[Senate Hearing 105-600]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 105-600


 
    COMPETITION FOR COMMERCIAL ACTIVITIES IN THE FEDERAL GOVERNMENT

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

                                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

                             SECOND SESSION

                               __________

                              JUNE 4, 1998

                               __________

      Printed for the use of the Committee on Governmental Affairs



                               


                      U.S. GOVERNMENT PRINTING OFFICE
 49-529 cc                   WASHINGTON : 1998
_______________________________________________________________________
           For sale by the U.S. Government Printing Office, 
 Superintendent of Documents, Congressional Sales Office, Washington, DC 20402


                   COMMITTEE ON GOVERNMENTAL AFFAIRS

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

                                 ------                                

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

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



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Brownback............................................     1

                               WITNESSES
                         Thursday, June 4, 1998

J. Christopher Mihm, Acting Associate Director, Federal 
  Management Workforce Issues, U.S. General Accounting Office, 
  accompanied by Bill Reinsberg and Marilyn Wasleski.............     2
G. Edward DeSeve, Acting Deputy Director, U.S. Office of 
  Management and Budget..........................................     7
Hon. Craig Thomas, a U.S. Senator from the State of Wyoming......    12
John Berry, Assistant Secretary for Policy, Management and 
  Budget, U.S. Department of the Interior........................    16
W. Scott Gould, Chief Financial Officer and Assistant Secretary 
  for Administration, U.S. Department of Commerce................    19

                     Alphabetical List of Witnesses

Berry, John:
    Testimony....................................................    16
    Prepared statement...........................................    55
DeSeve, G. Edward:
    Testimony....................................................     7
    Prepared statement...........................................    48
Gould, W. Scott:
    Testimony....................................................    19
    Prepared statement...........................................    63
Mihm, J. Christopher
    Testimony....................................................     2
    Prepared statement...........................................    27
Thomas, Hon. Craig:
    Testimony....................................................    12



    COMPETITION FOR COMMERCIAL ACTIVITIES IN THE FEDERAL GOVERNMENT

                              ----------                              


                         THURSDAY, JUNE 4, 1998

                                     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 10:06 a.m. in 
room SD-342, Dirksen Senate Office Building, Hon. Sam 
Brownback, Chairman of the Subcommittee, presiding.
    Present: Senator Brownback.
    Also present: Senator Thomas.
    Senator Brownback. The hearing will come to order.

             OPENING STATEMENT OF SENATOR BROWNBACK

    Senator Brownback. Welcome to all of you this morning.
    I'd like to welcome everyone here today for this important 
oversight hearing to examine the current OMB process and 
policy, also known as OMB Circular A-76, for establishing a 
competition for commercial activities within the Federal 
Government. We are here to address OMB's leadership role in 
this area and to see how we can improve it.
    Under A-76, Federal agencies are required to identify 
commercial activities performed in-house and provide an 
inventory of these activities. These activities must then be 
competed.
    Implementation of A-76, however, has been inconsistent 
throughout the Federal Government, as seen in the displayed 
chart. We can provide that to people who would like to see it. 
We brought this up at the prior hearing about the 
inconsistencies of the A-76 process and we will be happy to 
hear responses to this from the OMB as we go through it. As you 
can see, some agencies fully engage--actually, not even fully 
engage but are much more engaged than others. Some down at the 
bottom, the Commerce Department, no engagement whatsoever, and 
I am looking forward to our Commerce witness to tell us why 
they do not believe they should or why they do not or just why 
the lack of competition or implementation of A-76.
    The Subcommittee held a hearing earlier this year on draft 
legislation which would address the weaknesses of A-76, the 
Fair Competition Act, S. 314. It would establish a level 
playing field for competing commercial activities performed by 
the Federal Government. Under the current draft both private 
industry and Federal employees would be able to compete for 
these activities.
    We have heard the frustration expressed with the current 
competition process, the A-76 process, from all sides of this 
issue. Federal employee representatives say that agencies 
ignore A-76 and directly contract out commercial activities. 
Private industry representatives say that Federal agencies 
ignore A-76 and keep commercial functions in-house. We will 
continue to work on this legislation to address these and other 
concerns raised about A-76.
    I have also asked GAO to study how OMB A-76 is working 
under OMB's leadership, specifically with the U.S. Departments 
of Commerce and the Interior. Preliminary results indicate that 
Federal agencies are simply disregarding OMB's competition 
policy. Furthermore, OMB's own competition policy, A-76, is not 
a significant priority within OMB. We will have a GAO witness 
testify and speak about the findings that they have found under 
their study.
    The purpose of today's hearing is to get to the bottom of 
this. Why is the current competition process not working? Why 
are agencies ignoring the current guidelines contained in A-76? 
Why is OMB's own policy not a priority within OMB and this 
administration? Why is implementation of the OMB circular 
inconsistent from one Federal agency to the next?
    We will be hearing from representatives from the GAO, OMB, 
the Department of Commerce and the Department of the Interior, 
who I hope will answer these important questions. I want to 
emphasize that our final goal is to make sure we are getting 
the most for each taxpayer's dollar.
    With that we have three panels of four total witnesses that 
will testify today. As I noted in here, this is actually the 
third hearing on this overall issue, although this one we will 
focus specifically on the A-76 process.
    With that I would like to call up the first panel witness, 
J. Christopher Mihm, Acting Associate Director, Federal 
Management Workforce Issues with the U.S. General Accounting 
Office, who will testify today regarding the GAO study that was 
recently completed.
    Mr. Mihm, thank you very much for joining us. Please 
identify the other two people who are at the table with you.

   TESTIMONY OF J. CHRISTOPHER MIHM,\1\ ASSOCIATE DIRECTOR, 
     FEDERAL MANAGEMENT AND WORKFORCE ISSUES, U.S. GENERAL 
 ACCOUNTING OFFICE, ACCOMPANIED BY BILL REINSBERG AND MARILYN 
                            WASLESKI

