[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




   THE IMPLEMENTATION OF THE FEDERAL ACTIVITIES INVENTORY REFORM ACT

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      INFORMATION, AND TECHNOLOGY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 28, 1999

                               __________

                           Serial No. 106-122

                               __________

       Printed for the use of the Committee on Government Reform


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

                                 ______

                     U.S. GOVERNMENT PRINTING OFFICE
64-652 CC                    WASHINGTON : 2000




                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
HELEN CHENOWETH-HAGE, Idaho              (Independent)
DAVID VITTER, Louisiana


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                      Carla J. Martin, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

   Subcommittee on Government Management, Information, and Technology

                   STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois               JIM TURNER, Texas
THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon                  MAJOR R. OWENS, New York
DOUG OSE, California                 PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin                 CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          J. Russell George, Staff Director and Chief Counsel
   Bonnie Heald, Director of Communications/Professional Staff Member
                          Chip Ahlswede, Clerk
           Trey Henderson, Minority Professional Staff Member
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 28, 1999.................................     1
Statement of:
    Duncan, Hon. John J., Jr., a Representative in Congress from 
      the State of Tennessee.....................................    16
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio..........................................    22
    Mihm, Christopher, Associate Director, Federal Management 
      Work Force Issues, General Accounting Office; Deidre Lee, 
      Acting Deputy Director for Management, Office of Management 
      and Budget; Sallyanne Harper, Chief Financial Officer, 
      Environmental Protection Agency; William Early, Chief 
      Financial Officer, General Services Administration; and 
      Linda Bilmes, Acting Assistant Secretary for 
      Administration, Acting Chief Financial Officer, Department 
      of Commerce................................................    77
    Sessions, Hon. Pete, a Representative in Congress from the 
      State of Texas.............................................    11
    Thomas, Hon. Craig, a U.S. Senator from the State of Wyoming.     7
Letters, statements, et cetera, submitted for the record by:
    Bilmes, Linda, Acting Assistant Secretary for Administration, 
      Acting Chief Financial Officer, Department of Commerce, 
      prepared statement of......................................   148
    Duncan, Hon. John J., Jr., a Representative in Congress from 
      the State of Tennessee, prepared statement of..............    18
    Early, William, Chief Financial Officer, General Services 
      Administration, prepared statement of......................   141
    Harper, Sallyanne, Chief Financial Officer, Environmental 
      Protection Agency, prepared statement of...................   134
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California:
        OMB proposal to amend the Federal Acquisition Regulation.   159
        Prepared statement of....................................     3
        Prepared statements of the Contract Services Association 
          of America, the American Federation of Government 
          Employees, the National Treasury Employees, and the 
          1999 FAIR Act Inventory of the General Services 
          Administration.........................................    24
        Questions and responses of Linda J. Bilmes...............   164
    Lee, Deidre, Acting Deputy Director for Management, Office of 
      Management and Budget:
        Budget procedures memorandum No. 829.....................   108
        Prepared statement of....................................    93
    Mihm, Christopher, Associate Director, Federal Management 
      Work Force Issues, General Accounting Office, prepared 
      statement of...............................................    80
    Sessions, Hon. Pete, a Representative in Congress from the 
      State of Texas, prepared statement of......................    13
    Thomas, Hon. Craig, a U.S. Senator from the State of Wyoming, 
      prepared statement of......................................     9
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................     5

 
   THE IMPLEMENTATION OF THE FEDERAL ACTIVITIES INVENTORY REFORM ACT

                              ----------                              


                       THURSDAY, OCTOBER 28, 1999

                  House of Representatives,
Subcommittee on Government Management, Information, 
                                    and Technology,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:35 p.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn, Walden, and Ose.
    Staff present: J. Russell George, staff director and chief 
counsel; Randy Kaplan, counsel; Bonnie Heald, director of 
communications and professional staff member; Chip Ahlswede, 
clerk; Rob Singer, staff assistant; P.J. Caceres and Deborah 
Oppenheim, interns; Trey Henderson, minority professional staff 
member; and Jean Gosa, minority staff assistant.
    Mr. Horn. The Subcommittee on Government Management, 
Information, and Technology will come to order. The Federal 
Activities Inventory Reform Act called the FAIR Act was signed 
into law on October 19, 1998. The law requires that each year 
executive branch agencies compile a list of the commercial 
activities they perform and make the list available to the 
public.
    Agencies are required to submit their lists to the Office 
of Management and Budget for review and then make them 
available to Congress and the public. Interested parties such 
as private companies, trade associations, and employee unions 
can challenge the inclusion or exclusion of the activities on 
the list.
    The FAIR Act represents the first time that the Federal 
departments and agencies have been statutorily required to 
develop and publish lists of the commercial activities they 
perform. One of the main purposes of the FAIR Act is to make 
agencies account for the commercial activities they perform. 
Once these activities are identified, agencies can then decide 
whether to make these positions available to the private sector 
through a competitive bidding process. Opening these commercial 
activities to competition could reduce the cost of government 
by as much as 35 percent according to the General Accounting 
Office.
    The FAIR Act does not demand that Federal agencies 
outsource these commercial activities. When agencies do 
outsource, however, the law requires them do so through a 
competitive bidding process. In this case, they must follow the 
guidance contained in OMB Circular A-76.
    The A-76 administrative policy, which dates back more than 
40 years to the Eisenhower administration in which I happened 
to serve, states that Federal departments and agencies should 
rely on private sector sources for commercial goods and 
services. In addition, the policy states that agencies should 
not begin new commercial activities if they can get a 
contractor to perform these activities.
    The question before us today: Is the FAIR Act working? On 
September 30, 1999, 52 Federal departments and agencies 
released their FAIR Act lists. According to the Office of 
Management and Budget, Federal civilian agencies identified 
120,000 of their 1.1 million jobs as commercial in nature that 
could be outsourced.
    Among the agencies that are represented before us today, 
the Department of Commerce listed 8,529 jobs as commercial in 
nature but indicated that only about 936 of them would be open 
to competition. The Environmental Protection Agency labeled 
about 830 positions as commercial in nature, but only 30 could 
be put up for competition. The General Services Administration 
listed 7,249 activities or individuals in the activities as 
commercial, of which 4,556 could be put up for competition. The 
subcommittee would like to learn more about these numbers and 
these categories.
    The FAIR Act was broadly drafted to give agencies some 
flexibility in developing their inventory lists. Consequently, 
there is little uniformity in either format or method of 
publication of these lists. Ready access to these lists in a 
user-friendly format which is essential for those who want to 
challenge the inclusion or omission of a commercial activity. 
Today we will examine how well the FAIR Act is or is not 
working.
    We are pleased to have with us some of the key sponsors of 
this legislation and active enthusiasts, Senator Craig Thomas 
of Wyoming who sponsored the FAIR Act legislation in the 
Senate, Representative John Jimmy Duncan who sponsored the 
legislation in the House. Joining them will be Representative 
Pete Sessions, former vice chairman of this subcommittee, and 
Representative Dennis Kucinich, the subcommittee's former 
ranking member. We welcome all of our witnesses today, and we 
look forward to their testimony. And we are always glad to see 
you. And you may start.
    [The prepared statements of Hon. Stephen Horn and Hon. Jim 
Turner follows:]
[GRAPHIC] [TIFF OMITTED] T4652.001

