the government because they
    believe in the mission of their agency, and because they
    believe in government and public service. My experience has
    been that what energizes them most is (a) feeling that they are
    doing meaningful work and doing it more effectively and, (b)
    having more resources for the achievement of agency missions
    and goals.
        Senator Brownback. And, (c) they wouldn't mind a little
    more money in their pocket, too. [Laughter.]
        Mr. Koskinen. They wouldn't mind a little more money.
    Nobody ever turned it down.
        Senator Brownback. It has been my experience in that
    system, as well. Senator Thomas.
        Senator Thomas. Thank you very much. Thank you for your
    enthusiasm for our bill. [Laughter.]
        We were in the same situation last year, as a matter of
    fact. I asked you last year about section 3515 of the
    Government Management Reform Act. I still haven't received an
    answer, so I am going to ask again. It requires you to collect
    from each Federal agency information on the accounts of each
    agency which performs substantial commercial operations; to do
    it in 1995 and to do it again in 1996. Have you completed that?
        Mr. Koskinen. We have just about completed it. We have
    gone----
        Senator Thomas. You have not completed it?
        Mr. Koskinen. Well, I don't know today what the status is,
    but the information was due to us before the date of this
    hearing, actually some time ago.
        Senator Thomas. It was due to you in 1995, wasn't it?
        Mr. Koskinen. Yes. The statute with that requirement came
    late in 1995. As I noted last year, we had sent out a request
    to the agencies, and that information is coming and will be
    available. And as soon as it is completed, I will make sure
    that----
        Senator Thomas. You will let me know, won't you? You see,
    you are just 2 years late.
        Mr. Koskinen. I will let you know.
        Senator Thomas. It is so easy to talk about how you support
    reform, but it doesn't happen. You said Federal employees have
    been reduced by 300,000. How many of those came from base
    closures, Defense Department downsizing, and the savings and
    loan debacle?
        Mr. Koskinen. The last time I looked, about 60 percent were
    from the Defense Department and 40 percent were from the non-
    defense agencies.
        Senator Thomas. So when we are talking about reinventing
    government, that really hasn't been the reason that we have
    fewer Federal employees.
        Mr. Koskinen. One hundred and twenty thousand people from
    the non-defense agencies is a lot of people.
        Senator Thomas. How many of those came from savings and
    loan completion?
        Mr. Koskinen. A relatively modest percentage of those.
        Senator Thomas. OK.
        Mr. Koskinen. I would be happy to send you those numbers as
    well, Senator.
        Senator Thomas. I wish you would, please.
        You talked about judicial review. Certainly I don't want
    any more litigation than possible, than necessary, but if you
    are going to hold a competition, then do you object to the
    private sector having some appeal?
        Mr. Koskinen. No. My only point about that is, the moment
    we open up all of these decisions, the private sector will
    appeal. The Public Employee----
        Senator Thomas. Well, shouldn't they have a right to
    appeal?
        Mr. Koskinen. You can do that. Right now, they have a right
    to appeal in an administrative process. If you want to give the
    employee unions and the private sector the right to take every
    one of these decisions into court, you can do that. I am in
    favor of----
        Senator Thomas. Now, that isn't the way it works, and you
    know that.
        Mr. Koskinen. That is the way it works.
        Senator Thomas. There are lots of statutory provisions that
    have judicial review now, and you are not swamped. I just don't
    understand your argument.
        Mr. Koskinen. I would say----
        Senator Thomas. You don't need to answer it because I know
    your answer.
        Mr. Koskinen. Well, I would like to answer you. Our
    experience in procurement reform, for instance, was that given
    rights for statutory appeal, we clogged up the procurement
    process with a lot of appeals. When we did the Information
    Technology Management Reform Act, we abolished the General
    Service Administration's Board of Contract Appeals and moved
    appeals back to GAO. Now, the process is running much more
    smoothly.
        Senator Thomas. How many times have you gone back after an
    award and done the A-76 competition again? You said it
    shouldn't just be done once, you do it again. Do you go back
    and do it again?
        Mr. Koskinen. I don't know, but one of our concerns has
    been that we don't.
        Senator Thomas. Mine, too. When are you going to do that?
    You indicated that you ought not to just make a one-time
    decision and then not go back and do it again.
        Mr. Koskinen. That's right. What we are doing is--and I
    think this is one of the things franchise funds and increased
    interest in the private sector will do--to continue to provide
    agencies with people interested in challenging the way the work
    is presently done.
        We don't view it as our responsibility to monitor the
    system across the whole government. As I said to Senator
    Brownback, our goal is basically to harness the present
    incentives that are building in terms of budgetary constraints
    and to focus the agencies' attention on the wide range of
    options we provided them, for lowering their costs. Certainly,
    changing the way agencies do the work and changing who does the
    work is one of the significant ways in which agencies can
    reduce costs.
        Senator Thomas. I guess I just get a little frustrated
    that, whenever we seek to do something that might have some
    fundamental impact on how the Federal Government works, you
    come up with all of these reasons why we can't do it. Or else
    you are doing it, but we don't see the results. How many A-76
    cost comparisons were conducted in 1996?
        Mr. Koskinen. I don't know the number. I can get you that
    information. As I said, we have 40,000 FTEs under review right
    now in the Defense Department.
        Senator Thomas. But you don't have any idea how many A-76--
    --
        Mr. Koskinen. I don't carry that information----
        Senator Thomas. But don't you have any notion, any idea? Is
    it something that is done frequently? Is it done a lot? Is it
    done for lots of activities or is it something that is seldom
    done?
        Mr. Koskinen. At this point, I don't know the answer to
    that, Senator.
        Senator Thomas. But you also indicated to us that we don't
    need this bill because the A-76 process is taking care of it.
        Mr. Koskinen. I have indicated that our experience is that
    increasingly, across the board, with franchise funds, with----
        Senator Thomas. Franchise funds, what does franchise funds
    have to do with this particular issue?
        Mr. Koskinen. With the franchise funds, Congress
    established six pilots to become competitors, in effect,
    marketers to agencies about their administrative support
    services--whether it is payroll, administrative, or financial
    systems.
        Senator Thomas. I understand.
        Mr. Koskinen. And they are beginning to operate. They are
    opening those competitions, and our rules are that the
    competitions have to be cost-competitive with the public. And
    agencies, once they have gone to a cross-servicing arrangement,
    can in fact move that contract to the private sector without an
    A-76 comparison.
        Senator Thomas. Last year you grandfathered existing
    services in order to avoid holding competitions.
        Mr. Koskinen. No, what we did last year, as I thought I had
    explained, was to grandfather existing services.
        Senator Thomas. I understand that.
        Mr. Koskinen. The National Finance Center at Agriculture
    now provides payroll services to a series of agencies. If they
    want to expand those, they have to cost compare----
        Senator Thomas. I know, and you will remember the Senate
    last year objected to the grandfathering and voted against it
    59-39.
        Mr. Koskinen. Voted against what?
        Senator Thomas. The grandfathering that you did last year.
    Now, my amendment was dropped from the omnibus appropriations
    bill, but I am just telling you that the Senate voted against
    that substantially. I guess my point is, it seems like instead
    of taking a look at and moving towards outsourcing, you seem to
    do everything you can to avoid it, and it puzzles me.
        Mr. Koskinen. I don't think that is a fair
    characterization. We went to a lot of trouble, consulting with
    the private sector as well as with the unions for about a year,
    to streamline and update the A-76 Circular for the first time
    in----
        Senator Thomas. And I am asking you if you use A-76 or not.
        Mr. Koskinen. We have put it at the disposal of the
    agencies, we have required them to give us their material, and
    they are starting to take a look at this. You made a good
    point. As you say, we are concerned about exposing this to the
    legal process. We are concerned about arbitrarily, across the
    board, coming up with a conclusion.
        Your point about the Park Service is a good one. As we look
    at agency strategic plans, as we look at the definition of
    their missions, and as we look at how are they organized, one
    of the things we are encouraging--and we would be delighted to
    encourage more--is for authorizing and appropriating committees
    to look at those areas and ask questions about them.
        So when you had those questions of the Park Service, it
    seems to us perfectly appropriate to have the Park Service
    explain to you what their strategic plan is, what their goals
    are, and how they are managing themselves as we go forward. We
    are doing that in our budget reviews. We have told the agencies
    that, as they go forward, they have a set of tools and they
    have to begin to explain to us how they are using them.
        Senator Thomas. I guess that is really the basic reason for
    this legislation. We have had this policy in place for over 40
    years, and there is nothing statutory to require it, so you
    don't really do it, and you ought to be doing it. Maybe you are
    right, maybe the Congress ought to be looking at it in the
    appropriations process, too. But since Eisenhower's time the
    Executive Branch has said, ``Well, you don't need a statutory
    provision, we're going to do it.''
        The time is going to come when we have to decide, are we
    going to do it or not? Are we just going to talk about it or
    are we going to do it? Is there some evidence? Did you bring
    some evidence? Can you show it? How many A-76s are we doing?
        But instead of that, frankly, and I don't mean to be
    unkind, but I am a little impatient with this going on year
    after year, the same thing.
        Mr. Koskinen. Well, I don't think we should gloss over the
    facts and act as if nothing is being done by the private
    sector. It is instructive to me that we now contract out
    substantially more for services than our total Federal payroll.
    Our payroll costs are at less than $90 billion. We are now
    contracting out for services at $115 billion.
        Senator Thomas. Almost all in defense.
        Mr. Koskinen. The $115 is almost all in defense?
        Senator Thomas. Much of it.
        Mr. Koskinen. We will try to get you those figures.
        Senator Thomas. Do.
        Mr. Koskinen. But you have to ask what the problem is. I
    understand the private sector would like more business. I am in
    favor of them getting business, to the extent that they are
    cost-competitive. But I don't think it is a fair
    characterization to say that the government is not contracting
    out, that it is not doing enough, and that it hasn't moved.
        If you look at the growth of contracting out, there have
    been other hearings on the Hill focused on whether we are
    moving too fast. Can we service these contracts? Can we oversee
    them appropriately? At this point, we are contracting out a
    phenomenal volume of work. That doesn't mean we shouldn't
    contract out more, back to the Chairman's question in terms of
    I think we need to continue----
        Senator Thomas. Why don't you give us some numbers, over a
    period of time.
        Mr. Koskinen. I would be delighted to give you the numbers.
        Senator Thomas. Five years, 4 years, you choose it. Give us
    the growth pattern in terms of the percentage of total
    expenditures that are contracted out.
        Mr. Koskinen. Right. I will give you the numbers as to what
    the growth has been in contracting out and what the decline has
    been in Federal employees, both in numbers and in compensation.
        Senator Thomas. And tell us where they came from.
        Mr. Koskinen. And I will tell you where they came from.
        Senator Thomas. OK.
        Senator Brownback. I think that would be helpful to have.
    We don't mean to be pressuring you, but we are.
        Mr. Koskinen. No, that is all right. [Laughter.]
        Senator Brownback. And we want you to feel a little bit of
    that, because what you are seeing here from both of us
    expresses our perception that there isn't near the level of
    privatization taking place that clearly could take place. I
    gave you one example. We have a bunch of others that we could
    give to you, and maybe that is what I ought to run by you, just
    saying, ``OK, what about this one and what about that one? What
    are you doing about those?''
        Actually, why don't we submit a list of nominees, and would
    you mind reacting to those?
        Mr. Koskinen. That would be fine.
        Senator Brownback. You are in the middle of the
    administration, and are supposed to be the bad guys and pushing
    all this stuff within the system of the Federal Government. We
    hope to create incentives within the agencies and overall in
    the administration for more of this to occur. But it is the
    perception amongst a lot of Members that there is just not
    enough happening, and what is happening is basically in the
    Department of Defense. This is fine and good, but it is one
    agency, and it ought to happen on a much broader basis.
        Until we start seeing real things happening, you are going
    to continue to have this. You are going to continue to have
    this sort of pressure, and then we are going to start working
    at it through the appropriations process, we are going to go at
    it this way, and we will just be fighting back and forth. We
    would rather work with you. You are in the middle of the
    administration and can push those sort of things.
        Mr. Koskinen. Right, and I think it is an important issue.
    We have supported it; we are behind it. But one of our concerns
    is that it ought not be our primary focus. It is ultimately a
    secondary measure of long-term effective performance.
        We are not doing this for philosophical reasons, although
    there are some who are. Our goal is to provide taxpayers with
    the most efficient operations for achieving agency missions.
    And I think we are all on the same page insofar as we want to
    determine what the agencies are trying to accomplish, their
    goals and objectives and their effectiveness, and the costs of
    getting desired results.
        And as we continue to push on the broader issue, I think
    the way to get people's attention and to motivate the agencies
    is to say, ``(a) we have fewer dollars than we would like, and
    (b) we are now being held accountable for the actual outcomes
    resulting from our activities. How can we increase that
    performance when we are not going to be able to do it through
    getting more money in appropriations?''
        And we need to encourage managers to say, ``One of the
    things we have got to do is become more efficient in the way we
    are organizing.'' One of the ways to become more efficient is
    to look at who is the best provider of commercial services----
        Senator Brownback. And actually make something happen.
        Mr. Koskinen. Right. And another way is to look at
    restructuring, redoing the way we do the work. We have pushed
    on a lot of fronts in that regard. These things are all part of
    the package. They are all important elements, but we are not
    doing them as ends in and of themselves. We are doing them
    because we are ultimately trying to achieve the best possible
    performance for the public in terms of achieveing those
    missions. So the Park Service is a great question.
        Senator Thomas. Nobody can disagree with what you just
    said, but you talk about it in such a broad way. You have to
    finally break down into taking action, producing results. You
    talk about efficiency. Well, everyone wants that. Then,
    finally, you have to say, ``Well, how do we do this? And here
    is an area we ought to be doing it in.'' Whatever the area is.
        Mr. Koskinen. I am saying that if we could get, and
    actually you can tell I am lobbying to get as much
    congressional support as we can. We are working hard with the
    House and the Senate----
        Senator Brownback. You are not doing real well.
        Mr. Koskinen. I think you are exactly right. We can be at a
    high level of abstraction and it doesn't make much sense.
        Senator Thomas. And I have noticed that some.
        Mr. Koskinen. But ultimately what I would like to have
    people do is to ask harder questions as they go through the
    process--agency by agency--about what we are actually getting
    for our resources. And if you could start to focus on that as
    the incentive, as the outcome of the discussion and the outcome
    of their work, then you get greater leverage on people to
    participate with you in streamlining and restructuring their
    operations.
        Senator Brownback. We need to wrap this up. I am going to
    submit to you a list of nominees.
        Mr. Koskinen. Good.
        Senator Brownback. I would appreciate it, if you would take
    a good look at those and see which ones you think we ought to
    go at. I would appreciate, if you would, answer Senator
    Thomas's question for him and for the Subcommittee----
        Mr. Koskinen. We will provide----
        Senator Brownback [continuing]. Of looking at privatization
    over a 5-year time frame, if you would.
        Mr. Koskinen. Sure.
        Senator Brownback. Let's just go back the past 5 years and
    you say, ``Here is where we have privatized over the past 5
    years.'' I think that would help me, I think that would help
    Senator Thomas, because we are both--I am feeling like how I
    treat my mother-in-law sometimes, which is I always go, ``Yeah,
    yeah, yeah, yeah, I'll do it,'' and then nothing happens.
    [Laughter.]
        And we got to see something happen here. So thank you.
    Sorry to give you a tough morning, but if you would react to
    those two things in particular and be specific, I would
    appreciate it. We will also look at your suggestions on the
    Department of Defense for changes in legislation to see if
    there are things we can help you out with there.
        Mr. Koskinen. That would be great.
        Senator Brownback. Thank you very much.
        Mr. Koskinen. Thank you both.
        Senator Brownback. For, the third panel we will be hearing
    from Dr. Samuel Kleinman, director of the Center for Naval
    Analysis. Next we have Captain Burton Streicher, CEC, USN,
    director of Navy Outsourcing Support Office; and Charles Davis,
    with Chamberlain, Davis, Rutan and Valk, formerly the associate
    administrator for operations, GSA.
        And I would note, for the other Members present, Dr.
    Kleinman and Captain Streicher are Federal employees and don't
    want to comment on policy issues, or on the particular
    legislation appearing in front of us. They are here to talk
    about their own experiences, and so we will limit our questions
    to non-policy matters. That is pretty tough for a couple of
    people in the policy field, so if there are questions we ask
    you that you don't feel are appropriate, just tell us and don't
    respond to them.
        If there is no problem with going with the order on the
    list, Dr. Kleinman, we would appreciate your statement. You can
    summarize and we can put the whole statement in the record and
    then have some good discussion.