    Mr. Mihm. Yes, sir. Mr. Chairman, I am very fortunate to be 
joined today by two of my colleagues, first Bill Reinsberg, who 
has been leading much of our work, looking at managed 
competition in civilian agencies, and Marilyn Wasleski, who 
leads much of our work at the Department of Defense, looking at 
A-76 and out-sourcing issues.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Mihm appears in the Appendix on 
page 27.
---------------------------------------------------------------------------
    Senator Brownback. Welcome.
    Mr. Mihm. It is a pleasure to be here today. With your 
permission, Mr. Chairman, I ask that my written statement be 
included in the record and I will take just a few minutes to 
hit some of the highlights.
    Senator Brownback. Without objection.
    Mr. Mihm. Thank you, sir.
    This morning I would like to cover three major points. 
First, A-76 can be an effective management tool for improving 
operational efficiency and reducing costs. Second, within 
civilian agencies, A-76 has been little used in recent years 
and OMB accordingly, in our view, needs to augment its 
leadership efforts. And third, I will point out the elements 
that we have found to be necessary for a more active A-76 
program.
    Turning to the first point, with the agreement between 
Congress and the administration to balance the Federal budget, 
agencies must increase their efforts to ensure that their 
operations are as efficient as possible. In that regard, A-76 
is one of a series of tools that managers can use to make sound 
business decisions and to enhance performance through 
competition and choice.
    Experience with A-76 suggests that competition is the key 
to realizing savings, whether the functions are eventually 
performed by the private sector or remain in-house. Savings 
achieved through A-76 are the result of closely examining the 
work to be done and then reengineering those activities to 
perform them with fewer personnel.
    Reported savings estimates, in some cases as much as 20 
percent, must be taken with caution, but nevertheless there 
appears to be a clear consensus that savings will be achieved 
when agencies undertake a disciplined approach such as that 
called for under A-76, to reviewing their operations and 
implementing needed changes or contracting out services.
    Turning to my second point, strong OMB leadership is needed 
to invigorate civilian agencies' A-76 programs. As shown in the 
table in my written statement, there has been very little 
activity among civilian agencies since the late 1980's in A-76. 
OMB's March 1996 revision of the A-76 supplement streamlined 
procedures and made other much-needed reforms. Since then, 
however, OMB has not consistently worked with agencies to 
ensure that the provisions of A-76 are being effectively 
implemented.
    For example, OMB has not aggressively followed up with 
agencies that fail to submit commercial activity inventories, 
with the result being that as of April 1998, six of the 24 
largest agencies still had not provided inventories.
    OMB has also not systematically reviewed the inventories to 
determine if agencies are missing opportunities to generate 
savings.
    And finally and most important, it is not clear how 
consistently OMB has raised questions during the budget process 
about agencies' implementation of Circular A-76. That 
integration into the budget process is really where A-76 can 
get its teeth.
    As I understand Mr. DeSeve will discuss, OMB has recently 
taken some steps that, in our view, are a move in the right 
direction. However, sustained OMB commitment and follow-through 
will be vital to the success of that effort.
    Turning now to my third and final point this morning, 
several elements are needed for a successful A-76 effort across 
Federal agencies. First, as I have just noted, leadership 
commitment to use A-76 is important. Consistent and forceful 
leadership from OMB is essential to provide incentives for 
managers to subject themselves to the rigors of A-76.
    Second, A-76 will be most effective when it is integrated 
within a performance-based approach to management 
accountability. The annual performance plans that agencies are 
to develop under the government Performance and Results Act, 
which was passed under the leadership of this Committee, 
provide a ready-made annual vehicle that agencies and Congress 
can use to consider whether or not the most cost-effective 
strategies are in place to achieve agency goals.
    As part of this consideration, Congress can ask an agency 
about the tools the agency is using to increase effectiveness, 
including the status of its A-76 programs, and the specific 
choices that are being made about whether to keep a commercial 
activity or contract it out. In other words, Congress has a 
vehicle for beginning to raise these types of issues up on its 
radar screen.
    Third, improved cost data are critical. The government's 
lack of complete cost data, particularly for indirect costs, 
has increased the difficulty of carrying out A-76 because the 
government is not able to accurately determine the cost of 
activities it plans to compete. Continuing efforts to implement 
the Chief Financial Officers Act and the Federal Accounting 
Standards Advisory Board or FASAB managerial cost accounting 
standards are central to ensuring that agencies resolve their 
long-standing problems in generating vital information for 
decision-making.
    Fourth, an effective A-76 effort requires considerable 
contract management capability. An agency must have adequate 
capacity and expertise to successfully carry out the 
solicitation process and effectively administer and monitor 
contracts once they are awarded. Our work has shown that 
contract oversight and monitoring has been a consistent 
weakness in Federal efforts.
    In summary, Mr. Chairman, A-76 has shown itself to be an 
effective management tool for increasing efficiency of the 
Federal Government and saving scarce funds. However, despite 
its proven track record, A-76 is seldom used in civilian 
agencies. OMB needs, in our view, to more consistently strong 
send messages to the agencies that A-76 is a priority 
management initiative.
    Its recent efforts are an encouraging first step, but only 
a first step. Thorough implementation and follow-through will 
be needed to get A-76 on track. Agencies' development and 
Congress' use of annual plans under the Results Act provides an 
opportunity to consider A-76 and other competition issues 
within the context of the most efficient means to achieve 
agency goals.
    Mr. Chairman, this concludes my statement and I would be 
pleased to respond to any questions that you may have.
    Senator Brownback. Thank you. Thank you for your statement, 
your study and the conciseness of it.
    It does seem very puzzling in your chart, that the Defense 
Department has 760,000 total agency FTE's and they are 
reporting 445,000 plus involved in commercial activities. One 
would think that the military does not have that many functions 
necessarily associated with commercial activities.
    Then you go down to the Commerce Department, 34,900 
employees, far less, and zero involved in commercial 
activities. Did they just choose not to participate in the 
activity?
    Mr. Mihm. I can speak to your question, Mr. Chairman. The 
chart I am referring to is a slightly different chart that 
comes from our testimony. I can bring you up a copy of that. It 