[GRAPHIC] [TIFF OMITTED] T4652.002

[GRAPHIC] [TIFF OMITTED] T4652.003

[GRAPHIC] [TIFF OMITTED] T4652.004

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

    Senator Thomas. Thank you, Mr. Chairman. I appreciate you 
holding this hearing today. I think it's important that we talk 
about this issue. As an alumnus of this committee it is a 
pleasure to be here, along with my friend, Jimmy Duncan. We 
were the primary sponsors of this legislation along with 
Congressman Sessions who played a crucial role in getting the 
bill signed into law.
    The FAIR Act was a result of significant compromise during 
the negotiations between the Congress and the Office of 
Management and Budget. I think that's an important point that 
we started a little differently than where we came out on the 
basis that OMB thought they could do much of this 
administratively, and we were going to come together and work 
together that way.
    As you've pointed out, the law requires a submission of an 
inventory on those activities which are non-inherently 
governmental by the end of third quarter, June 30th to make 
those available to the public and Congress. You have 30 days 
then to challenge the content of the agency's list and finally 
after an appeal have a chance to review whether or not 
outsourcing would be more cost efficient.
    Mr. Chairman, unfortunately it's my belief the executive 
branch has not been consistent with either the spirit or the 
letter of the law. The FAIR Act was signed on October 18, 1998; 
OMB did not issue the final guidance for implementation until 
June 14, 1999, just 16 days before the inventories were due. 
Consequently, the inventories were not publicly released until 
September 30th.
    However, even now a substantial number are still not 
available. Aside from the long delay, the guidance, I think, 
was inadequate to the task. We've heard that from various 
agencies and employees that it was not clear exactly what we 
were doing and that the guidance was inconsistent with the 
intent of Congress.
    For example, Congress clearly intended that OMB Circular A-
76 be replaced. Consequently, I have strong reservations about 
the implementation of the FAIR Act because of the modest 
changes that were made to the supplemental handbook. Further, 
the method in which the inventories were released was not 
adequate. No central point of contact was provided. As 
designated FAIR officers vary from agency to agency, 
potentially interested parties have had difficult times having 
access to the inventory. I think there ought to be a more 
effective means of doing that.
    Further, the quality of the inventories is not good. 
They're ambiguous and do not identify the functions in a 
reasonable manner for interpretation by the agency management 
or outside parties. Functions are categorized in a rather 
confusing fashion I think. Similar functions appear multiple 
times; extremely difficult to identify the functions. For 
example, EPA's inventory identifies financial and payroll 
processing functions at both headquarters and regional offices. 
But nowhere does the agency list the function of payroll 
processing.
    So, I think it makes it very difficult to implement this 
bill. I realize this is the first time for implementation. I 
recognize it is not going to be perfect. I recognize that it is 
something new, almost developing a new culture within a 
bureaucracy which isn't easy to do. So I think all of us have 
to have some patience with this process. I am hopeful, as 
promised, OMB will work with us to improve implementation of 
the FAIR Act.
    I am still dedicated to the notion that there are many 
instances in which the private sector could better do these 
functions and should have an opportunity at least to show which 
is the most economic and efficient way.
    Mr. Chairman, I hope we can continue to monitor and 
continue to work to implement what I think is something that 
would be very good for government, good for the American 
people.
    Mr. Horn. Do you have any language you think that might 
tighten it up given this first round really?
    Senator Thomas. I guess, Mr. Chairman, my concern is more 
adhering to the language that we already have, then if we find 
having done that, that language needs to be changed, certainly 
we ought to do that. But I believe, as I mentioned I think, 
some of the current guidance is not consistent with the intent 
of the statute.
    Mr. Horn. Thank you.
    [The prepared statement of Hon. Craig Thomas follows:]
    [GRAPHIC] [TIFF OMITTED] T4652.005
    
    [GRAPHIC] [TIFF OMITTED] T4652.006
    
    Mr. Horn. The gentleman from Texas is next.
    Mr. Sessions. Thank you, Mr. Chairman. I appreciate being 
here before this subcommittee again, a subcommittee which I 
have previously served as vice chairman in the 105th Congress, 
and I would like to ask unanimous consent that my written 
statement be included in the record in addition to those 
comments which I intend to make.
    Mr. Horn. It's automatic that the minute we introduce the 
speaker the complete statement is in the record at that point. 
We would love to have you sort of just summarize it.

 STATEMENT OF HON. PETE SESSIONS, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF TEXAS

    Mr. Sessions. Good. Thank you, Mr. Chairman. I would be 
very pleased to do that. First of all, I would like to be 
associated with the comments from Senator Thomas. I believe 
that his careful evaluation exactly mirrors comments that I 
would make probably.
    To summarize very quickly, the day that the initial 
reports, the FAIR reports, the documentation came out from the 
agencies, we went about the manner of trying to get a copy of 
all those that would be available. And I would say that we 
found it, from our perspective, frustrating to find a point of 
contact within the agencies and then when we did receive the 
information, we were disappointed in some of the presentations 
that were made.
    With that said, I believe Senator Thomas has adequately 
stated this was the first time, this was the first opportunity 
on behalf of OMB and the administration to do this, and that I 
believe that they recognize that they can, should, and must do 
a better job. With that in mind, I sent OMB Director, Mr. Lew, 
a letter that same day indicating that I felt like that a 
meeting with him would be something that I felt like could iron 
out some of the differences that I, in my own mind, had.
    As a matter of fact, that meeting took place yesterday with 
Dee Lee from the OMB. And I found her presentation, her 
demeanor, and her willingness to work with us and to accept 
feedback admirable. And the feedback that I provided her was 
that I felt like that Federal employees, Federal agencies, I 
felt like had employees that could do a better job than what 
they did, that they would need to get some feedback based upon 
the information that they provided, that they should be more 
instructive to provide narratives about what they were 
providing and summarizing the information about why it was 
important and the conclusions that they were drawing even if 
they were--it was preliminary information.
    I also further stated to her that I felt like that at some 
time next year knowing that the next two or three rounds of 
release by the administration is probably too far along that I 
felt like that next year's releases, the people should receive 
information about the administration's view about what lessons 
they have learned about the earlier releases. In other words, 
that they should advise people who are going to release 
information next year that there could be more information, a 
better format and to be more forthcoming in a lot of 
information.
    And I believe that OMB will accept those recommendations 
and will try and make not only the formatting but the 
information more user friendly. And I believe that if we allow 
them the opportunity to provide feedback, they would be the 
first ones to say that they have learned a lot in this process 
and intend to get better. I received a sense of willingness and 
openness on their part; and I believe that we can work 
together, that your subcommittee can work with them; and I will 
be very interested finding out their testimony before you today 
about their ideas on making this better. Thank you.
    Mr. Horn. Well, we thank you very much. You've had a major 
role in this as chairman of the sort of responsibility and 
performance caucus. And I congratulate you for that.
    [The prepared statement of Hon. Pete Sessions follows:]
    [GRAPHIC] [TIFF OMITTED] T4652.007
    
    [GRAPHIC] [TIFF OMITTED] T4652.008
    
    [GRAPHIC] [TIFF OMITTED] T4652.009
    
    Mr. Horn. the gentleman from Tennessee, Mr. Duncan.