    TESTIMONY OF SAMUEL D. KLEINMAN,\1\ DIRECTOR, CENTER FOR NAVAL
                                ANALYSIS

        Mr. Kleinman. Good morning, Mr. Chairman. Thank you for
    inviting me to testify before your Subcommittee. I apologize,
    but I am losing my voice and at some point I may ask my
    colleague Derek Trunkey to come forward and complete my
    statement.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Kleinman appears on page 53.
    ---------------------------------------------------------------------------
        I will be discussing our examination of competition in
    outsourcing. In the title of my talk, I put the word
    ``competition'' first. We believe that competition is what we
    have gained in DOD from our outsourcing program. The program is
    built on the premise that all providers of services, both in-
    house teams and private contractors, should be able to
    demonstrate that they provide the best value to DOD and
    government.
        I will be talking about our examination of competitions
    governed by OMB Circular A-76. Under this circular, in-house
    teams are allowed to submit a bid and the incumbent team can
    bid below its current costs, which it often does. The private
    team must bid at least 10 percent below the public team's costs
    to win the competition.
        Our initial work examined the U.S. Navy's competitions.
    Between 1979 and 1990 the Navy competed 25,000 positions, 80
    percent civilian and 20 percent military. Overall, the savings
    were 30 percent. In these competitions the public team won half
    the time. There was a 20 percent saving when the in-house team
    won and 40 percent saving when a private firm won. The in-house
    savings appear low because when no bidder produced any savings,
    the competition was decided in favor of the in-house team, and
    those no-saving competitions are included in their average.
        For about 30 of these competitions we went back to the
    bases to learn about quality and subsequent costs. Although
    there were a couple of defaults, in most cases costs were
    contained and quality maintained. We believe the reason is that
    when the contract ended, there were sufficient competitors out
    there to bid away the contract, so there were always
    competitive pressures controlling the contractors.
        In one large competition, we were able to follow
    performance and labor productivity through two recompetitions.
    We found that performance remained high and the labor
    productivity continued to improve.
        When contractors win, they have to offer any new jobs to
    the affected government workers. Only 3 percent of the affected
    workers joined the contractors in DOD. Most Federal workers
    prefer to continue employment with the government. However, our
    case studies did show that when a contractor loses a subsequent
    competition, most of the workers are rehired by the winning
    firm.
        We believe that the source of the savings is competition.
    Both public activities and private teams come in with their
    best offers and, as I noted, the in-house team wins half the
    time, so outsourcing only occurs when a private firm offers to
    perform the function at lower cost.
        Competition provides cost visibility and choice of
    suppliers. In many cases, for the first time, in-house teams
    constructed the full cost of what they were required to do, and
    they developed performance work statements. The government
    could then compare alternative sources for accomplishing the
    required work.
        When private sector teams win, they appear to reduce costs
    by using fewer people, not by paying less per person. We
    believe they do this by moving people from one job to another,
    by giving employees a greater range of skills, by using more
    temporary workers, part-timers, overtime, and workers from
    other sites to meet peak work load demands.
        There is a cost to competing and monitoring contracts. We
    estimated that the one-time cost to compete is about 10 percent
    of the annual value of the contract. The cost to monitor these
    contracts is 3 to 10 percent. The savings I reported to you are
    net of those monitoring costs.
        After examining the Navy's experience, we extended our
    analysis to all of DOD's competitions. I am going to show you
    what the results are on this chart. There were 2,100
    competitions, 80,000 positions----
        Senator Brownback. Would you mind moving that over to the
    other side? I hope that is not too inconvenient for you. We
    have more people on that side of the room, and Senator Thomas
    will be able to see it, too. Please proceed.
        Mr. Kleinman. We looked at over 2,100 competitions,
    military and civilian combined. There were 80,000 positions.
    Again, about 80 percent were civilians.
        Senator Brownback. I'm sorry. Could you tilt it just a
    little bit this way, now? I would like to be able to see it,
    too. There you go. Thank you. Sorry about that.
        Mr. Kleinman. We found that there were savings throughout
    DOD, across all the services and agencies, again about 30
    percent, and again, half the competitions were won in-house. We
    estimated that the annual saving to DOD was $1.5 billion a year
    from these competitions.
        We noticed that some competitions produced a great deal of
    savings and others produced no savings, and my second chart
    will show you the distribution we found. In about 22 percent we
    actually didn't have any savings. On the other hand, in 16
    percent of the cases, we had savings of over 50 percent.
        We saw that competitions for small activities were the most
    likely to produce no savings. In fact, close to 70 percent of
    the activities with no savings were competing only 10 or less
    positions. This is consistent with our observation that savings
    come from using fewer people. It is difficult to structure
    assignments for narrowly defined activities. This is an
    important point when considering how many activities to put
    into one competition. As I mentioned, smaller competitions
    provided less savings, yet many of the competitions are indeed
    small.
        And that will be my third and last chart. It shows that 40
    percent--857 of the 2,100 competitions--were for 10 or fewer
    positions. Those 40 percent of the competitions produced only 5
    percent of the total savings. Savings were greatest for the
    largest, over 200 positions. Unfortunately, in the middle it is
    less clear what is going on, but you can see at the very bottom
    there is definitely a loss from using those smaller
    competitions.
        Now, there are many challenges to successful competitions
    in outsourcing. As I noted before, the average cost to compete
    is 10 percent of the annual contract value. These costs are
    usually recovered quickly, usually within 4 months, but they
    can discourage regional offices that have to pay for the
    competitions out of their current budgets.
        It can take a long time to complete a competition. The
    average is 2 years. A recent Rand report noted that while 5
    percent were completed within 6 months, another 5 percent
    required 5 or more years. The lengthy competitions can be
    disruptive and costly. Workers, fearing that the work will go
    outside, start to look for other jobs, and no matter who wins,
    it takes time to recover from the disruption.
        Many competitions were cancelled before they even went out
    for bid. Forty percent of those started were never completed.
    Our analysis suggested that those cancelled were as likely to
    produce savings as those completed.
        Departments and agencies can take steps to meet these
    challenges. First, each department and agency should set up a
    competition and outsourcing office to serve as a central source
    of information and support. The offices would promote and
    arrange training, help structure and review performance work
    statements, provide templates for contracts, and send teams out
    to the local and regional offices to set up the competitions.
    We need to cut the cost and length of competitions, and the
    individual facilities and regions cannot be asked to do it
    alone.
        Second, the incentives at local and regional offices should
    be improved, as you have noted before. Competitions are costly
    and disruptive to them, and headquarters often cuts the budgets
    by the amounts of the savings, leaving the local and regional
    offices no better off for their efforts. We believe that the
    local and regional offices should keep the savings for a couple
    of years. They could use the money on workplace improvements
    that didn't make it into their original budgets.
        Third, the workers participating in the competition should
    be kept informed and supported throughout the process. They
    should know what is being competed, the schedule, and the rules
    governing the competition. They should be helped in
    reorganizing and preparing their own bid. Their objective
    should be to win, and we want them to take on the challenge of
    outside competitors. If they lose, they should be offered
    generous buy-outs and help in finding new positions.
        Fourth, agencies and departments should look for
    opportunities to consolidate several activities into one
    contract. The small competitions are not producing the savings
    seen in the other competitions. One facility could consolidate
    different functions into one competition, or several facilities
    could merge a common function into a competition.
        Finally, agencies and departments should use a selection
    process that allows them to pick the best value and not
    necessarily a sealed-bid, low-cost alternative. They are
    allowed to weigh past performance, management, and financial
    solvency of the bidders. In the past, the Department of Defense
    sometimes felt obligated to select low-cost bidders that they
    suspected could not perform.
        In summary, competitions produce the best efforts in all
    participants and the best value for our agencies and
    departments. The end result would include more outsourcing but,
    more importantly, it would lead to more efficient government.
        Thank you.
        Senator Brownback. Thank you, Dr. Kleinman. That was very
    illuminating, from your practice and what you have experienced.
    I will look forward to some good questioning.
        Mr. Streicher, thank you for joining us today, and the
    microphone is yours.