talks about the total FTE's that have been studied.
    Senator Brownback. Well, let's use your chart. I thought 
this one was. I'll look at your chart.
    Mr. Mihm. Ours is on page 7 of the written statement.
    Senator Brownback. So you go with united agencies, then. 
Why do you think, then, that civilian agencies--are just not 
participating in this. Do they not think that there are people 
that are doing commercial activities or performing commercial 
activities within their agencies?
    Mr. Mihm. I think there is a combination of reasons and we 
have had quite a few discussions with officials across the 
government, in particular the Departments of Commerce and 
Interior. Over the last few years they have perceived that 
there are higher priority management improvement initiatives, 
such as those led by the National Performance Review. They view 
A-76, in this sense correctly in our view, as one of a series 
of tools that they can use to improve effectiveness.
    Now, what concerns us is even viewing it as one of a series 
of tools, one would expect that there would be greater 
opportunities identified to apply that particular tool.
    There has also been concern expressed by officials in these 
agencies that they do not have the staff with the capacities or 
the knowledge, skills and abilities in order to do the 
systematic reviews that are needed to compete commercial 
activities, to let the contracts and to manage the contracts 
once they have been awarded.
    In our view, what has to happen is that OMB needs to really 
be making it very clear to agencies that A-76 is a priority 
initiative and it needs to drill this right into the budget 
process and, through the government Performance and Results 
Act, to start setting up some quite rigorous expectations that 
OMB will be looking at commercial activities and, where 
appropriate, agencies should be using A-76 to contract out.
    Senator Brownback. You seem to be pointing out a clear 
systems failure or some type of failure in the civilian 
agencies in the use of A-76. Is that correct?
    Mr. Mihm. Yes, sir. It just has not been a priority 
initiative.
    Senator Brownback. And you are citing several different 
reasons to this, but that we have had a failure of this law. 
Has it always been this way since A-76 has been in place? Have 
we always had the civilian agencies not participating or not 
seeing this as any sort of priority?
    Mr. Mihm. No. As a matter of fact, in the late 1980's and 
the early 1990's, as the top of the chart shows, there was some 
significant action that was taking place within civilian 
agencies. You can see there that 2,000--in some cases 5,000 in 
1988--civilian FTE's were studied. The Department of Commerce 
had a large percentage of that. The General Services 
Administration did a large number of studies, as well as the 
Department of Transportation. Since then, as the data also 
indicates, there has been a great fall-off in the interest and 
use of A-76 among civilian agencies.
    What we think needs to happen again is getting this into 
the normal decision-making processes that OMB uses and really 
drilling this into the budget process, using the Government 
Performance and Results Act as one vehicle.
    Senator Brownback. For instance, in 1988 how many employees 
did the Department of Commerce say they had involved in 
commercial activities? Did you look at that?
    Mr. Mihm. We did look at that. I don't have that readily 
available. With your permission, Mr. Chairman, we will make 
sure we supply that for the record.

                       INFORMATION FOR THE RECORD
          The Department of Commerce's last complete update of its 
        commercial activities inventory, done in 1983, showed over 
        5,000 Full-time Equivalent (FTE) positions performing 
        commercial activities.

    Senator Brownback. And what did they say in the most recent 
study that they had of FTE's performing commercial activities?
    Mr. Mihm. The last time the Department of Commerce did a 
complete update of its inventory of commercial activities was 
1983, so it does not have a recent list of its commercial 
activities.
    One of the things that we view as being particularly 
important about the current OMB call for agencies to review 
their inventories is that the Department of Commerce and other 
cabinet agencies will be going through again and updating their 
list of commercial activities and the number of FTE's that are 
working in them.
    Senator Brownback. You have made a number of suggestions as 
to how its implementation can be improved. Are there other 
things, beyond its implementation, that you have studied, 
whether it needs to have more enforceability, more requirements 
associated with it? Have you studied any of those aspects?
    Mr. Mihm. No, sir. We really haven't looked at that. We 
have looked at similar initiatives that have taken place in 
State and local governments. In fact, some of the testimony 
that we have provided in front of this Subcommittee and other 
subcommittees talked about some of the lessons learned that we 
saw in various States and in the City of Indianapolis as to how 
they ran their privatization effort, which included A-76-like 
activities, but we have not looked at the issues that you are 
raising.
    Senator Brownback. But in conclusion on your study, 
basically the civilian agencies just are not doing this.
    Mr. Mihm. Yes, sir. We do not see that it is being used. We 
understand and fully agree with the position that A-76 is one 
of a series of tools that managers need to use. However, when 
we see zero FTE's being studied, and in some cases agencies not 
doing any studies over the last 10 or 11 years, that leads us 
to wonder whether or not A-76 is being fully appreciated as one 
of the tools that agencies can use.
    Senator Brownback. Good. That is an excellent study. I very 
much appreciate your willingness to study and look at this 
aggressively because in my estimation since we have been 
looking at and studying the bill that is brought forward, there 
has just been a systems failure of the current system and we 
needed to look and understand was that estimation on mine and a 
number of other people's parts accurate or inaccurate? And your 
study certainly gives us the factual basis of information to 
conclude that there has been a systems failure under the 
current system.
    I also note that you think there is some improvement taking 
place and some positive steps here recently, but we have had a 
systems failure over the last number of years, particularly of 
the civilian agencies.
    Mr. Mihm. Yes, sir. And the key to success for the steps 
that are taking place now, in particular the memo that the OMB 
director sent out in mid-May, will be effective implementation 
and follow-through on the part of OMB and the agencies.
    Senator Brownback. Thank you very much. Thank you for doing 
the study. I don't know if there is a chance for you to stay 
around. I hope for the hearing not to last too long but it 
might be good to have you here to be able to respond if we have 
additional questions later on.
    Mr. Mihm. I would be pleased to, sir.
    Senator Brownback. Thank you very much. Thank you for 
conducting the study and I thank your cohorts, as well.
    The second panel will be the Hon. G. Edward DeSeve, the 
Acting Deputy Director of the U.S. Office of Management and 
Budget. Mr. DeSeve, we welcome you back to the Subcommittee yet 
again.