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

    Mr. Duncan. Thank you, Mr. Chairman. And I would like to 
thank you for your interest in this legislation and for taking 
the time to schedule and hold this oversight hearing on the 
implementation of the Federal Activities Inventory Reform Act 
or the FAIR Act as we're calling it.
    I would also like to thank my good friend, Senator Thomas, 
who sponsored the Senate version of this bill for all of his 
hard work on this legislation. Certainly we couldn't have done 
it without him. And finally, I want to thank Representative 
Sessions for his great leadership not only on the floor but 
since then even up until yesterday working on this. As you 
know, I sponsored the original House version of the FAIR Act. 
The purpose of this law is to show how many commercial 
activities Federal agencies are now performing and to see if 
any of these activities could be more economically and 
efficiently carried out by the private sector.
    Mr. Chairman, since the Eisenhower administration in 1955, 
it has been official U.S. policy and was stated at that time 
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 a product or service can be procured from private 
enterprize through ordinary business channels.'' This has 
been--in fact I think at one of the most recent White House 
conferences on small business, this was listed as their No. 1 
concern, what they felt like was competition from government 
agencies. The legislation we passed in the last Congress will 
help the Federal Government to adhere to this policy that has 
been the policy, supposedly, since the Eisenhower 
administration as you noted in your opening statement.
    The FAIR Act requires Federal agencies to submit a list of 
commercial activities in which they are involved to the OMB 
and, in addition, the law requires OMB to release a list of 
these activities known as inventories to Congress and the 
public.
    Now, however, we are running into some road blocks in the 
early stages of attempting to make this law work for our--the 
citizens of this great country. First, these inventories are 
not being released to the public in an efficient manner. When 
we passed this legislation, most of us believed that these 
inventories would be readily available to all interested 
parties and, more importantly, would be easily accessible.
    However, instead of publishing a list of the activities 
that Federal agencies were performing that could be carried out 
by the private sector only contacts, names, and phone numbers 
were printed in the Federal Register. It was necessary for 
interested parties to call these contact numbers in order to 
obtain a copy of the inventories for each agency. I have been 
told that when some of these phone numbers were called the 
individuals at the agencies were not familiar with the FAIR Act 
or its requirements. And in some cases, these phone numbers 
were cell phones that were not even answered at all.
    This, of course, obviously creates a problem. Once these 
inventories are released, a member of the public only has 30 
days to appeal any inventory which does not list a specific 
activity that could be considered commercial in nature. In 
addition, these inventories were not compiled in any uniform 
manner. Thus they varied from agency to agency making it 
difficult to interpret their contents.
    I do not know if we have any copies of those inventories 
here today, but if we do not, I would encourage members of the 
subcommittee to take a quick glance at a couple of them to see 
how user unfriendly they are.
    I also think it is very important that the OMB create some 
type of one stop shopping where the public can easily access 
the inventories submitted by any agency. I believe it would be 
easy to post these lists on OMB's website or at least provide 
links to the agency's websites where the inventories could be 
viewed.
    The purpose of this act is not to serve as a witch hunt for 
jobs to privatize within agencies. However, if certain 
functions performed by agencies can be more economically 
carried out by the private sector, we need to look at those 
situations. This would then free up finances and manpower so 
that Federal agencies can better focus on their core missions.
    I hope the OMB will reinforce this point to Federal 
agencies so that they will provide us with clear inventories, 
and we can have a more effective government.
    Finally, Mr. Chairman, when we were working on this 
legislation during the 105th Congress, the Heritage Foundation 
released a report which found that we could easily save at 
least $9 billion a year by contracting out certain commercial 
activities performed by Federal agencies. You mentioned, Mr. 
Chairman, in your opening statement that GAO had estimated the 
cost of government to be reduced by 35 percent by outsourcing 
many activities.
    I have seen estimates which say we could save billions and 
billions and really tremendous amounts. We need to make sure 
that this act is carried out in a manner that will help us 
achieve these savings. Our Founding Fathers felt that most 
problems could be solved by the private sector and government 
should do only those things which people cannot do for 
themselves; and I think that if we could enforce the FAIR Act, 
we could come closer to the vision of this government that the 
Founding Fathers gave to us. And so I yield back the balance of 
any time that I might have left. Thank you very much.
    [The prepared statement of Hon. John J. Duncan, Jr., 
follows:]
[GRAPHIC] [TIFF OMITTED] T4652.010

[GRAPHIC] [TIFF OMITTED] T4652.011

[GRAPHIC] [TIFF OMITTED] T4652.012

[GRAPHIC] [TIFF OMITTED] T4652.013

    Mr. Horn. Well, thank you. You've had a lot to do with this 
and the progress that's been made. I might add if you have any 
exchange of letters with OMB, we would be glad to put them in 
the record at this point. And without objection they will go in 
the record.
    This was strictly a Federal panel from the legislative 
branch, panel one, and the panel two is essentially the 
executive branch. We do have a lot of very fine statements 
submitted by management and labor and without objection we will 
put those in at the end of Mr. Kucinich's testimony.
    And some of the ones here are the American Council of 
Independent Laboratories, the American Electronics Association, 
the Contract Services Association, the Management Association 
for Private Photogrammetric Surveyors, the National Division 
Industrial Association, the Small Business Legislative Council, 
the Contract Services Association of America, and also the 
American Federation of Government Employees, AFL-CIO. And 
that's a very thorough document. And we also have similar 
thorough document from the National Treasury Employees Union. 
And let's see. That's some information from the General 
Services Administration. Anyhow, they will go at the end really 
of the testimony here on panel one.
    So we now have the gentleman from Ohio, the former ranking 
member of this subcommittee, a very constructive person, the 
Honorable Dennis Kucinich from Ohio.

   STATEMENT OF HON. DENNIS J. KUCINICH, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF OHIO