       TESTIMONY OF CAPTAIN BURTON STREICHER,\1\ CEC, U.S. NAVY,
               DIRECTOR, NAVY OUTSOURCING SUPPORT OFFICE

        Captain Streicher. Good morning, Mr. Chairman, Senator
    Thomas. It is a pleasure to be with you here today and to
    discuss my experience when conducting OMB Circular A-76
    competition studies within the Navy.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Captain Streicher appears on page 60.
    ---------------------------------------------------------------------------
        In my present position I am responsible for assisting Navy
    and Marine Corps field activities in conducting A-76
    competition process by streamlining the process to a
    standardized notional 12 months, selecting and developing
    generic performance work statements, standard acquisition and
    source selection templates, new key process enablers, provide
    access to nationally based study support consultants, ensure
    lessons learned are quickly shared among the activities, and
    provide a single store-front point of service for local
    installation commanders.
        In 1984 I was the functional head of two different
    successfully completed A-76 competitions for public works
    services and transportation operations and maintenance at the
    then-Naval Air Development Center, Warminster, Pennsylvania.
    Both studies were started in May of 1982. They were in progress
    when I reported in July of that year.
        We studied about 78 full time equivalents or positions in
    both studies. The most efficient organization took us 4 months
    for each to do. The invitation for bid was released in May of
    1983 for the public works services, and the transportation
    studies were released later that fall.
        I spent most of my entire tour of 3 years to bring both to
    completion, as the public works services competition resulted
    in a lengthy 7-month appeal process which extended out the
    total study period. Both studies were retained in-house and
    they continued to be retained until the facility was closed
    under the BRAC process.
        I would like to share with you some of the lessons I
    learned from these experiences. First, there were numerous
    barriers which made it difficult for us to conduct these
    studies. The study units were suboptimized and conducted at
    different times, two different studies, which resulted in
    fragmentation of our management effort and required a
    significant amount of additional coordination effort by my
    staff.
        In accordance with the guidance at the time, we conducted
    the process in a serial manner, finishing one step before we
    commenced the next. If the product was not acceptable for the
    next portion of the process, I had to go back to the beginning
    of the previous step, with a commensurate loss of time and
    effort.
        For example, when I first saw the public works study
    performance work statement, it was not in a contractible
    format. I had to appoint three people full time to work for 2
    months just to convert it from what my shops and functional
    people had developed into something that we could put out on
    the street for advertisement.
        The prescriptive statements of work and the data gathering
    efforts to develop them were exceptionally labor intensive and
    almost impossible to cover all aspects of the service
    performance. The resulting ``how to do the work'' performance
    work statements were huge in size--we weighed them in terms of
    pounds--and left many opportunities for misunderstanding the
    requirements.
        In fact, I awarded a small consulting contract to provide
    an independent review of our final performance work statements
    just to determine where we had left holes in the requirements.
    The consultant found several, one of which hinged on the
    definition of a word used to describe the intermittent
    operation of our heating boiler plant. If not corrected, this
    word interpretation could have resulted in a contract change
    worth several hundred thousands of dollars if it had been
    awarded to an outside service provider.
        I also found that there was very little process technical
    experience located within the activity or the region. There
    were no user-friendly guides that could walk a functional
    manager through the process and explain what choices there were
    that could be made by the commanding officer or myself.
    Everything was done for the first time, with great uncertainty,
    whether it was done correctly or not.
        In addition, there was no formal lessons learned sharing
    mechanism to find out what was happening in other activities.
    We pretty much had to use our own personal contacts to get that
    information.
        The invitation for bids method of acquisition, which is a
    cost-only comparison, resulted in a decision for the bidder who
    interpreted the specifications to the minimum amount; this was
    whether they could actually do the work or not. This was
    commonly known at the time as an unlevel playing field.
        It resulted in an initial decision on the public works
    services study to an outside provider who bid almost exactly
    half of the independent government estimate, the government bid
    and the other four industry bidders. The union appealed this
    initial decision, and after more than half a year and numerous
    discussions, the contractor withdrew his bid.
        Despite the above barriers and the difficulties that I
    experienced, the process worked, and my activity was able to
    perform the same amount of service at a much-reduced cost.
    Competition vice the end nature of the service provider was the
    key to about a 20 percent savings for my command.
        Since my experiences over 13 years ago are not unique to
    just me, to overcome these obstacles the Navy has reengineered
    and streamlined the process to become a better management tool
    for activities to use, namely, better up-front planning and
    coordination using acquisition plans and integrated process
    teams of all parties involved in the process, to give the local
    commander greater control of the whole process.
        We have shifted to identifying minimum service required to
    support the mission and to define the requirements in
    performance outcome terms, which allows the service provider,
    whether it is outside or in-house, to determine how best to
    provide the service. We are holding industry forums to learn
    best business practices and adjusting performance work
    statements to allow better participation by industry and
    government providers.
        We have also developed a way to compress the A-76 process
    to 12 months between announcement and decision, through
    parallel versus serial operations, process enablers and
    templates, and an extensive support effort which includes
    enhanced training opportunities for the people doing the
    studies, regional facilitators, electronic connectivity for the
    lessons learned, and outside consultants being available to
    provide specialized expert assistance.
        Finally, we have shifted to a best value request for
    proposal vice lowest bidder invitation for bids acquisition
    process in order to balance the outcomes of the best contractor
    proposal and the government proposal prior to cost comparison.
    This new change corrects the greatest previous complaint by
    both sides of a unlevel playing field for the competition.
        These initiatives, along with the other aids that we have
    been developing, (such as a 1-800 outsourcing assistance
    number, an outsourcing home page on the Internet, a commander's
    handbook for successful competition, and electronically linked
    regional outsourcing support coordinators), we feel will go a
    long way in making the A-76 competition process a better
    management tool for the Navy, and it will provide another
    addition to the Navy commander's and the resource sponsor's
    tool kit to use, when appropriate, to reduce the cost of the
    Navy's infrastructure.
        In conclusion, I hope that sharing my experiences will
    assist the Subcomittee in its future deliberations.
        Senator Brownback. It will, and I appreciate very much that
    testimony. We will look forward to some questioning.
        Mr. Davis, thank you very much for joining us. The
    microphone and the floor is yours.

    TESTIMONY OF CHARLES S. DAVIS III,\1\ CHAMBERLAIN, DAVIS, RUTAN
       AND VALK, FORMER ASSOCIATE ADMINISTRATOR FOR OPERATIONS,
                    GENERAL SERVICES ADMINISTRATION