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

    Mr. DeSeve. Mr. Chairman, I am delighted to be here.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. DeSeve appears in the Appendix on 
page 48.
---------------------------------------------------------------------------
    Senator Brownback. Well, these can be tough inquiries and I 
am sure they are not days that you look forward to. Maybe you 
would rather go to the dentist on days like this than be here. 
But we do have serious things that we need to look at. We are 
having difficulties and failures in this system and I want to 
hear why it is we are seeing these sorts of systematic failures 
taking place because I sure think we need to address them.
    Thank you for joining us and the floor is yours. If you 
hear any of these comments that you would like to address 
quickly as they are fresh in your mind, feel free to do that; 
then we can take your full testimony later, if you would like 
to.
    Mr. DeSeve. I thought I would just give you a verbal 
statement which summarizes my full testimony and then respond 
to your questions.
    Senator Brownback. OK.
    Mr. DeSeve. I am pleased to be with you today to discuss 
OMB Circular A-76 and how the Federal Government acquires 
commercial support activities.
    As I noted in my testimony before you on March 24, we share 
the goal of seeking the most efficient and cost-effective 
source for provision of commercial support activities. The CFO 
Act, the Government Performance and Results Act, the Federal 
Acquisition Streamlining Act and the Clinger-Cohen Act and the 
A-76 process, all taken together, reflect important efforts to 
improve our effectiveness while recognizing the complexities of 
our financial, operating and management systems.
    The Defense Department is clearly setting the pace in the 
implementation of A-76. The Department is evaluating which 
functions are commercial in nature and subject to competition. 
The Department is now providing its employees the training and 
resources necessary to develop historical workload data, 
performance and evaluation criteria, the ability to perform 
results-oriented contracts and to compete within the private 
sector and with its own employees for functions currently being 
performed by civilian and military personnel.
    We are now engaged in the largest effort undertaken to 
compete commercial activity support services. More than 200,000 
FTE's have been scheduled for review within the Defense 
Department. This represents more than twice the total number of 
FTE studies under A-76 by all agencies since 1981.
    The studies are expected to generate $6.4 billion in 
savings by the year 2002 and are in addition to the other 
acquisition, restructuring, consolidation, utility and family 
housing privatization initiatives that have also been 
undertaken by DOD.
    To put this in a somewhat broader reinvention context, as 
of the end of 1997, the administration had cut the civilian 
workforce by more than 316,000 employees using various 
reinvention tools, creating the smallest Federal workforce in 
35 years and, as a share of total civilian employment, the 
smallest Federal workforce since 1931.
    In May of this year, OMB issued its 1998 A-76 inventory 
call. This inventory, which is due to OMB no later than October 
31, 1998, will be reviewed by the President's Management 
Council, the Chief Financial Officers Council, will be 
published in the Federal Register and will be submitted to 
Congress.
    In conjunction with these reviews, an interagency panel 
will compare agency submissions to achieve consistency in the 
determination of what is inherently governmental and what is 
commercial in nature. It is critical that agencies like 
Commerce and Interior retain the flexibility to focus on any of 
a series of reinvention priorities, including certainly the use 
of A-76.
    Coordinating these competitions with other reinvention 
tools now available is a complex effort, particularly as we 
strive to ensure that the interests of our employees, the 
agencies, the private sector and the taxpayer remain protected.
    Over time, we believe that civilian agencies will come to 
rely more heavily on public/private competitions in order to 
increase savings. The March 1996 revision of A-76 was carefully 
crafted to encourage and permit agencies to incorporate into 
their reinvention and restructuring plans the work of A-76. It 
does no good to require cost comparisons of activities that can 
or should be discontinued, divested or fundamentally 
restructured.
    We need to reflect new technology and changes in mission 
requirements. Regionalization, consolidation, termination, 
closing of unneeded facilities, application of electronic 
commerce and other techniques may be more appropriate 
reinvention approaches and agency managers must reflect 
discretionary authority to implement these changes while 
remaining good employers.
    If changes are made to Circular A-76, they must contribute 
to the reinvention process and move it forward. Our principles 
for the review of proposed A-76 changes are quite clear.
    First, they must promote competition to achieve the best 
deal for the taxpayer, not simply undertaking out-sourcing.
    Second, it must not increase the level of judicial 
involvement in the government's management decision-making as 
to whether to out-source or not.
    Third, they must recognize that current guidance to promote 
a level playing field is in place.
    Fourth, the complexities of public/public and public/
private competition must be reflected in such changes.
    Fifth, any changes must be fair and equitable to all 
interested parties.
    Sixth, out-sourcing must be viewed in the context of the 
larger reinvention effort.
    Finally, it is inappropriate and may be detrimental to 
require the head of an agency to undertake competitions in 
accordance with a schedule mandated by law.
    Thank you very much, Mr. Chairman. That concludes my 
statement. I would be happy to answer any questions the 
Subcommittee has.
    Senator Brownback. Mr. DeSeve, thanks for the statement and 
any written record you would like to put in, we would be happy 
to have as part of the record.
    Really to get to the point of it, in looking at the chart 
on page 7 of the GAO study, and I don't know if you would like 
to get a copy.
    Mr. DeSeve. I have a copy.
    Senator Brownback. OK. You look at 1988. DOD FTE's involved 
in this competition, civilian agency FTE's, and you then go 
down through this chart and it looks like particularly on the 
civilian agency area, that they have just said, ``Look we are 
not doing this anymore.'' The old mule just laid down in the 
middle of the road; ``We are just not moving. We are not going 
to do this.''
    And, for whatever reason, DOD says, ``OK, we will do this. 
We will fully engage.'' And DOD is providing you the leadership 
on this, not OMB. And certainly these agencies, many of them, 
and certainly the Commerce Department not having any FTE's 
involved in commercial activity, really strikes me as an odd 
statement.
    Why have they just stopped participating in this?
    Mr. DeSeve. I am going to let Department of Commerce give 
its own reason for not filling out the inventory form. I do not 
think that is acceptable. We are trying, by putting a new call 
for inventory out now, to work with each of the agencies to 
make sure that everybody responds and that we carefully review 
the commercial functions and inherently governmental functions. 
It needs to be done and the process for doing that is in place.
    In terms of agencies using A-76 as one of a set of tools, I 
think they chose other tools during that period. In the 
reinvention process we said to the agencies, ``First decide if 
you have to be in that business at all. We do not want to pave 
the cowpath. We do not want to out-source something where you 
should not be in the business at all.''
    So we saw OPM, for example, divesting its investigations 
function. This Subcommittee had a series of hearings in which I 
participated and you participated. We talked about creating a 
private corporation, an ESOP, where that function would spin 
off. As a result of that and getting rid of their function of 
training--they did not out-source it; they got rid of it, they 
got out of the business--OPM has cut its workforce by more than 
50 percent.
    The same set of choices was made by other domestic 
agencies, such as GSA which eliminated almost a third of its 
workforce along the way. So they chose a hatchet in some cases, 
as opposed to a machete. OMB A-76 might be categorized as a 
machete and some of the other efforts might be described as 
hatchets.
    The cutting was done, after all, and I think that is what 
we were trying to get at. We were trying to reduce the cost of 
government and eliminate unneeded functions.
    At the same time, DOD, which had also engaged in the same 
kinds of activities, found that A-76 was particularly valuable 
to them. It is, however, a cumbersome tool. It is a tool that 
we believe takes at least 2 years from the point of initiation 
to the point of realization.
    Some agencies wanted to see different tools used to produce 
more short-term results, whether those were RIFs, elimination 
through attrition, whether they were buy-outs, whether they 
were divestitures, whether they were downsizing or devolution 
to State and local governments, those tools were chosen in 
place of A-76.
    We think that is not enough. We think A-76, as better 
understood and better implemented, can, in fact, yield great 
results. DOD was not alone. We worked very closely and need to 
work very closely with DOD in setting its priorities and 
undertaking OMB A-76 reviews. I can't tell you the number of 
conversations I and my staff have had with them and we've 
encouraged them and they have been very receptive.
    Senator Brownback. So for me to understand your system of 
A-76, it is basically whether or not the agency wants to do it 
and you really do not care. I mean, you would like to see them 
participate but if they do not and they choose another set of 
tools, that is fine by you as OMB. Is that correct?
    Mr. DeSeve. That is correct. It is like the Government 
Performance and Results Act. We want to see the result. We want 
to see the outcome of a smaller, more efficient government. The 
means and strategies an agency uses should be consistent with 
the agency's individual plans. We are certainly working to 
encourage greater understanding, streamlining and use.
    A-76 has really been something that agencies have shied 
away from because of the time it takes and the complexity 
involved in the process.
    Senator Brownback. I am sure you have heard the charge that 
you have stated frequently that there has been a decline in the 
workforce of the Federal Government during this administration 
and I am sure you have heard the charge that most of that has 
come from the Department of Defense. And your numbers here seem 
to suggest that there is a lot more pushing on the Department 
of Defense to do some of these things than there is on a number 
of the civilian agencies that are involved.
    Clearly the charts that we have here, the information put 
forward by the GAO suggest that at least on the A-76 processes 
that you or others are strongly encouraging the Department of 
Defense to do this but are very much laissez faire with regard 
to anybody else.
    If one were to study the end product and try to determine 
why we got to this point, the Department of Defense is doing 
this, the others are not, and there appear to be no 
consequences whatsoever to the civilian agencies. If they want 
to participate, fine; if they do not want to, that is fine. But 
you do see this taking place in the Department of Defense.
    I note all that for you, Mr. DeSeve, because it looks like 
to me, and now you have the GAO study saying it, as well, that 
there is a systems failure on A-76 taking place amongst the 
civilian agencies. You just heard the testimony that we had and 
it had been my hunch for some time that that was the case. It 
turns out that that is indeed the case.
    You have the Department of Defense, the military agency 
that is participating greatly in this, according to GAO 
numbers, according to your numbers. We have the Department of 
Commerce which has many commercial competitive activities and 
the OMB saying, ``That is fine; we are not going to push you on 
this at all. And if you choose other tools, if you choose to 
add employees, if you choose to continue to compete, that is 
fine.''
    That strikes me as a real systems failure if one is looking 
to try to identify commercial activities that are competing 
with the private sector, that we do not have any OMB leadership 
on this. The agency can choose, decide if they want to or do 
not want to participate in this, and the GAO confirms that, 
that we have a complete systems failure taking place.
    What has happened, for instance, in the number of FTE's at 
the Department of Commerce, total, over the last--if you have a 
good period of time on there, over the last 5 years?
    Mr. DeSeve. From 1993 to 1996 actually they have lost 2,900 
FTE, which is about 8 percent of their workforce. If you extend 
that to 1997, they have lost a total of 4,100 or 11.2 percent 
of their workforce without using OMB Circular A-76. The 
choices----
    Senator Brownback. How did they do that?
    Mr. DeSeve. I am going to ask Mr. Gould to comment on that. 
I think what you will find is that through buy-outs, through 
reductions in force in selected areas and through contracting 
mechanisms not entailed in A-76. A-76 is the prescribed 
mechanism for competing FTE. Other contracting, either for new 
work, for expanded activity, is not covered by A-76, so that 
out-sourcing, privatization and contracting can be accomplished 
in other ways than through the formalized A-76 mechanism.
    Senator Brownback. Let me follow up on that and I want to 
ask another question regarding that but I have used my time and 
I want to pass to Senator Thomas for him to ask a few 
questions.
    Senator Thomas. Thank you very much.
    Senator Brownback. Thanks for joining us.
    Mr. DeSeve. Senator, it is good to see you.