    Mr. Kucinich. Thank you, Mr. Chairman. And I want to say 
what a privilege it was to work with you in the last Congress 
on the committee. And I stress the word work with because we 
had a constructive debate, and I know my friend, Mr. Sessions, 
and I actually had a chance to debate this particular act 
thoroughly.
    Mr. Sessions. And form a friendship.
    Mr. Kucinich. Absolutely. And I understand the spirit in 
which Congressman Duncan and Congressman Sessions have advanced 
this. And I think they're to be commended for their interest in 
trying to get government to function more effectively and more 
efficiently. And I certainly understand that the people of this 
country want that to happen.
    Now, as you know, Mr. Chairman, I was skeptical when the 
bill was debated last year. And now that the bill has become 
law, and I still want to indicate it's my belief the skepticism 
is in order. The purpose of the law is to direct the Federal 
Government to identify likely targets for privatization or 
contracting out.
    The underlying assumption is that small business faces a 
big problem from the public provision of services. I thought 
the assumption was incorrect last year, and I think it's still 
incorrect even though I have and I share the sympathy which my 
esteemed colleagues have for small business. For all the 
problems that small businesses face, I wonder how significant 
is the provision. If there is a problem that's created by the 
public provision of services, I'm not sure that despite the 
spirited debate that we had in the last Congress that the case 
was made before the bill was passed.
    While the bill concerned contracting out to private 
companies, it did not exist--it did not address the existing 
problems afflicting contracting. According to both the Office 
of Management and Budget and the General Accounting Office, 
contract administration remains one of the highest risk 
activities which the government engages in. And examples 
abound. Senate hearings uncovered $27 billion a year in health 
care fraud. In 1995, $25 billion in payments to defense 
contractors could not be matched to invoices. And in many cases 
the Department of Defense relies on contractors themselves to 
identify overpayments.
    Nevertheless, the Federal Government reduced its contract 
oversight personnel by over 12 percent between 1992 and 1997. 
Without adequate personnel to oversee contractors and discover 
fraud and abuse, the costly problems associated by contracting 
out cannot be systematically prevented. But in passing the 
bill, Congress expanded contracting out and it would be logical 
to conclude expanded the cost of contractings problems.
    Last year's bill could have been dramatically improved had 
it squarely confronted the modern realities of contracted 
services. Today's hearing concerns the implementation and 
compliance with the law. And I want to say as a Member of this 
Congress, you know when we pass a law whether or not I agree 
with the law, I mean the law is to be obeyed. That's something 
that I support, and I hope all of my colleagues would. I may 
not agree with it, but it's the law.
    So I look forward to learning about the agency's experience 
with the law and what analysis has been conducted to determine 
the effect of the law on fraud and abuse perpetrated on 
taxpayers by unscrupulous contractors.
    So again, I thank the Chair for his ongoing interest in 
this, and it's an honor to be here with Mr. Duncan and Mr. 
Sessions.
    [The prepared statements of the Contract Services 
Association of America, the American Federation of Government 
Employees, the National Treasury Employees, and the 1999 FAIR 
Act Inventory of the General Services Administration follow:]
[GRAPHIC] [TIFF OMITTED] T4652.014