        Mr. Davis. Mr. Chairman, Senator Thomas, I appreciate the
    invitation and opportunity to discuss the Freedom From
    Government Competition Act, specifically in reference to my
    experiences and observations on the benefits and opportunities
    of competitive contracting. I have submitted my remarks for the
    record, and right now I would like to summarize those briefly--
    --
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Davis appears on page 64.
    ---------------------------------------------------------------------------
        Senator Brownback. Please.
        Mr. Davis [continuing]. And also add some additional
    observations.
        Before getting into my experience in the government, I want
    to touch briefly on the fact that the private sector has begun
    to use outsourcing more than ever before. Perhaps the best
    example of this is the automotive industry. I am from Detroit,
    and for 10 years I was an executive with one of the major auto
    companies.
        Since 1980, the revitalization of the American auto
    industry to a large part has depended upon outsourcing. This
    was not true from 1920 to 1978, where insourcing, in effect,
    was the mode of operation, bringing in parts suppliers and
    components suppliers. Ford used to make its own steel, its own
    glass for windshields, had its iron mines up in the Masabe
    Range, and had its own fleet of steamships. All these were
    considered inherently necessary to run the business.
        As you know, Ford finally had to stop insourcing when it,
    through antitrust problems, was forced to spin off its Autolite
    Spark Plug Division, and that effectively put a stop to this
    great insourcing flood that was believed, in GM or Ford or
    Chrysler, to be the way to go. With the competition from the
    Japanese and the global economy, all three auto companies have
    been forced to rethink, and if you just survey what has
    happened since 1980, they have been selling off division after
    division after division, outsourcing whole activities of their
    operations.
        They have been doing it not only for cost, and this is the
    point I wanted to bring up that is not in my prepared remarks.
    They are mission-oriented, just like government agencies are,
    and they realize it is not just cost savings that you get from
    outsourcing. Management is better able to focus their attention
    on their mission. The mission of those auto companies is
    designing cars, making sure the cars can be assembled, and then
    marketing them.
        But where the component parts come from, where the steel
    comes from, how it is manufactured, all the companies are
    interested in is the results of that; in other words, they are
    interested in the end product that is going to hit their
    assembly lines. They are not interested in being tied up in the
    management of all these component parts manufacturers and raw
    material manufacturers. It diverts their management attention.
        Likewise, when I was in a government agency, we
    continually--on a day-to-day basis were worrying about
    personnel problems, worrying about reorganization problems,
    worrying about coming up and trying to get budget
    authorizations. If we are directly managing all those
    activities, we have many more things concerning us and we are
    not focused on our end mission, which is the program we are
    supposed to be delivering to the public or to the other
    government agencies.
        So the reason I am adding this is, I heard earlier all the
    talk on outsourcing or competition is because of cost-
    effectiveness. Equally as important is the ability of
    government executives, career and non-career, to focus their
    attention on mission and not be sidetracked with trying to
    always manage all the parts of the process.
        Now, speaking about my government experience, during the
    period from 1981 through 1985 GSA reduced its head count by
    over 9,000 FTE or by 25 percent. Over one-third of that
    reduction came through use of the A-76 process. The savings
    that we gained in GSA in 4 years was $120 million a year by the
    end of 1984.
        We conducted 500 A-76 reviews covering over 45 percent of
    the agency's head count during that 4-year period. The $120
    million in savings that occurred wouldn't have come had we not
    been able to fast track and to find ways around the normal
    impediments . . . impediments that I noticed was mentioned in
    the questioning coming from the Subcomittee today on the use of
    A-76.
        When we first started to try to implement the process, it
    seemed like it would take years. Each study was defined as
    taking 8 months, others would take a year or more, before we
    would be able to get out and contract.
        One of the things that we were able to do and one of the
    lessons we learned is to streamline the process by using
    standardized packages for both the analysis and standardized
    packages and standardized methodology in moving through the
    procurement process. We were aware that there were large
    savings to be made on large programs, but we were also aware
    that large programs bring large attention to them and are
    difficult and complex to manage.
        So what we tried to do, and one of the ways that we were
    successful, is we broke down the programs that we were going to
    A-76 into chewable bites. We concentrated on the area of below
    30 FTE and many times around 10 FTE. When we get into that size
    of procurement, you can speed it up, and our target that we
    reached was a 3-month cycle from the time that we identified an
    area of needing an A-76 study until the time it was out on the
    street being contracted.
        One of the other problems we had was the tendency in the
    government that to get ahead you have to go along if you are a
    career employee. It is very difficult to buck the agency.
    Career employees do not typically wish to see their operation
    reduced through the A-76 process. They don't understand they
    have as much authority under a contract as they would have with
    the FTE.
        So there is a natural reluctance to contract out. We would
    not have been successful if we had not made the A-76 process
    itself what is called a ``critical element'' in every line
    manager's performance review. Now, the critical element wasn't
    just completing a study . . . the critical element was having
    the bid on the street. A critical element means that if you
    don't get a satisfactory grade on it, you can be demoted or
    discharged under the performance review system for career
    employees. So we made A-76 a ``critical element'' throughout
    the agency. We felt that that was one of the most important
    steps to making sure the process moved ahead.
        Of course, we had to have support from the top. That was
    absolutely crucial, but the support wasn't just rhetoric. The
    top management in the agency had to take active support. For
    example, in one major A-76 program, we actually had to remove
    the top line manager out of the way. That is a drastic step,
    but that sent a signal to the whole agency that we were serious
    about completing the A-76 projects on time.
        One of the elements that is important to the process, also,
    was the element of setting the performance standards from what
    the private sector can accomplish, not just accepting the
    present performance standard in the government. In this way,
    not only do you get the cost savings--you get the cost savings
    regardless--but you also get an improvement in the performance.
        To give you one example, when we A-76'd the Franconia
    warehouse, the government performance standard was 29 days;
    this was from the time a warehouse order was received to the
    time the goods were shipped, out the door--1 month from the
    time the order was received to the time they had to have it
    shipped. In the private sector the standard was 72 hours, that
    was the maximum time period we could find.
        We couldn't get the government career employees in that
    area to agree to 72 hours. We actually had to remove some
    government employees when they said the lowest they could go
    was 16 days. Finally, we found a manager who was willing to
    commit to 6 days. That was where the performance standard was
    set . . . a reduction from 29 days to 6 days in the service
    level.
        When we bid the process, an outside contractor won that
    bid, and the performance was 6 days at 39 percent cost savings.
    So not only was the cost savings achieved, 39 percent lower
    than the prior year to operate that facility, but the
    performance went from 29 days to 6 days. So using outside
    performance standards is very necessary.
        The other thing I do want to state, and I can do this being
    outside the government, that for a career employee
    participating in directing the A-76 process and pushing it in
    an agency is tantamount to watching your career reach a dead
    end. You will never be promoted. I can't say that it happens in
    every government agency. I can say it happened in GSA.
        The people who ran that program in my agency, GS-15s, saved
    $120 million. The average cost savings was 38 percent. They
    reduced head count by 3,000. As a result, for the rest of their
    career in the government, they were never promoted. We gave
    them outstanding performance reviews, and I think for the rest
    of their careers they had either excellent or outstanding
    reviews, but having the career people sit on the SES selection
    board meant that there was always a reason that these
    individuals were not selected for SES, and I attribute that
    directly to the fact that they took on the bureaucracy through
    the A-76 program. I don't know how to solve that through
    legislation, but it is a real problem.
        As I said, I have submitted my remarks for the record. I
    would be glad to answer any questions you have.
        Senator Brownback. That last statement was particularly
    thoughtful and provocative. I wish you had proposed a solution
    to it, as well.
        Do you have some questions, Senator Thomas? Would you like
    to ask one or two before you leave?
        Senator Thomas. Yes, sir. Thank you, and I appreciate your
    testimony and all of you being here. Captain.
        Captain Streicher. Yes, sir?
        Senator Thomas. You went through this thing. I guess this
    was fairly early on, the experience you talked about here?
        Captain Streicher. Yes, it was.
        Senator Thomas. So that you were sort of experimenting.
    Would it be useful to have some outside assistance in doing the
    specifications and setting up these kinds of things? Again, I
    go back to an agency manager who probably hasn't or may well
    not have done that, for instance in the military. Would it be
    useful to have some kind of professional help set up the
    criteria?
        Captain Streicher. Yes, it would. Actually, that is kind of
    what we have done in the Navy. We got five consultants and
    locked them up in a room with ourselves, and we produced this
    guide for activity commanders that really walks them through
    the process and gives them the kind of guidance I didn't get
    back in the 1980s.
        Senator Thomas. Yes.
        Captain Streicher. It tells them what the steps are. It
    tells them what should be produced, about the time it should
    take to do it, who the key players should be. It basically
    gives them a very basic guideline of how to go through the
    process and what decisions they can make as the Commander.
        So I think we have met that need at this point. The 10,000
    studies that the Navy announced in January, we are in the midst
    of doing the most effective organizations and the statements of
    work right now, so we are kind of in a trial and test right now
    to see how well it does work, but it seems to be so far.
        Senator Thomas. Yes. That is very interesting. Thank you,
    sir.
        Senator Brownback. Thank you, Senator Thomas.
        I appreciate what you folks have done here. You have
    stepped up and done some of these privatizations, and have done
    so effectively. I found this instructive, especially where you
    are saying that the larger projects are the ones to concentrate
    on. These are going to be difficult to do anyway, and you don't
    save much on the smaller positions. Has this been your clear
    experience?
        Mr. Kleinman. Yes, sir.
        Senator Brownback. Are there particular legislative changes
    that we could make, if you can comment--I know you can't
    comment on policy. Are there particular legislative barriers
    you ran into, in trying to do the things you did on using this
    A-76 process?
        Mr. Kleinman. I don't think that is a problem, sir. I am
    not speaking for the Navy here. The way A-76 is written now,
    you don't have to go through it for 10 or less people in the
    activity, yet we have chosen most of the time to do that.
        I think that the people who did that, did it because they
    were very cautious and wanted to show everyone that they did
    this as a fair way of doing business, and to offer the in-house
    team an opportunity to bid on it. So they could have gone
    directly outside, and they chose not to.
        This gets back to the whole issue of the incentives, how do
    you speed up the process, an issue that I believe is very
    important; cost visibility, that there is never really an
    appreciation of what it really costs to do things in-house, and
    it is never visible to them; and also the flexibility to make
    the right decisions. I think those are the issues here, and if
    we have those in place, we will see more competitons and we
    will see big savings.
        Senator Brownback. Dr. Kleinman, your statement on
    incentives, you believe that--I believe it was you that stated
    that--when you make these savings, make sure that the entity
    gets to keep the same amount of money coming to it for a year
    or two, as one of the incentives that you would cite. They
    could use this for equipment upgrades or whatever other things
    they might feel they need?
        Mr. Kleinman. Yes, sir. It could be bonuses, like you
    discussed earlier. It is easy to say for DOD, because the big
    issue in DOD is meeting its budgets after the turn of the
    century. I mean, that is how they are looking at it, to
    increase modernization after the turn of the century. So
    allowing the competitors to keep some of the money in the first
    2 years, will maximize the number of competitions and then get
    DOD to its end point, which is to free up some money after the
    turn of the century for the modernization that it needs.
        Senator Brownback. And that would be one of the key
    incentives that you would suggest would be useful in
    encouraging these?
        Mr. Kleinman. That would be one. When I talked about the
    workers, I discussed minimizing the disincentives. You can help
    them compete.
        I mentioned the buyout issue. I think that is very
    important. I believe that you can make it sufficiently
    attractive that people in activities who don't get it are
    disappointed, and look at those who have just gone through the
    competition as the people who have done the best, so I think
    that would help to incentivize the workers to work with the
    system.
        Then there is another point here. Even if it only takes a
    year to complete, you want to hand over an activity that is
    running well to whoever wins. And if workers start leaving a
    year beforehand, by the time you get to selecting a winner, the
    actvity is already understaffed. Things aren't getting done,
    and it really does take them time to get back up. So anything
    that you can do to keep the workers there up to the transition
    point, would minimize that disruption cost.
        Senator Brownback. Now, I want to say something here that I
    think doesn't get said enough, and it is that I and every
    Member of Congress appreciates the Federal employees. It is
    often seen as some sort of adversarial system, because we are
    passing the budgets, trying to balance the budget, and we are
    trying to make cost savings. But I just want to say, as a
    former Federal employee, that I appreciate Federal employees
    and what they do.
        But what we are trying to get is an efficient operation, as
    effectively delivered, as we possibly can. This has created too
    much of an appearance of conflict, when all we are about is
    trying to have an efficient, effective type of system. I
    realize that there are people who respond to this and say, ``I
    need to just dig in and fight this off, and soon this way, too,
    will pass,'' and there will be new Members of Congress and
    things will change.
        But we are broke, guys. I mean, we are $5 trillion in the
    hole right now. We are still running deficits of about $67
    billion, but it is probably really closer to $150 billion by
    the time you take the trust accounts and things like that out.
    We are not yet near the position we have to be, as we prepare
    for when the baby boomers start retiring.
        And I do want to state to all the Federal employees who are
    here, and any that might be listening--we appreciate what you
    are doing. It is just we have a problem here, of trying to be
    able to get this figured out. Mr. Davis.
        Mr. Davis. Mr. Chairman, from my experience in the civilian
    side, there were some legislative impediments that were put in
    the way after we started really rolling on this process and it
    was evident that we were going through almost half the agency.
        In the 1984 continuing resolution, the House tied the
    reduction of any custodial guard, elevator maintenance, or
    messenger service to the Veterans Preference Act, which said
    you couldn't contract out if a veteran could fill the job,
    which basically stopped a major part of our effort for a while.
    Eventually we got some relief in 1985 when they allowed us to
    contract those positions out if they went to a sheltered
    workshop for the blind or seriously handicapped, but that was a
    strong limitation. If that is still in place, that would be an
    impediment.
        The second comment I would make is that although it is nice
    to look at the larger projects, because you perhaps get
    proportionately greater cost savings, you also are taking on
    proportionately greater risk of the procurement getting blown
    up, of it getting delayed so it truly is a 2- or 3-year effort
    to get it through.
        The larger the project, the more visible it is, and the
    more visible it is, the more the other forces that would rally
    around the flag against it.
        Second, the smaller projects can move much more quickly and
    build momentum in the agency, so in our agency we opted to save
    in your case on the chart, the 28 percent or the 22 percent and
    get it in quickly rather than wait and take the risk of not
    ever getting to a 30 percent or a 31 percent savings.
        Last, you asked for some recommendations. One of the
    problems we saw in our agency was the definition of
    ``inherently governmental.'' Our general counsel inside the
    agency defined ``inherently governmental'' as almost everything
    except pushing a broom. We did not have that view, but once the
    general counsel of the agency defines ``inherently
    governmental,'' you are stuck.
        It would be very interesting to see what the Senate would
    think of what ``inherently governmental'' is. My own opinion is
    ``inherently governmental'' is the person that makes the
    decision, and not even the staff that necessarily analyzes the
    data. But in the government, anybody that touches policy,
    whether it is a secretary or an analyst or whatever, is
    ``inherently governmental'' . . . and that certainly does
    restrict the use of contracted employees and of contracting
    out.
        Mr. Kleinman. I agree with Mr. Davis. In DOD, larger
    studies did take longer and were more likely to be canceled,
    but that again gets back to the problem that it is the up-front
    costs that determined what we did and what we did not do, as
    opposed to looking at the ones that would really give us the
    biggest payback. But he is right. They did take a lot longer
    and a lot more were canceled of the larger ones.
        Senator Brownback. What do you think of Dr. Kleinman's
    suggestion that the agency keep the amount of the savings for a
    year or two as an incentive to the system?
        Mr. Davis. Well, I come at it in two aspects. As a
    taxpayer, I hate to reward somebody for doing what they should
    have done in the past simply because they did it now. But once
    you cross the Beltway and get into government, some of the
    rules change, and in government that might be a necessary
    incentive.
        Senator Brownback. And you do not have any suggestions on
    what we can do to civil service managers who willingly
    participate and are blackballed along the way for further
    rewards or advancement?
        Mr. Davis. Well, I think you have the same problem here as
    you have with a whistle-blower in an agency. You cannot
    legislate against discrimination very well because it happens
    very quietly, discrimination for whatever reason--in this case,
    discrimination because somebody went against the system in a
    strong way. I think perhaps one thing you might do is set up a
    bonus program out of some of the savings to bonus those people
    who are successful in the process.
        Senator Brownback. It seems to me then we are back to
    having the division or the agency or the entity that saves the
    money keep some of it for a period of time. And maybe you do
    that for a year's period of time and give them wide discretion
    on how that money is spent then.
        Mr. Davis. That is true, and one of the other problems you
    may get into is the determination by personnel of what the
    grades will be in that area after you have A-76'd all this FTE
    out. That is a great disincentive. The grades should go with
    the responsibility of the dollars, not necessarily the head
    count or the number of people who are reporting to you, and
    that can be a problem in the personnel system.
        So one of the incentives maybe is to assure that the grades
    either stay the same or actually might justify an increase, but
    certainly at least stay the same for the people managing the
    process.
        Senator Brownback. Very good. Gentlemen, I think this has
    been very illuminating from a practical standpoint since all of
    you have participated in this process. I very much appreciate
    your coming forward and testifying.
        To those watching, we are going to take a recess from this
    hearing and reconvene at 12:30 for the final panel at that
    time, and you are certainly welcome to return. We will be in
    recess until 12:30.
        [Recess.]
        Senator Brownback. We will reconvene the hearing. Thank you
    very much for accommodating me on breaking the hearing into two
    parts.
        The final panel, panel 4, includes Nye Stevens, Director of
    Federal Management and Workforce Issues, U.S. General
    Accounting Office, and John N. Sturdivant, the National
    President for the American Federation of Government Employees.
        Welcome, gentlemen, to the Subcomittee. You know the bill
    that we are looking at and the hearing that we are having in
    regard to it. I appreciate very much your willingness to come
    here and to testify for the record and in front of the
    Subcomittee.
        Mr. Stevens, you are listed first on the program. We will
    go with you first. Thanks for joining us.