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

    Senator Thomas. How are you, sir? Nice to see you.
    First of all, I appreciate very much having this hearing. I 
think the point of the whole program, of course, is to take a 
look at the purpose of A-76, which is, as I understand it, to 
take commercial activities within the government and give the 
private sector an opportunity to see if they can, in fact, 
perform them more efficiently. Isn't that what you consider to 
be the purpose of it?
    Mr. DeSeve. No, sir, I don't.
    Senator Thomas. Don't you? Tell me what it is, will you, 
please?
    Mr. DeSeve. Yes, Senator. I believe it is a chance to 
provide lower cost, a savings for the taxpayer, whether the 
private sector wins the competition or the public sector wins 
the competition.
    Senator Thomas. I think that is what I said. Do it more 
efficiently.
    Mr. DeSeve. I misunderstood. I thought you said----
    Senator Thomas. Well, why don't we do that, then? Why isn't 
that happening? Now, this policy has been in place since 
President Eisenhower; isn't that right?
    Mr. DeSeve. I would have to look. That is probably----
    Senator Thomas. Well, I will tell you it is.
    Mr. DeSeve. I will rely on you for that.
    Senator Thomas. It has been in place a very long time and 
still we have a million people on the Federal payroll doing 
things that are commercial in nature, most of which the private 
sector has not had an opportunity to compete for. Now, do you 
call that success?
    Mr. DeSeve. No, sir, I call that the status quo and I don't 
think it's----
    Senator Thomas. That is exactly what I call it, too, and we 
in Congress are trying to do something about that.
    Mr. DeSeve. I agree with you and I think the Defense 
Department is providing great leadership in that area.
    Senator Thomas. I do, too.
    Mr. DeSeve. And I believe that other domestic agencies will 
see that process work in DOD and----
    Senator Thomas. How long does it take, for heaven's sake? 
How long has this policy been in place?
    Mr. DeSeve. Unfortunately, A-76 itself takes about 2 to 
2\1/2\ years.
    Senator Thomas. I am talking about how long does it take to 
implement a program, a concept that has been in place for a 
very long time?
    Let me just say I am a little impatient. We have been 
through this before and the feeling I get is that there is 
resistance from your agency and the rest of the Federal 
Government. You just don't want to do anything any differently 
from what you are currently doing. And even though GAO pretty 
clearly points out in their testimony that A-76 is not a high 
priority among the civilian agencies, pointing out here that 
many of the agencies do not even respond to OMB's A-76 
inventory requests, and yet I hear from you, ``Oh, things are 
OK. We don't need to do anything. We are doing it.''
    Now, that is really hard for me to understand.
    Mr. DeSeve. Let me be very clear. Things are not OK and the 
reason we put out a new inventory call was to get the agencies' 
inventories up to date, to encourage them to properly 
characterize their functions----
    Senator Thomas. ``Encourage'' bothers me a little. 
Obviously encouraging does not get the job done, and that is 
why we in Congress are talking about some kind of statutory 
authority. I have met with you several times in an effort to 
make it as reasonable as we can. We are willing to continue to 
work with you.
    I am focused on results, the bottom line. I get awfully 
impatient with the idea of talking all the time about what we 
are doing when the measurement of result is really the issue, 
and the results do not show that it is being done.
    Mr. DeSeve. And again, Senator, I do not mean to belabor or 
restate the issue. When we look at results, as we would under 
the Government Performance and Results Act, we look at the 
total reduction in the size of the workforce----
    Senator Thomas. Wait a minute. That is not the issue. The 
issue is to take commercial activities and to see if they can 
be done more efficiently, not the number of FTE's. The number 
of FTE's are down because of the Department of Defense 
downsizing and the savings and loan cleanup, and we all know 
that.
    So numbers down is not the only issue, is it?
    Mr. DeSeve. No, sir, but I think cost savings----
    Senator Thomas. What about the Army Corps of Engineers? 
Tell me a little about how they have reduced their number of 
FTE's.
    Mr. DeSeve. I don't know the answer.
    Senator Thomas. Well, I will tell you the answer.
    Mr. DeSeve. I do not have it in front of me.
    Senator Thomas. Their budget has gone down substantially 
and the number of employees have not.
    Mr. DeSeve. I will be happy to look at the data and supply 
it for you.
    Senator Thomas. Well, isn't that your job, to look at that?
    Senator Brownback. The witness needs to be allowed to 
answer fully.
    I think, Mr. DeSeve, as you can tell, we are both pretty 
frustrated about what we----
    Senator Thomas. We have had these types of answers, Mr. 
Chairman, before.
    Senator Brownback. I know, but I am trying to be nice about 
it.
    Senator Thomas. And I appreciate that.
    Mr. DeSeve. And Senator Thomas and I do not disagree on a 
lot of these issues and I understand his frustration in this 
area.
    Senator Thomas. So we are trying to create a statutory 
basis for accomplishing the same goals that you and I have 
talked about, and I don't understand the objection to that.
    Mr. DeSeve. I don't think we have objected to that, 
Senator. I think we set out a set of principles that we would 
like to see a statute adhere to. I do not believe we have 
objected to the statute. I do not believe we have objected to 
the ideas that you put forward, as long as they stay within the 
principles.
    There have been some bills out there at one time--not now 
but at one time--that would have simply out-sourced everything, 
regardless of cost. That was not a good idea, so we objected to 
that.
    Senator Thomas. Agreed.
    Mr. DeSeve. But we have indicated a willingness to work 
with the Subcommittee to try to understand your frustrations 
and try to do something about a bill.
    Senator Thomas. Maybe, Mr. Chairman, I should have had this 
as a statement rather than questions. I apologize if I haven't 
given you a chance, Mr. DeSeve.
    What about the May 12, 1998, memorandum? Why doesn't it 
provide a timetable for competition? What are you going to do 
differently to make this inventory call work, since the past 
two have not?
    Mr. DeSeve. I guess what we are going to do differently is 
we are going to say that agencies have done many good things; 
here is another chance, again especially with DOD breaking a 
path for us and showing us how to do things a little better in 
some of the areas. Agencies have not had a good roadmap 
themselves.
    So first we are going to say go back again and look much 
more carefully now at your workforce; tell us what is 
inherently governmental; tell us what is not. Let's get some of 
your peers who have been successful to review what you have 
done and perhaps give you some suggestions where you can think 
more thoughtfully about what that inventory looks like.
    And then we are going to strongly encourage agencies in the 
balanced budget world. After the Balanced Budget Act, the 
strictures are still on place. We talked about surpluses. But 
the caps in the domestic side are still in place and we believe 
agencies are looking for new and expanded tools to meet those 
caps.
    So that is our process from now through the budget season 
to try to get them to move in that direction.
    Senator Thomas. OMB Circular A-97 implements the 
Intergovernmental Cooperation Act that requires local 
governments to certify to OMB that services cannot be produced 
reasonably and expeditiously through ordinary business channels 
before a Federal agency can provide such services. How many 
such certifications have you on file?
    Mr. DeSeve. I would have to look. I do not have that data 
before me. I didn't come prepared to testify on that. I just do 
not know.
    Senator Thomas. I believe the answer is zero. Mr. Chairman, 
thank you. I will wait a while.
    Senator Brownback. Mr. DeSeve, thanks. We just look at the 
world differently, I guess is the problem here. The GAO study 
verifies what I suspected for some period of time, that we just 
weren't seeing the OMB leadership with the civilian agencies. 
You are verifying that by saying it is one of several tools.
    I think you can gather from Senator Thomas and I and many 
members of the legislative body that we think it should be 
clearly a very aggressively used tool. That is not happening. 
Commercial competition with Federal agencies decreased over the 
past 10 years. We do not think it is getting done.
    I am glad to hear your number of workforce decline in the 
Department of Commerce taking place. I want to look at it and 
com- 
pare it to some other agencies. Our point with that would be, 
as well, that that is not the whole issue here. We are talking 
about the FTE numbers is a good indicator. I think it is a very 
positive indicator if it is going in the right direction. But 
here you have a competition with private sector by the public 
sector that regardless of the issues of FTE size, should be 
clearly evaluated and we should not be having this head-to-head 
competition in places if it can be done more efficiently.
    And you have most of your civilian agencies really not 
participating in this at all by GAO studies, by your own 
numbers. And neither of us think that that is an acceptable way 
to go. Apparently the OMB--it is fine and there are no 
consequences for going a different way.
    Now, if that is different, if there are consequences for 
them not participating, I would sure like to know about it.
    Mr. DeSeve. Sir, there is an absolute budget cap that comes 
from the Balanced Budget Act for discretionary spending or 
military spending and we allow the agencies the flexibility to 
choose the path in meeting that cap, whether it is divestiture 
to State and local government, whether it is getting out of the 
business entirely, whether it is downsizing the workforce in 
other ways or using A-76.
    So we try to manage in such a way to give them the 
flexibility within their overall target, and the targets are 
very aggressive. This year, for example, if there is a 3 
percent pay increase, that is 3 percent less in S&E budget. 
That cheese is going to bind, as my grandfather used to say, at 
some point and we believe that having them be much more 
familiar with A-76 and our continuing to focus on it--and we 
heard your message. The inventory call, and the new procedures 
for evaluating the inventories were certainly reflective of the 
kinds of issues that you have put forward.
    We agree with them and believe in them and I cannot defend 
the pace of change in this tool. I can only put it in the 
context of broader reinvention.
    Senator Brownback. Well, thank you for coming here today. 
You can go get your root canal now and get relieved from the 
two of us. We have a difference of opinion here.
    Mr. DeSeve. I know this is going to sound masochistic but I 
honestly enjoy coming because I think that both you and Senator 
Thomas and other Members of this Subcommittee are honestly 
trying to make things better.
    Senator Brownback. We are.
    Mr. DeSeve. This is not a personal attack and it is not 
even an attack on the fundamentals. It is really a difference 
of opinion about whether we should use, as I said earlier, the 
machete or the ax. We believe there is a time for the machete 
and we are going to continue to work with the agencies to try 
to show you how that can work.
    Senator Brownback. I don't view it as either machete or an 
ax but something that we clearly should be doing and that, if 
appropriately done, like the Department of Defense is doing, 
can be quite a positive tool. I have run a government agency 
before and if you let them just avoid it and choose their own 
path, they are not going to do this. And I think the proof is 
in the pudding. We are seeing that taking place. So machete or 
ax or plastic knife, call it what you would like.
    Thank you very much for joining us.
    Mr. DeSeve. Thank you very much, Mr. Chairman. Thank you, 
Senator Thomas.
    Senator Brownback. The third panel will be the Hon. John 
Berry, Assistant Secretary for Policy, Management and Budget, 
U.S. Department of the Interior. The other panel member is the 
Hon. W. Scott Gould, the Chief Financial officer and Assistant 
Secretary of Administration for the U.S. Department of 
Commerce.
    Gentlemen, thank you very much for joining us. We have lots 
of questions for you. We would be happy to take your statements 
into the record and we appreciate your being willing to join 
us.
    Mr. Berry, you are first up.