[GRAPHIC] [TIFF OMITTED] T4652.015

[GRAPHIC] [TIFF OMITTED] T4652.016

[GRAPHIC] [TIFF OMITTED] T4652.017

[GRAPHIC] [TIFF OMITTED] T4652.018

[GRAPHIC] [TIFF OMITTED] T4652.019

[GRAPHIC] [TIFF OMITTED] T4652.020

[GRAPHIC] [TIFF OMITTED] T4652.021

[GRAPHIC] [TIFF OMITTED] T4652.022

[GRAPHIC] [TIFF OMITTED] T4652.023

[GRAPHIC] [TIFF OMITTED] T4652.024

[GRAPHIC] [TIFF OMITTED] T4652.025

[GRAPHIC] [TIFF OMITTED] T4652.026

[GRAPHIC] [TIFF OMITTED] T4652.027

[GRAPHIC] [TIFF OMITTED] T4652.028

[GRAPHIC] [TIFF OMITTED] T4652.029

[GRAPHIC] [TIFF OMITTED] T4652.030

[GRAPHIC] [TIFF OMITTED] T4652.031

[GRAPHIC] [TIFF OMITTED] T4652.032

[GRAPHIC] [TIFF OMITTED] T4652.033

[GRAPHIC] [TIFF OMITTED] T4652.034

[GRAPHIC] [TIFF OMITTED] T4652.035

[GRAPHIC] [TIFF OMITTED] T4652.036

[GRAPHIC] [TIFF OMITTED] T4652.037

[GRAPHIC] [TIFF OMITTED] T4652.038

[GRAPHIC] [TIFF OMITTED] T4652.039

[GRAPHIC] [TIFF OMITTED] T4652.040

[GRAPHIC] [TIFF OMITTED] T4652.041

[GRAPHIC] [TIFF OMITTED] T4652.042

[GRAPHIC] [TIFF OMITTED] T4652.043

[GRAPHIC] [TIFF OMITTED] T4652.044

[GRAPHIC] [TIFF OMITTED] T4652.045

[GRAPHIC] [TIFF OMITTED] T4652.046

[GRAPHIC] [TIFF OMITTED] T4652.047

[GRAPHIC] [TIFF OMITTED] T4652.048

[GRAPHIC] [TIFF OMITTED] T4652.049

[GRAPHIC] [TIFF OMITTED] T4652.050

[GRAPHIC] [TIFF OMITTED] T4652.051

[GRAPHIC] [TIFF OMITTED] T4652.052

[GRAPHIC] [TIFF OMITTED] T4652.053

[GRAPHIC] [TIFF OMITTED] T4652.054

[GRAPHIC] [TIFF OMITTED] T4652.055

[GRAPHIC] [TIFF OMITTED] T4652.056

[GRAPHIC] [TIFF OMITTED] T4652.057

[GRAPHIC] [TIFF OMITTED] T4652.058

[GRAPHIC] [TIFF OMITTED] T4652.059

[GRAPHIC] [TIFF OMITTED] T4652.060

[GRAPHIC] [TIFF OMITTED] T4652.061

[GRAPHIC] [TIFF OMITTED] T4652.062

    Mr. Horn. I thank the gentleman. I'm going to have 
questioning done by two of your colleagues and we can start 
with the gentleman from Oregon, Mr. Walden.
    Mr. Walden. Thank you very much, Mr. Chairman, and yes 
we're delighted to have you here. I want to thank you as 
someone who has come late to this process having had this past 
last session, we appreciate what you're trying to accomplish. 
Do you think that there are some specific legislative changes 
that should be made to make this a more user friendly document? 
I mean, I was glancing through some of what we have here and 
it's--and as a small business person in real life, I'm not sure 
I would be any better off looking at this than not knowing.
    Mr. Sessions. Perhaps there would be some disagreement that 
we have here, but I believe that we should work further with 
the process that OMB did not provide a one-size-fits-all 
package to tell people how to do their job but rather left it 
up to the agencies to do their own determination, their own 
fact finding, their own evaluation. And somehow I believe that 
even though the end product the first time was not exactly what 
I would have wanted, I believe that they recognize the 
importance of following the law and that they see where 
providing--learning from their--what they have first done and 
providing more information will be very valuable internally, 
most of all to their own employees. Because once these 
documents are presented, they don't answer questions that 
employees would have, they don't provide information to 
employees or to the vendor community; and they need to go a 
little bit further. And I think the internal working would 
allow them that opportunity to get closer.
    And at this point, it would be my recommendation not to 
offer advice but rather to ask them what do you think needs to 
be changed. I think they should be asked here today, what with 
the realistic expectation that not the next time and not the 
next time because the Department of Defense will be released in 
December, I understand, but early next year up on the releases 
that they would have had a chance to provide information and to 
get better at it. And then that would be a chance if we did 
not--if we had disagreement then to go in and tinker with our 
reporting process.
    But I'm happy with the outline we've given them and believe 
they are prepared even perhaps today to admit that themselves.
    Mr. Duncan. I agree with that. We ought to be able to work 
with the agencies; and if over this next year, we keep running 
into these problems in spite of guidance being given to the 
different agencies, then that--then we could consider some 
changes.
    Mr. Horn. Any comments from the gentleman from Ohio?
    Mr. Kucinich. Again I think to hear the agencies' 
experience with this is really going to be essential. And I 
will repeat that you know, Congress passed this law, agencies 
are going to have to abide by it. But it's important to see 
what the fit is between the conceptual framework of the law and 
the practical experience in the administration of it. So and I 
think that's--that's the whole process here in Congress: We 
keep learning; we pass the law, then we see how it works.
    Mr. Walden. There's been some concern voiced about the 
impact of the FAIR Act inventories on Federal employees. Do you 
have any concerns or----
    Mr. Kucinich. Well, I would say to the gentleman that you 
know I'm generally philosophically opposed to privatization. 
I'll just put my cards on the table there. I think that 
government does have a role to play in our society and 
certainly this committee in particular has the ability to make 
the government work better through providing some guidance.
    I do understand the concerns which my good friend, Mr. 
Sessions, advanced throughout the debate over this about how 
there are certain areas that there's a question as to whether 
government should be in it or not. I don't think there's 
anything wrong with reviewing those. But just as a matter of 
course you know, I am not for dismantling the government. At 
least not while I'm a Member of Congress.
    Mr. Sessions. My feedback, if I could add on with Mr. 
Kucinich, would be this, that I believe that the information 
that is provided by agencies is being followed very closely by 
employee groups and that they should receive every bit of 
information and be told is this preliminary, is this final, how 
is this going to be used, that they should know what's at risk, 
that they should be able to plan themselves.
    And if you just look at the substance that's been provided, 
it makes it seem like that your job is gone. It's far from 
that. There's a lot of information that is still yet to be 
gleaned and this is the--really, the first shot or first 
evaluation that has been made about determining, I think, 
whether something is inherently governmental or whether it's 
competitive. So there's a whole lot of things that we need to 
learn and get more information and employees would be one of 
those groups of people that needed just as much as the 
community that might wish to participate in being a part of it.
    Mr. Walden. Two other issue areas that I might just float 
out there. One is does this act cover the Postal Service as 
well as they get into look--at getting into different private 
sector activities.
    Mr. Sessions. I would have to defer to somebody that knows 
what they're talking about. But in my opinion, no. Well, a year 
ago--there's bound to be somebody that knows about it; but in 
my opinion, no. I didn't get sworn in, did I? In my opinion, 
no.
    Mr. Horn. We do not swear in Members I'm told by Chairman 
Clinger after I was swearing them in all the time. And we do 
have a little code here that if anybody lies to us it's the 
last time we speak to them.
    Mr. Sessions. Does that apply to Russell too or just the 
Members? I think not to answer your question.
    Mr. Walden. What I'm hearing may be unclear, so we'll ask 
the second panel.
    Mr. Sessions. In my opinion, that was specifically a part 
of a discussion that we had; and, in my opinion, they were not 
included because of their statutory--where they fit in the 
scope.
    Mr. Kucinich. If I may, I think one of the aspects of that 
is self-evident is that if the Postal Service had been included 
in that, they would have to hold this hearing in a field house 
because there's such strong feelings about that particular 
issue. So I'm----
    Mr. Walden. I've run into that. That's why I wondered.
    The second question I have which may be totally off the 
wall, but in terms of prison labor and competition there, does 
this act get into that at all? I'll tell you from a State 
perspective, we had a ballot measure passed in Oregon that said 
we're going to put all prisoners to work 40 hours a week.
    The upshot of that is they are mandated to go do jobs now 
and are literally taking jobs away not only from the private 
sector but from the nonprofit sector. My own little community 
there was an organization that dealt with mentally handicapped 
people who were doing piecework, and the prison laborers could 
do it cheaper, and they lost their contracts. That's going on 
in the recycling industry and elsewhere. So actually, I think, 
we're modifying that change in the law in Oregon. But I wonder 
at the Federal level.
    Mr. Sessions. To answer that question, as I recall the 
Department of Justice is included and every one of its 
employees would be included but not----
    Mr. Walden. Prison programs. OK.
    Mr. Sessions [continuing]. Those people who were engaged as 
prisoners any sort of activities.
    Mr. Kucinich. I would say, however, at a future date it 
would be interesting to see where prison labor might be 
replacing jobs in the private sector. I would be interested in 
that as well.
    Mr. Walden. I heard another one, this is all, you know, 
those little stories you pick up at town meetings and all about 
a fellow, a college kid who was no longer out fighting fires 
because they were using prison laborers to come in and fight 
forest fires. I haven't run that one down. But there is some of 
that going on out that there where we're displacing law abiding 
citizens.
    Mr. Kucinich. Wonder if they had anybody convicted of arson 
doing that.
    Mr. Walden. How do you start a fire?
    Thank you, Mr. Chairman.
    Mr. Horn. The gentleman from California, Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman. My questions really are 
very specific and that is how do we get from the position where 
we're at right now relative to these reports to a position 
where the report is standardized so that anybody in 10 minutes 
time can understand what's possible and what's not. I think 
that's the objective. Obviously we started somewhere. OK. Well, 
this doesn't work. I mean it's just--well, I'm not a rocket 
scientist.
    Mr. Sessions. I'll give a stab at it. I think that's what 
we've been talking about. And I believe in continuous 
improvement, and I believe that the OMB does also, that they 
want to have an opportunity to learn from what the exercise 
that they've been through. And that I think they call it 
gymnastics as opposed to just regular floor exercise, that this 
was a tough thing. We were dealing with people that aren't as 
familiar with this. But I think that's their goal.
    I would just once again state they've got two more releases 
that are already in print, don't look at the next one or the 
next one, say by golly they didn't hear us. In fact they do 
hear us, they've got great ears, they were listening. And I'll 
be very much listening today to hear how open they are because 
they've had at least 15 or 20 hours since my meeting to think 
about it. And so we'll see what they come back with.
    Mr. Ose. One of the things I did do, and this follows up on 
one of Mr. Kucinich's concerns, is I read the testimony from 
the Treasury Employees Union. And there is a provision--I'm 
still not--it's still not on, Mr. Chairman. Can you hear me? 
The act itself includes a provision for costing an in-house 
proposal. I think it's section 2 subparagraph E, realistic and 
fair cost comparisons. And I would hope that as we look 
specifically at that, as we are refining these reports, we can 
also give some thought as to how to get a fair costing 
algorithm, for instance, for current Federal agency employees 
to bid on this work. I think that's the height of fairness and 
would serve us all well. I think that would address much of the 
concern that you have.
    Mr. Kucinich. I think the gentleman's point is well taken. 
You know, when you consider the cost of employees you also have 
to include not just their wages but their benefits as well. And 
in the private sector, from the experience that I've seen, is 
that let's say on a municipal level, contracting out, the 
contractor may not offer the same wages, the same level of 
benefits. That's why this privatization issue is so powerful in 
some places in the country because people feel that their 
ability to make a decent wage with benefits is under attack. 
That's like another area of concern.
    So I would suggest that your point is well taken in terms 
of trying to get a fair-cost comparison. I would like to see 
that the benefits and as well as wages added. Because my guess 
is that most privatization would--most of the contractors would 
not want to pay the same wages and same benefit levels because 
where they're making the money I would respectly suggest often 
is in reduction of wages and benefits. That's why this can be 
such a very vexing issue because what we want, while we want 
government to be efficient, at the same time we should be 
concerned that we're not engaging in the construction of public 
policies that would undermine the very constituencies that 
we're here to serve.
    Mr. Ose. I would echo your remarks, and I think you covered 
a couple of things in section 2 E. But I would also make sure 
that we cover the either real or imputed overhead costs that 
might come from office space, utilities, phones, supplies, and 
whatever and price that not at the margin, but at the core 
costs.
    My other question, Mr. Chairman, and I appreciate any 
senior input on this is how do we accurately define what is a 
core activity as opposed to a non-core activity? I understand 
exempt versus non-exempt, but how do we define core versus non 
core?
    Mr. Horn. Well, I think we're going to ask that question of 
Ms. Lee and the various orders that OMB has put out in guidance 
because you're absolutely right that we've got to get a little 
firm definition. And I would hope this round has just as you 
did in lifting that report that we would get some clarification 
as to how you can deal with it. And when you do something like 
this, obviously a lot of people in agencies, not just in 
government, but large human organizations just sort of throw up 
their hands and say what are these people really trying to ask 
us. So we need to clarify that with panel two since we'll have 
the working people that put it all together.
    Mr. Ose. Thank you, Mr. Chairman.
    Mr. Horn. OK. No more questions? Well, we thank you very 
much, and you're welcome to stay since you're both government 
groupees. You're certainly welcome if you like. Thank you very 
much for coming.
    We now will swear in panel two. And it will be the 
Honorable Deidre Lee, Acting Deputy Director for Management, 
Office of Management and Budget; Mr. Christopher Mihm, 
Associate Director, Federal Management Work Force Issues, 
General Accounting Office; and the Honorable Sallyanne Harper 
Chief Financial Officer of the Environmental Protection Agency; 
Mr. William Early, the Chief Financial Officer, General 
Services Administration; Ms. Linda Bilmes, Acting Assistant 
Secretary for Administration, Acting Chief Financial Officer, 
Department of Commerce.
    So if you have staff with you that might be also saying 
things let's get them all sworn in at once behind you, if you 
have any. Anybody have them here. OK. We're now talking with 
essentially five witnesses then. Please raise your right hands.
    [Witnesses sworn.]
    Mr. Horn. The clerk will note all five witnesses affirmed. 
And I'm going to switch a minute. On this agenda it wasn't 
quite put together right. I want the GAO first, and then we 
will go to the members of the administration. So, Mr. Mihm, you 
can begin as usually we have the GAO first.
    And we welcome you.