     TESTIMONY OF L. NYE STEVENS,\1\ DIRECTOR, FEDERAL MANAGEMENT
    AND WORKFORCE ISSUES, GENERAL GOVERNMENT DIVISION, U.S. GENERAL
                           ACCOUNTING OFFICE

        Mr. Stevens. Thank you, Mr. Chairman. I would like to
    summarize my lengthy statement, Mr. Chairman, and have it
    submitted for the record and just hit the high points here.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Stevens appears on page 74.
    ---------------------------------------------------------------------------
        The revisions in S. 314 which have been incorporated in the
    bill since the version we testified on last year we think have
    substantially improved it. They relate to the use of best value
    as a criterion for contracting decisions, a recognition that
    there are occasions when private sector sources are inadequate
    to meet the government's needs, and that the definition of
    inherently governmental functions is somewhat situational or
    dependent on the context.
        We recently issued a report that we discussed with the
    Subcommittee on privatization experiences of five States that
    have had major initiatives in this area--Georgia,
    Massachusetts, Michigan, New York, and Virginia--as well as the
    city of Indianapolis, and from those emerge six lessons learned
    that were common to all of those and that we think might be
    useful to apply to the initiative in S. 314.
        The first thing that these governments learned was that
    they needed to have committed political leaders to push a
    privatization or contracting initiative.
        Second, there needed to be established an organizational
    and analytical structure to carry out and implement the
    initiative.
        Third, there were legislative changes needed, often
    preceded by resource cuts to force the agencies to engage in
    greater contracting.
        Fourth, they all perceived the need, certainly by the time
    they were done, to develop reliable and complete cost data on
    exactly what it cost the government to perform these functions
    in order to support informed decisions on what to contract out
    and also to defend those decisions to critics--and there are
    inevitably critics of the process.
        Fifth, they needed strategies to assist the workforce in
    making a transition to what is a quite different privatized
    environment.
        And then, finally, enhanced monitoring and oversight of the
    contracting process was the weakest link that most of them
    identified in the processes that they had undertaken.
        Just very briefly, I would like to compare these to the
    provisions of S. 314. There is no political champion provided
    for in that bill. There probably cannot be one in a legislative
    measure like that. It does, however, provide a tool that a
    dedicated political implementer could use to carry out a
    privatization program. It provides a stronger foundation, but
    certainly not a substitute, for the political leadership that
    the other entities found was necessary.
        The governments that we visited all did report the need to
    establish a dedicated organizational and analytical structure
    to carry out the privatization initiative, and S. 314 does
    that, in establishing in OMB a new center for commercial
    activities which has responsibility for issuing regulations,
    implementing requirements of the legislation, ensuring
    compliance, and providing guidance and information and
    assistance to agencies, to private sector entities, and to
    Federal employees themselves.
        Since OMB is given very wide latitude in these
    regulations--and this is in some contrast to last year's
    version of the bill--there are going to be a number of issues
    arising in implementation that OMB is going to have to make
    choices on: For example, whether or not such entities as
    government corporations and government-sponsored enterprises,
    federally funded research and development centers, even the
    U.S. Postal Service can be eligible for contracting from the
    Federal Government, which would require them to be defined in
    some way as private sector sources, which are eligible; the
    role of public buildings, there would be a substantial question
    in here of whether public buildings could still house Federal
    employees or whether they would have to be transferred to the
    private sector and there would be rental and leasing agreements
    as the most common way to house Federal employees; how OMB
    would incorporate congressional views over sensitive
    conversions.
        A number of questions like this lead us to suggest that
    perhaps OMB should have a strategic plan submitted to Congress
    as a means of getting agreement from Congress that the way it
    is going about this is indeed a sensible one that the
    legislative branch would agree to.
        We also worry somewhat about OMB's resources in the
    management area. We have issued reports that question their
    ability to carry out even the management responsibilities they
    have today, much less the substantially augmented ones that
    this would require. And, of course, a strategic plan would help
    address that resource question.
        In our State and local work, we found that all five of the
    States and the city of Indianapolis used some combination of
    legislative changes and mandatory resource cuts as part of
    their privatization initiatives to show they were serious and
    to really force agencies to make the tough choices that as
    previous witnesses testified are often very difficult because
    of the inherent bureaucratic dynamics. The balanced budget
    agreement may serve that same function in the Federal context,
    but this bill does not.
        The bill does have implications, however, for a number of
    existing laws. It does not actually repeal any of them, and the
    status of some existing legislation would raise questions in
    our mind. For example, the Economy Act, which we have mentioned
    before, and particularly the status of the General Services
    Administration, which was created and exists precisely to
    provide services to other Federal agencies, conflicting with
    the prohibition in the bill against agencies providing goods or
    services to other governmental entities. So I think that
    probably needs clarification if there is a role foreseen for
    the General Services Administration, which, as you know,
    provides office space and consolidated purchasing and
    negotiates with airlines for government-wide air travel
    contracts and that sort of thing.
        In the governments we visited, reliable and complete cost
    data on government activities was identified as something that
    was absolutely essentially in assessing the overall performance
    of activities that were targeted for privatization and in
    informing the decisions and in justifying those decisions. This
    is an area where the Federal Government is particularly weak.
    As others have testified and we testify in many other contexts,
    the ability of the government to determine what it costs to do
    anything is severely in question and will be until agencies
    meet--and they do not now meet--the Federal Accounting
    Standards Advisory Board standards requiring agencies to
    develop full measures of the costs of carrying out a mission or
    producing products and services. We do not have that capability
    now, and that would be a severe constraint on this bill.
        We mentioned that workforce transition strategies had been
    identified as these other identities as very important. The
    bill's preamble, we note, states that it is in the public
    interest for the private sector to utilize government employees
    who are adversely affected by conversions, but there does not
    seem to be a provision for that in the actual legislation.
    There are not any new rights or privileges embodied in it.
        It does, however, assign to OMB the function of providing
    information on available benefits and assistance directly to
    Federal employees. We would suggest that that would be a new
    role for OMB, such a small agency, probably one more
    appropriate for the Office of Personnel Management, which has
    current responsibilities and a good deal more experience in
    that area of dealing directly with Federal employees.
        And then, finally, Mr. Chairman, when the government's
    direct role in the delivery of services is reduced through
    privatization, these governments identified a much greater need
    for aggressive monitoring and oversight of the contracting
    process. Most of the governments said that this was the weakest
    point, the weakest link in their privatization processes.
        And all of our indications are that this would also be a
    problem at the Federal level. The agencies that do depend most
    heavily on contracts--and some of the newer agencies do, NASA
    and Department of Energy, for example, both over 90 percent of
    their dollars go into contracts--these are commonly identified
    as high-risk areas by the government. Certainly the practices
    carried out in those agencies should not be emulated on a
    government-wide basis.
        We can discuss any of these questions, Mr. Chairman, or
    others. We have done a great deal of work on the A-76 process
    in the past, and if you would like to go into matters that were
    discussed earlier, I can discuss that, too, after Mr.
    Sturdivant's statement.
        Senator Brownback. We will do so. Thank you for your
    testimony.
        Mr. Sturdivant, thank you very much for coming in front of
    the Subcomittee. Before you start, I just wanted to say thanks
    to the Federal employees and the Federal workers for doing all
    that you do, because you guys work hard and do a lot of work.
    This is not a witch hunt to say that these guys are bad. It is
    a hunt to get to a balanced budget, and it is a hunt to start
    paying our debt down. And this is a key way we can look at the
    effort. So I hope we can work with you, and I also hope you can
    convey to your employees our thanks for all the work and the
    effort, and that this coming from a former Federal employee
    himself.
        Thanks for joining us here today.