  TESTIMONY OF JOHN BERRY,\1\ ASSISTANT SECRETARY FOR POLICY, 
     MANAGEMENT AND BUDGET, U.S. DEPARTMENT OF THE INTERIOR

    Mr. Berry. Mr. Chairman, thank you for this opportunity. If 
I could I would like to start with just a short overview of the 
Interior. I know Senator Thomas is here and this may be a 
little boring to him but I will only take 30 seconds or so on 
it to give you the context of where we are and where we are 
trying to get to.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Berry appears in the Appendix on 
page 55.
---------------------------------------------------------------------------
    Interior manages over 450 million acres of Federal land on 
the continental United States and 3 billion acres offshore on 
the outer Continental Shelf, which essentially boils down to 
one-sixth of our nation's land mass. We have over 57,000 
buildings, dams, equipment and aircraft. We have 66,000 people 
and they are operating at over 2,000 sites around the United 
States.
    We are as close as the bottom of the hill and we are as far 
away as the islands of Micronesia, to give you a sense of the 
scope and scale of our Department.
    We are one of the most streamlined agencies in the Federal 
Government. You could not find a more streamlined agency. We 
manage that Department which I just described and that mission 
with no undersecretaries, no deputy undersecretaries, only five 
assistant secretaries and eight bureau directors. There is not 
one other Department in the Federal Government that can make 
that claim to you.
    Since 1993 we have cut 11,700 employees out of the 
Department of the Interior. That is a 15 percent reduction and 
the second largest in the domestic Federal Department cabinet 
agencies.
    In the D.C. area, in the headquarters, just so you do not 
think we are cutting these from the field, the bulk of this cut 
has come from the headquarters. We have taken 16 percent of our 
D.C. management headquarters out. Again that is the second 
greatest cut in domestic cabinet agencies, so we are very proud 
of that.
    The question is how have we done this? Essentially 
accomplishing this at the same time when our recreational load 
is going up on public lands, on the Bureau of Land Management, 
Fish and Wildlife Refuges. The public demands for the use of 
the outdoors has increased over this same period of time where 
we have had a decline.
    The question is and our response is how have we done this? 
We have done it two ways: essentially trying to operate smarter 
and by building strong partnerships with the private sector. 
Let me touch on smarter for a second.
    Smarter, for example, is using purchase cards, electronic 
purchase cards that have allowed us to cut our procurement 
staff 24 percent since 1993 and a 35 percent cut in the 
personnel in our central office finance functions. That is just 
by shifting those functions over to the private sector using 
cards that private sector companies can tell us and manage that 
data for us easier than we can ourselves. So we have been able 
to achieve significant reductions in our central office finance 
functions.
    We have put in place 34 reinvention labs that have 
eliminated red tape, habitat conservation plans which work with 
private sector landowners to accomplish goals of important 
Federal laws that Congress has adopted, and have cost-avoided 
through those measures over $100 million.
    Finally, we work very closely with the Congress, with the 
GAO and the IG on identifying areas where we can be better, we 
can be smarter. The Appropriations Committee and our 
authorizing committee--Senator Thomas could take a great deal 
of pride in this--brought a concern to a number of hearings, 
concern over the cost of how much it was taking to do things in 
the National Park Service. Our construction projects were just 
taking too much.
    We organized a study with the consent of the committees, 
with the National Academy of Public Administration--that will 
be in June--that is going to essentially require us in our 
Denver service center to get out of the contracting business 
and to shift those functions, reducing our Denver workforce 
significantly and shifting more functions in Denver over to the 
private sector.
    I can tell you now ahead of schedule, having been briefed 
by NAPA on that report, that we are going to carry out those 
recommendations. We are going to do it and you will be very 
proud and pleased to see the results at the end of it.
    The second area which I wanted to just touch on very 
quickly, Mr. Chairman, is partnership with the private sector. 
Forty percent of our budget authority--our BA for the 
Department of the Interior is $10 billion, so that means $4 
billion is spent on outside contracts with private contractors, 
grants or agreements with State and local government. Over 17 
percent of that is specifically with private companies.
    Over the last 5 years 95 percent of our procurement actions 
have been awarded competitively, and that is the highest rate 
in the U.S. Government.
    We use over double our workforce in volunteers. In the 
National Parks we have over 90,000 volunteers. On Fish and 
Wildlife lands we have over 30,000 volunteers. We are 
essentially doubling our workforce. And these are not folks who 
are just standing answering questions. They are people who are 
out in the field actually accomplishing work. They are retirees 
who we are trying to bring back in with their skills to 
accomplish our mission.
    Then finally, and this is something I know that is close to 
Senator Thomas' heart, is how we deal with concessions 
contracts in the Park Service, BLM, Bureau of Reclamation and 
Fish and Wildlife. In the National Park Service alone we have 
over 600 contracts, concessionaire contracts, that employ over 
25,000 private sector people on our National Parks, enjoying 
gross receipts of over $700 million and the taxpayers get back 
from that very profitable association over $48 million return 
every year from the private sector.
    Concessionaires and our contracts at some of our parks 
greatly outnumber the employees at our parks. Yosemite is a 
good example of that. Yosemite, our concessionaire at Yosemite, 
a private sector contract, has 1,650 employees. The National 
Park Service employees at Yosemite are only 750, less than half 
of our number of employees there.
    And we have a wonderful relationship with our 
concessionaires in that they have actually, at Yosemite, for 
example, helped us rebuild after the massive floods we suffered 
2 years ago.
    If I could, I would just put in a pitch for Senator Thomas' 
bill. Senator, we are deeply appreciative of your efforts this 
year on moving some concession reform standards and really are 
grateful for your efforts with the Secretary on S. 1693. If we 
can eliminate some of that preferential right on the concession 
stuff, it is really going to help us do more on that concession 
and move more of these functions into the private sector, so we 
are really pleased with your efforts in that regard. Thank you.
    Finally, A-76. It is one of our good tools. Under Secretary 
Babbitt's administration we have performed nine studies, most 
of them in the aircraft service areas. We have taken a photo 
lab from the Rocky Mountain Mapping Center and put that into 
the private sector. Our computer operations for the USGS in 
Reston, we have had great results in all those efforts. We are 
very impressed with it, very pleased.
    We have completed our inventories and have done that 
annually and submitted those to OMB and we will again this year 
resubmit, as directed by Mr. DeSeve, our inventory this summer, 
as directed.
    The most recent A-76 survey of the Department found 58 
commercial activities with more than 10 employees; 53 of those 
58 are in the National Park Service and the total is about 
5,000 FTE's in terms of the impact.
    But the bottom line in how I look at is what we ought to be 
about is achieving the most efficient result we can. If the 
private sector can do it better, then by God, they ought to be 
doing it, and we ought to be getting that work transferred over 
to them as soon as we can, and we are about that.
    For example, this NAPA study and the Denver service study, 
I am not going to wait 2 years. That will be implemented within 
6 months of June. We will draw down those people using creative 
things like buy-outs, early-out authority, which hopefully we 
are going to get from the Congress this year to help us do 
those things more creatively, with less pain to our Federal 
employee workforce. But the end result will be a leaner Federal 
workforce that will be much more heavily reliant on private 
contractors to carry out design, construction management in how 
we do things in the Na- 
tional Park Service. And we are going to be about accomplishing 
that in 6 months, not 2 years.
    So there is no question of our heavy reliance on the 
private sector. A-76 is one way of getting there. Reinvention 
is another. Using increasing concessionaires is another. And 
finally, management reforms is one basic one.
    So with that, Senator, I apologize for going a little--I 
saw the red light and I apologize. I appreciate your 
indulgence.
    Senator Brownback. Thank you very much for that upbeat 
report. We will have some questions but I do appreciate that 
and how you have presented it.
    Mr. Gould, welcome to the Subcommittee.

  TESTIMONY OF W. SCOTT GOULD,\1\ CHIEF FINANCIAL OFFICER AND 
  ASSISTANT SECRETARY FOR ADMINISTRATION, U.S. DEPARTMENT OF 
                            COMMERCE