  STATEMENTS OF CHRISTOPHER MIHM, ASSOCIATE DIRECTOR, FEDERAL 
MANAGEMENT WORK FORCE ISSUES, GENERAL ACCOUNTING OFFICE; DEIDRE 
     LEE, ACTING DEPUTY DIRECTOR FOR MANAGEMENT, OFFICE OF 
   MANAGEMENT AND BUDGET; SALLYANNE HARPER, CHIEF FINANCIAL 
OFFICER, ENVIRONMENTAL PROTECTION AGENCY; WILLIAM EARLY, CHIEF 
 FINANCIAL OFFICER, GENERAL SERVICES ADMINISTRATION; AND LINDA 
 BILMES, ACTING ASSISTANT SECRETARY FOR ADMINISTRATION, ACTING 
        CHIEF FINANCIAL OFFICER, DEPARTMENT OF COMMERCE

    Mr. Mihm. Thank you, Mr. Chairman. And again it's a 
pleasure and and honor to appear before you today to discuss 
the implementation of the FAIR Act. As you mentioned in your 
opening statement, the act requires executive agencies to list 
their activities that are not inherently governmental.
    The implementation of the FAIR Act, as we heard from the 
first panel, is in its very early stages. Many agencies have 
only recently released the inventories of activities, and many 
other agency inventories have not yet been made available to 
the public including 14 of the 24 CFO Act agencies, the largest 
agencies in the Federal Government.
    At the request of this subcommittee, we are beginning a 
body of work to assess agencies' efforts under the FAIR Act. 
This afternoon, I'll briefly describe the status of initial 
steps taken to implement the act, then I will highlight some of 
the questions that are being raised by our examination of the 
FAIR Act inventories from the Department of Commerce, 
Environmental Protection Agency, and the General Services 
Administration. We will be following up to get answers to these 
questions at those agencies and other CFO Act agencies as other 
inventories are released.
    In regards to my first point on the status of FAIR Act 
implementation, as you pointed out in your opening statement, 
the act requires executive agencies to submit each year to OMB 
inventories of activities that are not inherently governmental. 
In addition to listing the activities, the inventories are to 
include information about: First, the fiscal year an activity 
first appeared on an inventory; second, the number of full-
time-equivalent, that is FTE, staff years to do the activity; 
and then, third, a contact point for additional information.
    As was mentioned, inventories from 52 agencies have been 
made available. Of these 52 inventories, 10 were from CFO Act 
agencies including five cabinet departments, Agriculture, 
Commerce, Education, Health and Human Services, and HUD. The 
remaining 42 inventories were from smaller agencies.
    Clearly then the agencies and OMB still have plenty of work 
ahead to implement even the first step of the FAIR Act, and 
that is the issuing of the inventories. Nevertheless, our 
initial review of the selected inventories that have been 
released raise a number of important questions that we plan to 
pursue at the request of this subcommittee. These questions 
include: First, what decisions did agencies make about whether 
or not activities were eligible for competition and what were 
the reasons for those decisions.
    Second, what processes did agencies use to develop their 
inventories.
    Third, how useful were the inventories--and we heard quite 
a bit of commentary on that from the first panel.
    And finally, what supplemental information can be included 
in the inventories to increase their usefulness. This is 
information over and above what is required by the FAIR Act.
    As I mentioned, we'll be seeking answers to these and other 
questions over the coming months in order to assess agency 
efforts and to develop a body of best practices as efforts 
under the FAIR Act move forward. In doing so, we hope to 
contribute to the oversight of this subcommittee and others in 
Congress.
    Each of these questions is discussed in some detail in my 
written statement, so in the interest of brevity I'll discuss 
on just the first and the fourth of these questions this 
afternoon.
    First then, what decisions did agencies make about whether 
or not activities were eligible for competition and what were 
the reasons for those decisions. Our initial review of the 
inventory suggests that questions can be raised about how 
agencies decided whether or not a commercial activity could be 
subject for competition. This is not the distinction between an 
inherently governmental activity, but once we've decided an 
activity is commercial, whether or not it should be competed. 
This particularly is an issue when an agency reports that 
relatively few of its commercial activities should be competed.
    For example, the Environmental Protection Agency's 
inventory shows that EPA has decided that most of its 
commercial activities are exempt from competition. This 
includes about 775 FTEs or over 93 percent of the total number 
of full-time equivalents performing commercial activities at 
EPA. According to EPA, these activities are exempted from 
competition because EPA needs to retain a core staff 
capability. For example, EPA told us that the exempted 
positions were selected positions requiring scientific 
expertise in its Research and Development Office that oversee 
the work done in laboratories by other contractors.
    The second question is what supplemental information can be 
included to increase the usefulness of the inventories. We are 
seeing that beyond the requirements of the FAIR Act, some 
agencies are including information with their inventories that 
provides additional very helpful perspective on the contracting 
and management issues confronting that agency. Specifically, 
some of the agencies are listing inherently governmental 
activities which are not required by the act.
    Second, they're also describing the scope of activities 
currently under contract to provide a sense of the overall 
level of contract support within that agency.
    And third, they're discussing how listed activities 
contribute to the agency's strategic and annual performance. In 
that regard, the inventory for the Environmental Protection 
Agency was particularly helpful in showing how commercial 
activities were aligned with the strategic goals of the agency. 
For example, including information about inherently 
governmental functions as GSA did helps provide perspective 
about all of the agency's activities not just those that the 
agency considers commercial and the relationships between 
commerical and inherently governmental activities.
    In summary, Mr. Chairman the agencies and OMB still have 
plenty of work ahead to implement the FAIR Act. By enacting 
FAIR, Congress has increased the visibility of agencies' 
commercial oversight activities. Oversight hearings such as 
today's and, I should add, the statements from the Members of 
Congress that we heard on the first panel, send clear messages 
to agencies that Congress is serious about improving the 
efficiency and effectiveness of government operations and the 
effective implementation of the FAIR Act.
    We look forward to continuing to work with you and other 
Members of Congress as your oversight efforts continue. That 
concludes my statement. I would be happy to take any questions 
that you or other members of the subcommittee may have.
    [The prepared statement of Mr. Mihm follows:]
    [GRAPHIC] [TIFF OMITTED] T4652.063
    