        TESTIMONY OF JOHN N. STURDIVANT,\1\ NATIONAL PRESIDENT,
          AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, AFL-CIO

        Mr. Sturdivant. Thank you, Mr. Chairman. I am John
    Sturdivant, National President of the American Federation of
    Government Employees. AFGE represents more than 600,000 Federal
    workers in some 68 agencies. Approximately one-half of our
    membership is in the Department of Defense. And although this
    is my first appearance before your panel, I do look forward to
    working with you and your staff on other issues of concern to
    Federal and District of Columbia employees.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Sturdivant appears on page 90.
    ---------------------------------------------------------------------------
        Let me now say a few words about Senator Craig Thomas, the
    sponsor of this legislation. We may disagree about contracting
    out generally, but I would be the first to say that the Senator
    listens to constructive criticism and learns from it as well.
    In other words, we can disagree without being disagreeable.
    Reasonable people can. And although this year's version of the
    Freedom from Government Competition is still, in our opinion,
    profoundly flawed legislation, the bill is at least an
    improvement over its predecessor.
        While it is safe to say that AFGE is unlikely to agree to
    gutting or replacing OMB's Circular A-76, we would certainly
    approach with an open mind any suggestions Senator Thomas puts
    forward with the intent of making the circular even more
    equitable.
        Mr. Chairman, AFGE is not reflexively opposed to each and
    every instance of contracting out. In these times, such a
    position is as unrealistic as it is untenable. And because we
    are conscientious employees and also hard-working taxpayers,
    AFGE members are determined to see that the Federal
    Government's dollars are spent wisely. Quite simply, Federal
    employees should not perform work that is not inherently
    governmental if they cannot do it more effectively, more
    efficiently, and more reliably than contractors.
        But we are also unreservedly pro-competition for work that
    is not inherently governmental, and it is competition that is
    good for the Nation's taxpayers and the government's customers.
        As GAO concluded in a recent report, competition is the key
    to realizing some savings, whether the function is outsourced
    or remains in-house. Savings from completed functions occur
    regardless of whether the government or a private company was
    awarded the work. The government won about half of the time,
    and private industry won the other half. And that is why AFGE
    was the only Federal employee union to work with the
    administration last year to reform A-76. And in many instances,
    the reform of A-76 makes it easier for the govenrment to
    contract out. But it also provides--and we think that this is a
    bonus for the taxpayers--that when the work can be done, more
    effectively and more efficiently in-house, it provides for work
    to come back in-house, and we did not have that before.
        This effort resulted in a revised supplement that, while
    permitting more flexibility to contract out, also ensures
    Federal employees greater involvement in the competitive
    process and makes contracting-out a two-way street by
    permitting work to return back in-house, as I mentioned
    earlier, when it is more cost-effective to do so. And you talk
    about a balanced budget. I think we all want a balanced budget.
    I want a balanced budget. So I think that the focus needs to be
    on what does it cost the government to get particular jobs done
    and whether or not they can get them done more effectively and
    more efficiently.
        The fact that A-76 is now under continuous attack is
    implicitly a compliment to Federal employees and their work.
    Several years ago, Federal employees were losing 70 percent of
    all A-76 competitions. As you might expect, contractors had
    considerably fewer problems with the circular then. However,
    agencies, employees, and managers alike, often working through
    our labor-management partnerships, learned from their defeats,
    looked to the private sector for inspiration and guidance, and
    started to run their operations more like businesses.
        I guess this would give me an opportunity to talk about one
    of my pet peeves. When you start talking about contracting,
    when you start talking about contracting studies, they always
    talk about going to the most efficient organization, or the
    MEO. And in AFGE, we believe that we should be working every
    day, whether our jobs are threatened to be outsourced or not,
    we should be working every day for the most efficient
    organization. And that is one of the reasons why we work with
    the administration and we embrace this whole concept of
    reinventing government, changing government, and making
    government work better, because we are the ones who come in
    contact with the taxpayers in areas like the Social Security
    Administration and the Veterans Administration. We are the ones
    who understand the importance of good customer service for our
    taxpayers. And as we began to see that, as we began to realize
    that the American people want better, more effective, and, as
    you have indicated, smaller government, we recognized that we
    needed to be a part of that process.
        We saw reform, we see government reform, we see changes in
    government kind of like a freight train coming down a track. A
    lot of my colleagues in the labor movement have taken the
    position to get in front of the freight train and do this
    [indicating with raised, open hand]. That is not my idea of
    protecting your members.
        As a result of that, we decided to get on that train and to
    try to make our way to the engine to have some say as to how
    fast the train goes, where does the train stop, and what is its
    destination. Because, you see, our union is different from a
    lot of other private sector unions. Of course, we believe that
    pay, benefits, and a quality of life is important to the people
    that we represent. But we also have another role, and that is a
    policy role to point out to policymakers like yourself the
    impact of their policies not only on the constituents that we
    serve as government employees, but the impact upon the
    taxpayers and what it would cost. And we think that we are
    doing that, and we are going to continue to do that.
        In doing so, we pulled even with the contractors, winning
    every other A-76 competition. Now, as you might expect, the
    contractors are not so happy with the circular, even though the
    Federal Government runs up service contracting bills of
    approximately $120 billion annually. So there is a lot of
    outsourcing going on somewhere.
        Mr. Chairman, let me now express our concerns about S. 314.
    We believe that this bill is flawed for several reason. The
    first is that S. 314 is not needed. Last year, AFGE contractor
    representatives and officials from many Federal agencies worked
    with OMB officials to reform A-76. The resulting supplement
    provides Federal managers with unprecedented latitude and
    flexibility to outsource to the private sector. It requires
    agencies to annually determine which activities it will
    consider for conversion to contract, as well as which
    inherently governmental functions it will continue to perform
    in-house.
        It mandates primary reliance on the private sector when it
    is shown to be cost-effective. It provides agencies with
    unprecedented flexibility to waive the circular's cost-
    comparison requirements in a wide variety of situations.
    Moreover, the Federal Government is engaged in the largest
    privatization and outsourcing effort ever undertaken.
    Currently, over 40,000 positions are being examined for
    contracting, and many thousands more are being identified for
    outright privatization.
        The rationale for this bill is flawed. Senator Thomas
    claims that work currently performed by the Federal Government
    could be better done and could be more cheaply done through
    outsourcing. Since the notion that the private sector is always
    better and cheaper is false, legislation based on such a notion
    is clearly not in the best interest of the taxpayers.
        For example, the GAO surveyed nine studies on service
    contracting and concluded that in each case substantial savings
    would have been realized if the work had been retained in-
    house. GAO also reported that even after years and years and
    billions of dollars in contracting out, it could not
    convincingly prove nor disprove that the result of Federal
    agencies' contracting-out decisions had been beneficial or
    cost-effective.
        Mr. Chairman, as you consider S. 314, I ask you to keep
    several principles in mind. Just because a service has always
    been provided by the Federal Government does not mean that
    Federal employees must do that work in perpetuity. Just because
    contractors are hard-working taxpayers, as Senator Thomas often
    reminds us, does not mean that they have some entitlement to
    funds in the public purse. After all, Federal employees are
    also hard-working taxpayers. And just because agencies with
    managers and rank-and-file employees, often working together in
    partnership, are more successful competitors in the A-76
    process does not necessarily mean that the system has suddenly
    become defective. And just because contractors are not winning
    as many A-76 competitions now as they had in years past does
    not necessarily mean that they are being victimized by biased
    public-private competitions.
        We would also ask you to seriously consider the suggestions
    we have made in our written statement for improving the
    competition process and generating savings for taxpayers. The
    bottom line, Mr. Chairman, is that although we have our own
    point of view, AFGE is ready to work with you to address the
    concerns that have been raised at today's hearing.
        Thank you for the opportunity to testify this morning. I
    will attempt to answer any of your questions, and I would
    request that my more lengthy written statement be entered into
    the record.
        Senator Brownback. Without objection, we will do that.
        Thank you both for testifying.
        Let me start, Mr. Stevens, with you, if I could. You have
    studied a number of States, and the city of Indianapolis has
    gone through basically some iteration of what is starting in
    the Federal Government or has been going on for some period of
    time. You identified problems and incentives, basically, to
    make it take place. Where it has happened, you generally find a
    governmental entity that focuses on the area, and some
    political leadership that is committed to this taking place.
    There is also some pressure on the system, some budgetary
    pressure, something. All those are kind of the stick approach
    to this, if you will. There is always somebody beating on this.
        Is there another incentive side to it? Has anybody tried
    the incentive that was talked about here earlier, about how you
    let an agency keep the same level of budget for a year after
    they have privatized a function? Have you studied that?
        Mr. Stevens. Yes. Certainly, I think the city of
    Indianapolis, which probably went farther along than the others
    on this, used that as a conscious strategy. The other thing
    they discovered was that the role of individual employees in
    their groups was extremely important here and that confronting
    them as automatic adversaries of the process was a mistake.
    Once they learned the lesson to bring them in, to get them to
    be part of the process--and to do that you almost have to offer
    them an opportunity to compete for the work--that, too, proved
    to be an incentive, a way to say, well, we can improve what we
    are doing. It did not become a confrontational question as far
    as the employees were concerned. So that was yet another lesson
    that was learned.
        Senator Brownback. So Indianapolis tried the system of--I
    don't know if I want to call it bonuses--allowing them to just
    keep the money for another year and wide discretion on how you
    spend it.
        Mr. Stevens. Yes. It was not simply just turned back to the
    treasury. It was invested in agency operations.
        Senator Brownback. How did that work? You did not mention
    it.
        Mr. Stevens. Very favorably, yes. The whole operation in
    Indianapolis was very favorable, and still other governments
    are still visiting them monthly and learning lessons from their
    experience.
        Senator Brownback. So you would encourage that sort of
    approach yourself, or do you think it is not tested enough?
        Mr. Stevens. Certainly as a matter of principle we would
    encourage it. There should be some limitations on it. I heard a
    suggestion that perhaps bonuses to employees involved might be
    one way it was done, and I would be somewhat careful about
    that.
        Senator Brownback. That is a problem to me because we are
    not careful about that on the private side. They say, OK, you
    made more money for the company, you can keep more, because we
    are all benefiting from this. And I recognize the political
    realities on the other side of looking at that.
        Mr. Sturdivant, you had a group of OPM employees that
    formed an ESOP and then bought their business from the
    government. You are familiar with that?
        Mr. Sturdivant. Yes, I am quite familiar with that.
        Senator Brownback. What do you think about that? What is
    your reaction to those employees doing that?
        Mr. Sturdivant. Basically, my understanding, in fact, that
    was kind of a piece out of one of our local unions. Presently
    those employees I do not believe are represented. But the
    employees had some concerns about that. They had some
    misgivings or what have you when OPM spun that off. But my
    understanding now is that basically it is working pretty well.
    I know that OPM is going to issue some type of a follow-up
    report on it, and I believe that some of the employees are