    Mr. Gould. Mr. Chairman, Senator Thomas, thank you for the 
opportunity to appear before you today to discuss commercial 
activities specifically as they relate to the use of OMB 
Circular A-76 at the Department of Commerce. I would like to 
ask that my written statement be entered into the record and I 
have a short oral statement I would like to give.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Gould appears in the Appendix on 
page 63.
---------------------------------------------------------------------------
    Senator Brownback. Without objection.
    Mr. Gould. Thank you. Over the past several decades and 
continuing under the leadership of Secretary Daley, the 
Department has taken steps to ensure that Americans receive the 
best value for the tax dollars they spend on our programs. To 
accomplish this we need to apply the principles of competition 
and the free market to ensure that required services are 
provided at the best value to the taxpayer.
    This means identifying work that may be performed by an in-
house organization, a contractor or through an interservice 
support agreement and ensuring that all parties are given the 
opportunity to compete to perform the work.
    A-76 is one valuable tool among many for achieving our cost 
efficiency and management performance goals. I wish to 
emphasize that over the past 6 years we have added many such 
tools to our toolbox as we collectively explore ways to make 
government more efficient and effective.
    Congress has also acted to promote improved government 
performance by passing the CFO Act, the Clinger-Cohen Act, GPRA 
and the Federal Acquisition Streamlining Act.
    Throughout the first Clinton administration, while the 
Office of Management and Budget was revising the A-76 
supplemental handbook, we at Commerce shifted our emphasis to 
the principles of government-wide reinvention. During those 
years we explored new methods for cost savings and improving 
government performance, such as downsizing, reengineering, 
reinvention labs, performance-based organizations, franchise 
funds and customer service improvement.
    As a result of our efforts, overall from 1992 to 1997 we 
achieved a 7.4 percent reduction in our total FTE's. We reduced 
the number of managers and supervisors across the Department by 
23 percent from December 1992 through December of 1997 and we 
have placed relatively greater staff power on the front lines, 
delivering services directly to our customers.
    In the early 1990's OMB indicated that a comprehensive 
revision of the supplemental handbook was under way. A-76 
activity as undertaken not only by the Department but I also 
believe by many other Federal agencies was reduced, pending a 
review of policy concerns with the old version of the circular.
    In March of 1996 the supplemental handbook was reissued. 
Shortly afterward in June of 1996, OMB requested that each 
Federal agency prepare and submit an updated inventory. Very 
little activity at the Department of Commerce was identified 
for inclusion in that inventory.
    In September of 1997 we responded to OMB's request and 
identified one of our NOAA ships for review. Additionally, we 
are conducting a study of our finance and accounting functions 
to determine how its efficiency and effectiveness can be 
improved.
    Under the leadership of Secretary Daley, the Department has 
aggressively worked to strengthen internal management and 
ensure the effective use of public funds allocated for carrying 
out its mission. I would like to share just some of these 
efforts and successes with you.
    We are merging polar orbiting environmental satellites in 
cooperation with DOD and NASA to share technology and data. 
This cooperative effort is estimated to save over $1 billion 
during the life of the program.
    Since Secretary Daley was confirmed, we have reduced the 
number of political appointees by 100, over a third. We have 
proposed using statistical sampling to help us conduct the most 
accurate and cost-efficient 2000 census possible. We estimate 
that the use of sampling will save at least $276 million in 
fiscal year 1999 alone.
    We are adopting an integrated program management approach 
to acquisitions called the ``Concept of Operations'' to 
reengineer the acquisition process, improve the quality of what 
we buy and reduce the time needed to make purchases.
    And finally, next month we will complete testing on a fully 
operational pilot of an integrated core financial system known 
as the Commerce Administrative Management System.
    We have also taken an active role in overseeing NOAA's 
efforts to identify alternatives to the NOAA fleet. In fiscal 
year 1997 NOAA out-sourced 25 percent of its total requirement. 
Over the past years NOAA has decommissioned one-half of its 
hydrographic fleet and is moving ahead with plans to contract 
with the private sector for much of its hydrographic data 
requirements. In addition, we have downsized the NOAA corps 
from 415 in fiscal year 1994 to 299 in fiscal year 1997, 
resulting in savings of $6 million a year.
    These are just some of the examples of activities 
demonstrating our commitment to improve management processes 
within the Department and its operating units, and increase the 
efficiency and effectiveness with which we administer our 
programs. It provides, I believe, an important context for 
understanding that A-76 is one tool among many that can be used 
to achieve greater efficiency in government.
    As stated earlier, we do believe that A-76 is an important 
technique in helping us improve program management. Secretary 
Daley and Deputy Secretary Mallett are committed to 
reengineering and reinvigorating the Department's program. We 
have heard your message. Several fundamental issues should be 
considered in order to maximize the effectiveness of the A-76 
program as one of our management tools.
    First, it is critical that accurate and timely data 
measuring the true cost of operations is readily available and 
reflected in inventories of commercial activities. Only by 
having consistently reliable information, both with respect to 
financial resources and FTE's, can we expect to make the type 
of sound business decisions that the circular is intended to 
foster. Further, this information is essential to understanding 
the full benefits achieved as we proceed to implement the 
circular.
    A cost comparison study performed under the rubric of A-76 
can and should be considered an effective strategy for 
maximizing quality of service delivery.
    Finally, it should be noted that the importance of 
effective oversight of our procurement activities increases as 
we increase our level of contracting with the private sector 
for commercial products and services. The responsibility for 
ensuring that Federal funds are expended appropriately once 
they are in the hands of the private sector is very 
significant.
    Focussing on the Department of Commerce and our plans for 
moving forward in this area, very simply, again we have heard 
you. We will develop an updated inventory of our commercial 
activities. We will develop a practical list of out-sourcing 
opportunities based on the findings of that inventory history 
and will expeditiously identify resources to make those studies 
happen.
    In summary, Mr. Chairman, I want to reiterate Secretary 
Daley's commitment to this program, ensuring that the 
Department of Commerce works toward the benefit of American 
businesses and citizens. Thank you. This completes my remarks 
and I am glad to answer, I am sure, the many questions you may 
have.
    Senator Brownback. Thank you very much, Mr. Gould, and Mr. 
Berry.
    So that I understand, the Department of Commerce will be 
participating this year fully in A-76?
    Mr. Gould. That is correct.
    Senator Brownback. OK. Because you haven't in the past so I 
want to make sure that you will be this year.
    This Subcommittee has had a number of hearings on different 
functions within the Department of Commerce that compete with 
commercial sectors or have commercial sector activities. We 
have had quite a few studies done on it--GAO studies. Are you 
familiar with those?
    We had a hearing on the Weather Service. We have had them 
on NOAA, corps fleet. There have been GAO studies on NOAA. You 
really have quite a few activities over at the Department of 
Commerce that are competing with commercial sector already and 
have been identified and studied previously. Are you going to 
fully address those now?
    Mr. Gould. Yes, Mr. Chairman. If I may just add a point 
that my colleague Mr. Berry mentioned, presently 50 percent of 
our budget authority does go in either grants or contracts to 
the private sector. So half of what we are appropriated every 
year already ends up in the hands of nonfederal entities.
    So we feel we do have some substantial experience there in 
contracting out and procurement and using the competitive 
process to be able to deliver the best value for the taxpayer.
    Senator Brownback. Why have you chosen not to participate 
in A-76 in the past?
    Mr. Gould. Well, I would identify the following reasons. 
First, we have deliberately directed our efforts to a full 
toolbox, an array of opportunities to lower costs, decrease 
FTE's and shrink our budget, and we believe the facts speak for 
themselves.
    You just heard the numbers, the reduction in FTE's, 7.4 
percent in a 5-year period. Those are the types of results that 
we think are the goal of A-76. We believe they can also be 
achieved through other means and we have demonstrated that.
    Senator Brownback. I don't mean to challenge you on your 
numbers because Mr. DeSeve's numbers were very positive for the 
Department of Commerce and your numbers are not quite as--it is 
pretty close to what his were.
    But I was looking at the budget for fiscal year 1999 
Federal employment, Executive Branch. Now, they are showing 
your percentage as increasing 20 percent. Now, is that because 
of projected FTE requests that you have in?
    Mr. Gould. That is correct and let me give you three 
snapshots on numbers.
    Senator Brownback. What is your current FTE that you have 
at the Department of Commerce?
    Mr. Gould. Thirty-two thousand, five hundred. What you are 
seeing is the enormous spike effect of our ramp-up for the 
decennial census, which will grow the size of the Department of 
Commerce for a brief period to conduct the decennial, from in 
the low 30's to the mid 70,000 FTE's. We are beginning to see 
that effect in the ramp-up for the decennial census.
    But we believe that if you look at the base, from 1993 to 
1996 you see a reduction of 7 percent and if you work off a 
1993 base when the administration began to 1997, you actually 
come into the 11.2 percent figure that Mr. DeSeve cited a 
moment ago.
    So I believe that all of those numbers, in fact, are 
consistent and acknowledge the fact that in aggregate, the 
addition of those people that will be needed to conduct the 
decennial census, an extraordinary amount of people, 260,000 
part-time positions and when you divide those by a full-time 
equivalent, you come out into the mid 70,000 FTE's.
    Senator Brownback. I am glad you explained that. I would 
also note for the record the Department of Defense, which 
neither of you would necessarily be aware of, had a reduction 
in force of 23.9 percent during that same period of time, so 