    [GRAPHIC] [TIFF OMITTED] T4652.064
    
    [GRAPHIC] [TIFF OMITTED] T4652.065
    
    [GRAPHIC] [TIFF OMITTED] T4652.066
    
    [GRAPHIC] [TIFF OMITTED] T4652.067
    
    [GRAPHIC] [TIFF OMITTED] T4652.068
    
    [GRAPHIC] [TIFF OMITTED] T4652.069
    
    [GRAPHIC] [TIFF OMITTED] T4652.070
    
    [GRAPHIC] [TIFF OMITTED] T4652.071
    
    [GRAPHIC] [TIFF OMITTED] T4652.072
    
    Mr. Horn. Well, thank you very much. As you know, we wait 
until the full panel has presented their particular arguments. 
I appreciate that study that you're doing, and we've got about 
four more studies in mind. So I don't want to wear you all out. 
But we have a long series of spring hearings coming up.
    Mr. Mihm. Thank you. Looking forward to it.
    Mr. Horn. Thank you. That's the spirit. There's the Hill, 
and Lieutenant Mihm and the squad charge it.
    We now go to Ms. Deidre Lee, the Acting Deputy Director for 
Management, Office of Management and Budget.
    Ms. Lee. Mr. Chairman, good to see you. Mr. Chairman, 
members of the committee, I had a schedule conflict so that's 
probably how this got confused. We were able to make some 
adjustments, so thank you for understanding.
    Mr. Chairman, members of the committee, I'm here to discuss 
with you today the implementation of the Federal Activities 
Inventory Reform Act, we all call it the FAIR Act. Today we 
face the challenge of managing in the new balanced budget 
environment. That challenge is to provide a government that, 
through empowered employees, adopts better business practices, 
provides better service, and costs less.
    Over the last several years, the Congress and the 
administration have developed a range of management tools and 
strategies that have encouraged us to save, redirect, and 
extend limited resources. Like the Government Performance and 
Results Act of 1993, the FAIR Act was designed to focus 
government attention on what we are getting for the money we're 
spending.
    The Federal Government seeks to achieve economy, enhance 
productivity, improve the quality of services, and obtain the 
best service at least cost to the taxpayer through competition. 
This policy has been provided by OMB Circular A-76, the 
Performance of Commercial Activities. And the FAIR Act codified 
some of this guidance in law. In particular, the act codified 
the definition of inherently governmental function and required 
agencies to inventory their activities and make these 
inventories public.
    This inventory process has proven to be both a significant 
administrative effort and a massive data collection effort. The 
FAIR Act inventory is the first inventory of commercial 
activities that has been required by law, and it is the first 
that has ever been prepared for release to the Congress or the 
public. It is also the first inventory where agency decisions 
about what are inherently governmental activities are subject 
to administrative challenge and appeal by outside parties. Not 
surprisingly, the initial inventory submissions have taken 
longer to prepare and have required more analysis on the part 
of agencies and OMB than previous A-76 activities.
    As a matter of policy and now as a matter of law, an 
inherently governmental function is one that is so intimately 
related to the exercise of the public interest as to mandate 
performance by Federal employees. We've been working with the 
agencies to help them apply this guidance. Not all functions 
may be performed by contractors. Just as it is clear that 
certain functions such as the negotiation of foreign policy 
should not be contracted, it is also clear that other functions 
such as building maintenance or food services may be 
contracted. The OFPP policy letter, which is a precursor to 
this, actually provides other examples of inherently 
governmental and governmental functions and activities. The 
difficulty is in applying the general test to activities that 
fall between these extremes.
    That said, we must balance the emphasis on the business 
opportunities identified by the FAIR Act and the need to 
maintain core agency functions, such as the right level of 
skilled people to manage our business relationships, something 
that Mr. Kucinich talked about, and also the management of 
financial expenditures. We also need to provide smart buyers. 
We'll see of that in EPA's testimony that we need a level of 
technical expertise to make sure that what we're outsourcing or 
spending our money on we're doing correctly and right. So 
there's a balance between that need for internal knowledge and 
the outsourcing or the management of those contracts.
    Agencies also have to be prepared to meet research and 
development needs, emergency capabilities, and related work 
loads. So we're trying to find and strike that balance.
    A great deal of work and debate has gone into these 
inventories both on the part of OMB and each agency. As with 
any new program, there continues to be some difficulties in 
gaining complete agency understanding of the specific 
requirement of the FAIR Act; and, in some cases, there were 
questions as to whether the FAIR Act even applied to an agency.
    In those cases, determinations have been made on a case by 
case basis. By tomorrow, OMB will have released two groups of 
agency inventories prepared under the FAIR Act. The initial 
group covered about 320,000 Federal employees working in 52 
agencies, and over 120,000 were listed as potentially 
commercial in nature. The second group which is scheduled for 
release tomorrow covered 120,000 Federal employees working in 
approximately 42 agencies with an additional 35,000 employees 
listed as potentially commercial.
    Mr. Horn. Just to interrupt for a minute to make sure I 
understand those, and there's no use waiting until the end on 
this, that adds up to 475,000 or is there overlap?
    Ms. Lee. That's a cumulative number, you add them together. 
We still have more to go. We still have approximately 25 more 
releases to go.
    Mr. Horn. So roughly half a million. OK. Thank you.
    Ms. Lee. We will continue the process and, Mr. Sessions 
said, we anticipate probably one or two more releases, and hope 
to get them all out by December. There are additional 25 
releases including some independently submitted IG offices. 
Major agencies yet to be released include Justice, 
Transportation, State, Treasury, Veterans Affairs and the 
Department of Defense which you can imagine is quite large.
    As Mr. Sessions noted, and as clearly discussed here 
previously there's some work to be done. I don't in any way 
shape or form say this process was perfect the first go round. 
We recognize the need to do some more work. We are actually 
anxious to get the first group of inventories out and then 
immediately begin having meetings with the Congress, the staff, 
the GAO, the Federal employee groups themselves and to say how 
can we do this better next time and what issues do we need to 
approach. So we are absolutely open to that, and what we're 
looking for now is to try to get ourselves through this and 
learn from that. It's already time to start queing up because 
the next inventories are due next June.
    One piece that OMB has done is to require for next year 
when the agencies do their inventories due in June to also have 
something we've kind of added in the spirit of the law. They 
need to tell us what actions have been taken against the 
previous inventory. So we will begin to see a record of what we 
released in these inventories, and here's what we've done with 
them.
    Mr. Chairman, I will reiterate we are open to working with 
folks. We know we need to continue to work this process and try 
to make these inventories quickly available and absolutely 
usable and user friendly, and we've got a ways to go on that. 
Thank you.
    [The prepared statement of Ms. Lee follows:]
    [GRAPHIC] [TIFF OMITTED] T4652.073
    