    probably making more money than they were when they were
    Federal workers doing that type of work.
        So, once again, as I said earlier, all of these--we do not
    reflexively oppose all of these experiments, as long as the
    employees have a part of that process. I don't know that the
    employees are as involved in some of the decision-making as we
    would like to see if we were involved, if we represented them.
    But I do believe that the employees are generally--their morale
    is good and I think that the work is done.
        What is interesting about Indianapolis, is that when the
    new mayor went in with an idea almost like Senator Thomas'
    bill, that we have to privatize as much as we can wherever we
    can. But once he got in there and once they began meeting with
    the employees and once the employees had an opportunity to
    compete for their own jobs, they found that a lot of the work
    that they thought they wanted to privatize, they got much more
    efficient themselves, and that work did stay in-house. I think
    that David Osborne in his book ``Reinventing Government'' talks
    about some cities and States where the work was privatized, and
    then it was brought back in as the employees decided that they
    wanted to bid on the work.
        It is not one-size-fits-all. Employees have to have an
    opportunity to compete for their jobs--we think they do--and,
    of course, the employees have to have an opportunity to bring
    their ideas to the table and to get down to the most efficient
    organization, which means getting rid of the mid-level managers
    and going toward some type of self-managed work teams which we
    have in the Federal Government, and I have talked about that in
    my written testimony. In a lot of instances, a lot of the
    changes have indicated that the work is much more effective and
    much more efficient.
        I think the other piece which I think we all have a
    responsibility--and certainly those of us who are elected--is
    to customer service, the quality of the service and the
    customer services to the taxpayers who are our constituents.
    And that has been improved.
        Senator Brownback. Hopefully competition helps do that,
    whether it is public employees competing for a public service
    or private sector employees. Competition is such a mainstay in
    a capitalist society. I read Mr. Osborne's book ``Reinventing
    Government,'' and that was one of his key points as well, that
    it is just that feature of competition that hones the skill and
    sharpens the edge.
        Mr. Sturdivant. And that is one of the things that we do,
    quite frankly, and you will see it all through my testimony, is
    that we are not saying that Federal employees should do the
    work no matter how ineffective or how inefficient they are. We
    are saying that we should have an opportunity to compete for
    our jobs, and as part of that, the reinventing government
    process, through the employee empowerment process, we want an
    opportunity to bring our ideas to the table so that we can say
    that what we are doing here and the way we are doing it there
    is not effective and is not efficient and is very costly to the
    taxpayers. And that is one of the reasons why we have increased
    the amount of A-76 competitions that we have been able to win,
    bringing it up to 50 percent. We spent a lot of time going out
    and training our local unions. We spent a lot of time--I spent
    a lot of time jawboning them, convincing them that it is more
    important to be at the table, to bring their ideas, to fight
    the real battles, which is what kind of government are we going
    to have, what kind of an operation are we going to have, rather
    than thinking that we are going to continue to go like we have
    been doing regardless of the cost to the taxpayers because the
    taxpayers simply are not going to tolerate it.
        Senator Brownback. They have just about had it. And while
    balancing the budget is important, to me it is step one. Step
    two is starting to pay the debt down so I do not pass it on to
    my kids at the same height and nature that it is currently, or
    that we are getting in a position to be able to deal with the
    baby-boomer generation that you gentlemen are a part of, and
    that is going to stop working here before too awful long.
        Mr. Sturdivant. Thanks for that compliment, but I am not
    part of that generation. [Laughter.]
        Senator Brownback. We will make you an honorary member, if
    that will help out. But we are just not anywhere near a
    position as a government for this massive wave of people to
    start retiring. We are nowhere close, not even with the
    suggestions of what we are going to do on Medicare this time
    around or anything else. And then we have this mountain of
    debt, and we have these entitlement programs that are a
    demographic time bomb ready to go off in 15 years. We all know
    it. We all see it coming. And we are kind of twiddling our
    thumbs. That is why we have really got to work with you a lot
    in trying to get some of these things in a much better
    structure and make efficiencies everywhere we can go,
    entitlement programs and all.
        I appreciate your demeanor and your nature and your
    testimony about being willing to work with us.
        Mr. Sturdivant. AFGE has published a document called
    ``Government That Works,'' and I need to get a copy to you,
    where it talks about some success stories where we have really
    saved the taxpayers money, where we have provided good customer
    service. Remember, when we talk about customers in the Federal
    Government, we are talking about taxpayers, people who pay our
    salaries.
        I need to get that over to you to read about some of the
    things that we are doing to improve quality, to improve
    effectiveness, and to improve efficiency in the Federal
    Government, because we know that unless we connect with the
    American people and unless we convince them that we are
    committed to providing good, effective, cost-conscious
    government services, then we are going to continue to have the
    anti-government, anti-Federal employee rhetoric. And we do not
    want that, but we know that in order to combat that, we have
    got to connect with the American people and convince them that
    we are doing a good job.
        One of the interesting things I would like to point out to
    you, Senator, is that Dalbar Financial Services did a study and
    it looked at American Express, looked at Southwest Airlines,
    looked at a lot of other companies that do phone service, and
    in the efficacy and quickness of answering the phone, the
    quality of the service, and everything else that would go into
    a successful business running an 800 number, do you know who
    came out No. 1? Social Security Administration. Federal
    employees.
        Senator Brownback. Good. Glad to hear that.
        Are there any changes that can be made in S. 314 that would
    improve the version enough that you and your union could
    support it, Mr. Sturdivant?
        Mr. Sturdivant. Well, off the top of my head, as I said
    before, we do not think that it is needed. But, obviously, if
    it is going to move, we would try to come forth with some
    recommendations to perfect it, and I believe those are in my
    written statement. I do not have them right off the top of my
    head. We would rather not see it, to be quite frank with you,
    but if it is going to be a fait accompli, then obviously we are
    going to try to come up and change it.
        One of the things is that it provides no provisions to
    lessen the impact on the workers who might be displaced.
        Senator Brownback. And that needs to be done. Any major
    business that has gone through this--and I do not know about
    what the governments have done--but any major business that has
    gone through that, has taken care of the people. At some point
    you say, look, you have been a valuable employee, but we just
    cannot do this anymore. But you do take care of the people
    because they have been a valuable employee and they have given
    their life trying to make the place better, trying to make the
    government operate. And I think we need to do those sorts of
    things.
        Is that the experience that the States have had, Mr.
    Stevens?
        Mr. Stevens. Very much so, yes.
        Senator Brownback. The other thing I would like to see is
    some sort of incentivizing in the system, not just all sticks
    but some carrots in that as well. I think as we learn a little
    bit and transition from the era of big government to what I
    think is going to be smaller, more focused, and I hope
    believe--a better government, we will discover that you have to
    do these things over a period of time. It is not this year--or
    tomorrow--that we are going to close this one down, or whether
    it is a transition over a 2- to 3-year time period or things
    like that, those are important. Was that the experience in some
    of the States, or did they go rapidly through these sorts of
    processes?
        Mr. Stevens. Most of them came in with the agenda of moving
    quite rapidly, and as Mr. Sturdivant said, in Indianapolis, it
    changed somewhat. They learned some things as they went along,
    and I think most of the others did, too.
        Senator Brownback. Is that better because of employee
    morale? Anytime you are going through these transitions, you
    are hurting your morale, generally, within the workforce.
        Mr. Stevens. That is part of it. It was certainly more
    rapid than the A-76 program has been at the Federal level. We
    have looked at some studies there that have dragged on for 6,
    8, and 10 years, and that is an extremely disruptive situation
    for agencies to be in. These governments worked much more
    quickly than that, and two of the keys to it were having a
    political leader in a position to make it a top priority and
    enforce that priority, and, second, having a structure, a
    commission, an agency, or an entity whose mission it was solely
    to implement the privatization initiative. Then if the agency's
    mission is to do that, you do not run into this bureaucratic
    question that came up earlier about individuals within the
    agency not being part of the old-boy network. If the whole
    agency is doing it, you are obviously not going to be
    ostracized for doing it yourself.
        Senator Brownback. So it actually works better by moving
    rapidly because you do not hurt your morale for as long a
    period of time?
        Mr. Stevens. Yes.
        Senator Brownback. I worry about that. I worry about it
    overall as we are going through this transition to a smaller,
    more focused, more limited government. If it hangs on too long,
    you just really beat down people because they do not have any
    certainty as to where things are going and where their job is,
    and then that just hurts you overall.
        Mr. Stevens. Absolutely. As soon as a study like that is
    announced, the good people that have alternatives often leave
    right away. The analytical work of doing these studies is
    something that the managers themselves are often not very
    studied in. They do not do it very often. They often do it as
    extra duties, and it can result in their jobs going away.
        Senator Brownback. Thank you. Been there, done that. I have
    been through those.
        I appreciate both of your testimony and your comments. I
    hope we can work with you closely as we move this forward. I
    would like to see it move forward. I would like to see it
    moving forward together as much as possible. Mr. Sturdivant, I
    understand your position on this, and you would not be
    representing the folks that you were elected to represent if
    you did not. But I would hope you would be willing to look at
    some of the things we tried to do with this to see if it makes
    it any better, or if it makes it worse, and that you be candid
    with us on that even though at the end of the day you may look
    differently at it.
        Mr. Sturdivant. Oh, we are going to keep an open mind. As
    we said, we talked to Senator Thomas earlier this year, and as
    I said, we still do not think that the legislation is needed,
    but we are prepared to try to work with you. If it is going to
    move, then we want to try to perfect it as much as possible so
    that it does no harm, not only to Federal workers but to the
    taxpayers and to the country. We think we have a responsibility
    there to participate in the process. It is easy to stand
    outside and complain and to throw rocks, but we think it takes
    a lot more leadership and responsibility to participate in the
    process and to try--that is how things work in this country--
    and we are prepared to do that. We will be very forthcoming
    with you on suggestions and recommendations.
        I need to get that book over to you, ``Government That
    Works,'' because it tells a lot of success stories about how
    things have gone. We know things are moving slow, but you have
    to remember that there are a lot of Federal workers--people
    were in denial because they thought they had jobs for life;
    they thought they were going to have pension benefits. We think
    that folks are beyond that now. We think that people are
    starting to focus on the fact that--I believe that we are going
    to have a smaller government. I also believe that it is going
    to be a more dynamic government with the information age.
        Interestingly enough, one of the charges that have been
    made against our union is, of course, we want bigger government
    because that means more members. Even though government has
    shrunk, our membership has gone up. We are one of the unions in
    the AFL-CIO that is growing, and that is because we have taken
    a lot of techniques that we learned in dealing with making more
    effective and more efficient government operations, and we have
    brought them home. We have applied them in our union, and our
    union is growing.
        Senator Brownback. Good. Thank you both very much for
    attending, and thank you all for your attendance.
        We are adjourned.
        [Whereupon, at 1:13 p.m., the Subcommittee was adjourned.]
        [GRAPHIC] [TIFF OMITTED] TH171.001