more than double the Department of Commerce, from a far larger 
group, a far larger number that was in place there.
    My big concern for both of you is, I think, we agree that 
the government should be involved in more steering than 
growing. I guess that is the philosophy. People that think 
about these things think it is correct, as well, for 
particularly the Department of Commerce. I will hand off to 
Senator Thomas, the Department of the Interior, which he would 
know far more about than I would, has not engaged that 
philosophy.
    I want to be real blunt with you because we have done 
hearings on this, studies on this and there seems to be a real 
hesitancy in that Department that is reflected in this chart 
here. We are asking about the Department of Commerce because it 
reflects so many other civilian agencies' attitude towards this 
competition.
    The FTE number is an important number. It is a good 
indicator number. It is a good indicator of being prudent, I 
think, with resources, but it really does not get at this issue 
here, which is competition with the private sector. And it 
seems as if the Department of Commerce, the agency that in my 
estimation should be leading the charge of letting the private 
sector do what it does and the government do what it does, is 
being the one that is being the most resistant to it. That is 
why we probably look at you more than any other, because it 
seems to me you should be the one leading this effort, and you 
have not been.
    So I hope you are reflecting a change in attitude. I still 
stand by earlier statements that we have had a systems failure 
on A-76 because if we were not having these hearings, I don't 
know that we would have anything taking place. Maybe we would 
have some--that is an overstatement, but we need to have 
improvements because the GAO studies and others are pointing 
out the current system just does not consistently work, and 
that is why both of us are so interested in improving that.
    Senator Thomas.
    Senator Thomas. Thank you, sir.
    Thank you, gentlemen. I appreciate it very much.
    Interior, of course, has done some good things and 
hopefully will do much more. I think, as Senator Brownback 
said, the FTE number is not really the issue. We all want to do 
it as efficiently as possible. The real issue is that we ought 
to give an opportunity for the private sector to see if they 
can perform these activities at a higher quality and for a 
lower price.
    So the idea that half of your money goes for grants or goes 
to procurement or those kinds of things really is not what we 
are focusing on here.
    The Denver service center is a good example, isn't it, of 
how that might be changed? It basically does engineering, does 
planning. Companies do it in the private sector generally by 
contract.
    Mr. Berry. There is no question. When I came and why I was 
happy to be very quick to do the NAPA study is when I looked at 
the percentage number of overhead in Denver on what we were 
charging--the Park Service was charging itself for contract 
management and for contract oversight and things like that, it 
was not in line with what I was familiar with what was going on 
in the private sector. It was significantly higher.
    So I knew that this study was going to come out and was 
going to be helpful in terms of how do we get those numbers 
more in synch with the private sector. And the response is one 
that I think we anticipated, and that is it is going to be by 
relying on the private sector.
    So what you are going to see in Denver is that whereas 
Denver now does everything, from cradle to grave on these 
projects, on the construction projects that you authorize, 
Denver will now be focussed on predesign and then contract 
management of the private contractors.
    So you are going to see--the report is probably going to 
recommend--there are 500 people now in Denver and I suspect 
when this is done and we are at the end of the day a year from 
now we will be around 300 people in Denver. So it is going to 
be a significant change in terms of how Denver is going to 
operate and function.
    Senator Thomas. That is good.
    Mr. Berry. Thanks to your leadership and Congressman 
Regula's leadership on that, as well.
    Senator Thomas. I think the Senator said about steering and 
rowing--there has to be then some adjustment in agencies to do 
contract oversight.
    Mr. Berry. Absolutely.
    Senator Thomas. And to the extent that we just take an 
agency and contract out something and leave the agency as it 
was, then you have not accomplished a great deal.
    Mr. Berry. Part of that effort, Senator, if I could, is the 
NAPA report is recommending and we will be following through on 
retraining for the employees that are left, that we can refocus 
those skills in terms of contract management.
    Senator Thomas. It is discouraging when the purpose of the 
park is to preserve the resource and you need people who are 
experts in that and then you go and see the guys in the green 
shirts emptying garbage and doing things that do not need that 
kind of special expertise. So hopefully we can make some 
positive changes.
    Commerce--OMB asked you, I think, to update your commercial 
activities. The agency has indicated it is unlikely to change 
from 1983. Interesting. Your commercial activities are not 
going to change from 1983?
    Mr. Gould. No, I do not think that is a reasonable 
perspective. We did our first master inventory in 1983 and came 
up with 174 commercial activities, a very comprehensive review. 
My sense is the organization sort of lived off that into 1991, 
and 1992. We did a lot of studies, some out-sourcing, 
discovered that it was a blind alley down one way, another was 
productive, and actually went ahead and did the studies, 
completed them and out-sourced to the private sector.
    Then, as I have said, 1992, and 1993 we began to switch 
over to a broader range of tools in the toolbox. A-76 largely 
remained dormant. When we were asked last by OMB to provide an 
update, we had one thing--the NOAA ship Ka'Imimoana, which is 
actually involved in ocean research and buoy tending and the 
like.
    It did not work. The private sector came back with no bid. 
There are a number of reasons for that but we just did not get 
a hit there and we need to take a look at that master inventory 
again. We need to ask the question, are there other things that 
we can be out-sourcing?
    Again if I may, Senator, there is an example of a blind 
alley I just went down in the last 6 months that may be helpful 
to you in your inquiry. Do I have a moment to describe that, 
the financial and accounting area?
    Senator Thomas. Please.
    Mr. Gould. In the quickest possible terms, we thought that 
out-sourcing the finance and accounting function in the 
Department had some merit. We had 70 percent of our assets with 
a disclaimer of audit opinion, 30 with a clean audit, and that 
is not a situation, as CFO, that I can abide for long.
    I needed to create a driver for change in the organization 
and thought that competition to which you have referred would 
be a useful tool. We brought in an outside contractor. We 
examined that.
    In the end I was confronted with an interesting problem. I 
have a goal to achieve clean financial audits in the Department 
across the board by fiscal year 1999 and I could out-source 
some finance and accounting mechanisms in one of my major 
bureaus. But the time it would take me to do that would cause 
me to fall short of the goal to get the clean financial audits 
and, in my view, I have gone at the idea of getting the clean 
financial audits as a paramount value for the Secretary and a 
priority for him to have clean financial audits for the 
Department.
    So there is a simple and a small example of where having 
the freedom to choose about whether to go forward with A-76 and 
do that study or not was important to us and it has led to, I 
believe, a strategy that will result in clean financial audits 
for the Department across the board by fiscal year 1999.
    Senator Thomas. Well, let me restate what we are trying to 
do, the goal here and the language in the bill itself that we 
are talking about.
    It simply requires that there be an identification of 
things that are commercial in nature. Then there is hopefully 
an opportunity to conduct a public/private competition. It does 
not require that the function be contracted out. It just says 
we ought to take a look at which entity produces the best 
result for the taxpayers.
    As I exhibited my impatience a little while ago and you 
both have talked about the merits of this concept, as I think 
most anybody would. The fact is, however, that it has been in 
place for over 40 years. Because it is not statutory, there has 
been no way to enforce it, so it has not been done. This 
opportunity to compete has not been implemented, and that is 
all we are seeking to do.
    You may decide that the private sector is not the best 
option in every case, but I hope we don't see more Icemans--the 
Department of Agriculture doing work for the FAA. But that is 
off the point?
    You took almost 2 years to do the NOAA ship study?
    Mr. Gould. Yes, sir.
    Senator Thomas. And you did not get a bid? That is 
interesting.
    Mr. Gould. Yes, sir. Six months in preprocurement planning 
and the balance, 13, in basically going through the procurement 
process, and we did not get a bid.
    Senator Thomas. I think all of us share the same goal. We 
intend, frankly, to move forward with this bill and draft it in 
such a way that it works for you and it also is meaningful. It 
would take an inventory of commercial activities and give the 
private sector a chance to compete for them and see if they can 
do them better.
    That is about the size of it. Thank you, sir.
    Senator Brownback. Thank you, Senator Thomas.
    Thank you both, gentlemen, for being here. I will note I 
appreciate both of your Federal service. Having been a Federal 
employee before, I appreciate what all of you do and what 
everybody does. I have not found anybody that I know of working 
for the Federal Government that does not do it with a good 
heart and they want to do what is right.
    We are confronted--we both believe and many of us do--that 
the taxpayer burden on this country is such that we have just 
got to get it down and that we need to be far more efficient 
with taxpayer dollars. We need to do the things we should do. 
We need to do them well and right. I think there are just a lot 
of things that we could be looking at.
    Having run a small agency before, I know if there is not 
really a push on the system, not a whole lot of things happen 
because the inertia of it takes over pretty easily. And this is 
not to castigate any employees.
    I also want to advise Senator Thomas and others that I am 
going to be looking, as well, on Capitol Hill for things that 
should be competed. We did that on the House side and had a 
fair number of things competed. I think if we are going to talk 
it, we need to do it. So there will be a few interesting things 
that will take place with that.
    Thank you all very much for joining us. If there is any 
other additions that need to be added to the record, the record 
will be kept open for 1 week from today.
    The hearing is adjourned.
    [Whereupon, at 11:21 a.m., the Subcommittee was adjourned.]


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