        [GRAPHIC] [TIFF OMITTED] TH171.002

        [GRAPHIC] [TIFF OMITTED] TH171.003

        [GRAPHIC] [TIFF OMITTED] TH171.004

        [GRAPHIC] [TIFF OMITTED] TH171.005

        [GRAPHIC] [TIFF OMITTED] TH171.006

        [GRAPHIC] [TIFF OMITTED] TH171.007

        [GRAPHIC] [TIFF OMITTED] TH171.008

        [GRAPHIC] [TIFF OMITTED] TH171.009

        [GRAPHIC] [TIFF OMITTED] TH171.010

        [GRAPHIC] [TIFF OMITTED] TH171.011

        [GRAPHIC] [TIFF OMITTED] TH171.012

        [GRAPHIC] [TIFF OMITTED] TH171.013

        [GRAPHIC] [TIFF OMITTED] TH171.014

        [GRAPHIC] [TIFF OMITTED] TH171.015

        [GRAPHIC] [TIFF OMITTED] TH171.016

        [GRAPHIC] [TIFF OMITTED] TH171.017

        [GRAPHIC] [TIFF OMITTED] TH171.018

        [GRAPHIC] [TIFF OMITTED] TH171.019

        [GRAPHIC] [TIFF OMITTED] TH171.020

        [GRAPHIC] [TIFF OMITTED] TH171.021

        [GRAPHIC] [TIFF OMITTED] TH171.022

        [GRAPHIC] [TIFF OMITTED] TH171.023

        [GRAPHIC] [TIFF OMITTED] TH171.024

        [GRAPHIC] [TIFF OMITTED] TH171.025

        [GRAPHIC] [TIFF OMITTED] TH171.026

        [GRAPHIC] [TIFF OMITTED] TH171.027

        [GRAPHIC] [TIFF OMITTED] TH171.028

        [GRAPHIC] [TIFF OMITTED] TH171.029

        [GRAPHIC] [TIFF OMITTED] TH171.030

        [GRAPHIC] [TIFF OMITTED] TH171.031

        [GRAPHIC] [TIFF OMITTED] TH171.032

        [GRAPHIC] [TIFF OMITTED] TH171.033

        [GRAPHIC] [TIFF OMITTED] TH171.034

        [GRAPHIC] [TIFF OMITTED] TH171.035

        [GRAPHIC] [TIFF OMITTED] TH171.036

        [GRAPHIC] [TIFF OMITTED] TH171.037

        [GRAPHIC] [TIFF OMITTED] TH171.038

        [GRAPHIC] [TIFF OMITTED] TH171.039

        [GRAPHIC] [TIFF OMITTED] TH171.040

        [GRAPHIC] [TIFF OMITTED] TH171.041

        [GRAPHIC] [TIFF OMITTED] TH171.042

        [GRAPHIC] [TIFF OMITTED] TH171.043

        [GRAPHIC] [TIFF OMITTED] TH171.044

        [GRAPHIC] [TIFF OMITTED] TH171.045

        [GRAPHIC] [TIFF OMITTED] TH171.046

        [GRAPHIC] [TIFF OMITTED] TH171.047

        [GRAPHIC] [TIFF OMITTED] TH171.048

        [GRAPHIC] [TIFF OMITTED] TH171.049

        [GRAPHIC] [TIFF OMITTED] TH171.050

        [GRAPHIC] [TIFF OMITTED] TH171.051

        [GRAPHIC] [TIFF OMITTED] TH171.052

        [GRAPHIC] [TIFF OMITTED] TH171.053

        [GRAPHIC] [TIFF OMITTED] TH171.054

        [GRAPHIC] [TIFF OMITTED] TH171.055

        [GRAPHIC] [TIFF OMITTED] TH171.056

        [GRAPHIC] [TIFF OMITTED] TH171.057

        [GRAPHIC] [TIFF OMITTED] TH171.058

        [GRAPHIC] [TIFF OMITTED] TH171.059

        [GRAPHIC] [TIFF OMITTED] TH171.060

        [GRAPHIC] [TIFF OMITTED] TH171.061

        [GRAPHIC] [TIFF OMITTED] TH171.062

        [GRAPHIC] [TIFF OMITTED] TH171.063

        [GRAPHIC] [TIFF OMITTED] TH171.064

        [GRAPHIC] [TIFF OMITTED] TH171.065

        [GRAPHIC] [TIFF OMITTED] TH171.066

        [GRAPHIC] [TIFF OMITTED] TH171.067

        [GRAPHIC] [TIFF OMITTED] TH171.068

        [GRAPHIC] [TIFF OMITTED] TH171.069

        [GRAPHIC] [TIFF OMITTED] TH171.070

        [GRAPHIC] [TIFF OMITTED] TH171.071

        [GRAPHIC] [TIFF OMITTED] TH171.072

        [GRAPHIC] [TIFF OMITTED] TH171.073

        [GRAPHIC] [TIFF OMITTED] TH171.074

        [GRAPHIC] [TIFF OMITTED] TH171.075

        [GRAPHIC] [TIFF OMITTED] TH171.076

        [GRAPHIC] [TIFF OMITTED] TH171.077

        [GRAPHIC] [TIFF OMITTED] TH171.078

        [GRAPHIC] [TIFF OMITTED] TH171.079

        [GRAPHIC] [TIFF OMITTED] TH171.080

        [GRAPHIC] [TIFF OMITTED] TH171.081

        [GRAPHIC] [TIFF OMITTED] TH171.082

        [GRAPHIC] [TIFF OMITTED] TH171.083

        [GRAPHIC] [TIFF OMITTED] TH171.084

        [GRAPHIC] [TIFF OMITTED] TH171.085

        [GRAPHIC] [TIFF OMITTED] TH171.086

        [GRAPHIC] [TIFF OMITTED] TH171.087

        [GRAPHIC] [TIFF OMITTED] TH171.088

        [GRAPHIC] [TIFF OMITTED] TH171.089

        [GRAPHIC] [TIFF OMITTED] TH171.090

        [GRAPHIC] [TIFF OMITTED] TH171.091

        [GRAPHIC] [TIFF OMITTED] TH171.092

        [GRAPHIC] [TIFF OMITTED] TH171.093

        [GRAPHIC] [TIFF OMITTED] TH171.094

        [GRAPHIC] [TIFF OMITTED] TH171.095

        [GRAPHIC] [TIFF OMITTED] TH171.096

        [GRAPHIC] [TIFF OMITTED] TH171.097

        [GRAPHIC] [TIFF OMITTED] TH171.098

        [GRAPHIC] [TIFF OMITTED] TH171.099

        [GRAPHIC] [TIFF OMITTED] TH171.100

        [GRAPHIC] [TIFF OMITTED] TH171.101

        [GRAPHIC] [TIFF OMITTED] TH171.102

        [GRAPHIC] [TIFF OMITTED] TH171.103

        [GRAPHIC] [TIFF OMITTED] TH171.104

        [GRAPHIC] [TIFF OMITTED] TH171.105

        [GRAPHIC] [TIFF OMITTED] TH171.106

        [GRAPHIC] [TIFF OMITTED] TH171.107

        [GRAPHIC] [TIFF OMITTED] TH171.108

        [GRAPHIC] [TIFF OMITTED] TH171.109

        [GRAPHIC] [TIFF OMITTED] TH171.110

        [GRAPHIC] [TIFF OMITTED] TH171.111

        [GRAPHIC] [TIFF OMITTED] TH171.112

        [GRAPHIC] [TIFF OMITTED] TH171.113

        [GRAPHIC] [TIFF OMITTED] TH171.114

        [GRAPHIC] [TIFF OMITTED] TH171.115

        [GRAPHIC] [TIFF OMITTED] TH171.116

        [GRAPHIC] [TIFF OMITTED] TH171.117

        [GRAPHIC] [TIFF OMITTED] TH171.118

        [GRAPHIC] [TIFF OMITTED] TH171.119

        [GRAPHIC] [TIFF OMITTED] TH171.120

        [GRAPHIC] [TIFF OMITTED] TH171.121

        [GRAPHIC] [TIFF OMITTED] TH171.122

        [GRAPHIC] [TIFF OMITTED] TH171.123

        [GRAPHIC] [TIFF OMITTED] TH171.124

        [GRAPHIC] [TIFF OMITTED] TH171.125

        [GRAPHIC] [TIFF OMITTED] TH171.126

        [GRAPHIC] [TIFF OMITTED] TH171.127

        [GRAPHIC] [TIFF OMITTED] TH171.128

        [GRAPHIC] [TIFF OMITTED] TH171.129

        [GRAPHIC] [TIFF OMITTED] TH171.130

        [GRAPHIC] [TIFF OMITTED] TH171.131

        [GRAPHIC] [TIFF OMITTED] TH171.132

        [GRAPHIC] [TIFF OMITTED] TH171.133

        [GRAPHIC] [TIFF OMITTED] TH171.134

        [GRAPHIC] [TIFF OMITTED] TH171.135

        [GRAPHIC] [TIFF OMITTED] TH171.136

        [GRAPHIC] [TIFF OMITTED] TH171.137

        [GRAPHIC] [TIFF OMITTED] TH171.138

        [GRAPHIC] [TIFF OMITTED] TH171.139

        [GRAPHIC] [TIFF OMITTED] TH171.140

        [GRAPHIC] [TIFF OMITTED] TH171.141

        [GRAPHIC] [TIFF OMITTED] TH171.142

        [GRAPHIC] [TIFF OMITTED] TH171.143