    [GRAPHIC] [TIFF OMITTED] T4652.074
    
    [GRAPHIC] [TIFF OMITTED] T4652.075
    
    [GRAPHIC] [TIFF OMITTED] T4652.076
    
    [GRAPHIC] [TIFF OMITTED] T4652.077
    
    [GRAPHIC] [TIFF OMITTED] T4652.078
    
    [GRAPHIC] [TIFF OMITTED] T4652.079
    
    [GRAPHIC] [TIFF OMITTED] T4652.080
    
    [GRAPHIC] [TIFF OMITTED] T4652.081
    
    [GRAPHIC] [TIFF OMITTED] T4652.082
    
    [GRAPHIC] [TIFF OMITTED] T4652.083
    
    [GRAPHIC] [TIFF OMITTED] T4652.084
    
    [GRAPHIC] [TIFF OMITTED] T4652.085
    
    [GRAPHIC] [TIFF OMITTED] T4652.086
    
    Mr. Horn. Before I call on Mr. Ose to begin the questioning 
this one, I want--one little thing here on page 6, you say, 
``On July 12, 1999, OMB issued Budget Procedures Memorandum No. 
829. This memorandum, which went to all OMB staff, outlined the 
responsibilities of OMB's Resource Management Offices and OMB's 
Budget Review Division which is responsible for implementing 
the FAIR Act and OMB Circular A-76.'' if you wouldn't mind I 
would like in the record at this point to have Budget 
Procedures Memorandum 829 just so we have----
    Ms. Lee. We'll provide it for the record.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T4652.087
    
    [GRAPHIC] [TIFF OMITTED] T4652.088
    
    [GRAPHIC] [TIFF OMITTED] T4652.089
    
    [GRAPHIC] [TIFF OMITTED] T4652.090
    
    [GRAPHIC] [TIFF OMITTED] T4652.091
    
    [GRAPHIC] [TIFF OMITTED] T4652.092
    
    [GRAPHIC] [TIFF OMITTED] T4652.093
    
    [GRAPHIC] [TIFF OMITTED] T4652.094
    
    [GRAPHIC] [TIFF OMITTED] T4652.095
    
    [GRAPHIC] [TIFF OMITTED] T4652.096
    
    [GRAPHIC] [TIFF OMITTED] T4652.097
    
    [GRAPHIC] [TIFF OMITTED] T4652.098
    
    [GRAPHIC] [TIFF OMITTED] T4652.099
    
    [GRAPHIC] [TIFF OMITTED] T4652.100
    
    [GRAPHIC] [TIFF OMITTED] T4652.101
    
    [GRAPHIC] [TIFF OMITTED] T4652.102
    
    [GRAPHIC] [TIFF OMITTED] T4652.103
    
    [GRAPHIC] [TIFF OMITTED] T4652.104
    
    [GRAPHIC] [TIFF OMITTED] T4652.105
    
    [GRAPHIC] [TIFF OMITTED] T4652.106
    
    [GRAPHIC] [TIFF OMITTED] T4652.107
    
    [GRAPHIC] [TIFF OMITTED] T4652.108
    
    [GRAPHIC] [TIFF OMITTED] T4652.109
    
    [GRAPHIC] [TIFF OMITTED] T4652.110
    
    Mr. Horn. And also there's been no change in Circular A-76, 
I take it.
    Ms. Lee. There have been changes over the years but not as 
of this event.
    Mr. Horn. So what we have in the record already, we don't 
have to worry about. The gentleman from California, Mr. Ose.
    Mr. Ose. Mr. Chairman, are we going to hear from the other 
three witnesses first?
    Mr. Horn. Sorry on that. You're able to stay; right?
    Ms. Lee. Yes, sir.
    Mr. Horn. I thought you had a problem there. But Ms. Harper 
then is next with the Environmental Protection Agency, CFO.
    Ms. Harper. Thank you, Mr. Chairman. Mr. Chairman and 
members of the subcommittee, as Chief Financial Officer of the 
Environmental Protection Agency, my office is responsible for 
EPA's implementation of the Federal Activities Inventory Reform 
Act, the FAIR Act. Let me begin by thanking you for this 
opportunity to discuss our work in connection with the FAIR 
Act. I share your commitment to effective and efficient 
government service and I will pleased to be able to describe 
for you EPA's approach to the FAIR Act compliance. OMB's early 
guidance and support helped us to make a quick, informed start 
on an inventory of functions characterized as commercial under 
the FAIR Act. To satisfy the spirit and intent of the act, we 
set out to produce a comprehensive inventory of all commercial 
functions and activities and the full-time equivalents or FTE 
performing them.
    We decided that ``at bottom-up approach'' would yield more 
accurate information. So we assigned responsibility for the 
inventory to EPA's 22 major organizational units or national 
program offices at headquarters and our regional offices. We 
convened an agency-wide work group with representatives from 
each of the organizational units as well as from our unions. 
Our purpose was to reinforce a common understanding of the 
criteria outlined in FAIR and in OMB Circular A-76 and to 
emphasize the importance of linking the inventory and activity 
function codes to EPA's strategic goals. This work group 
approach, along with staff oversight and review of the draft 
inventories, further assured the quality and consistency of the 
information we gathered.
    EPA's inventory, completed on June 30, 1999, showed that 
approximately 5 percent of the agency's work force or 829 FTE 
are involved primarily with activities characterized as 
commercial under FAIR. Most functions identified in EPA's 
inventory represent, in our judgment, core capabilities that 
should be retained in house. In our evaluation, we considered 
several factors including the nature and the function, the 
degree of discretion exercised in performing that function, the 
sensitivity and the confidentiality of information required to 
perform the function, and the significance to the core agency 
activities. EPA's regulatory role is unique and important. To 
meet our statutory mandates and emergency requirements, we must 
maintain the in-house expertise and staff capabilities we need 
to effectively apply and enforce the Nation's environmental 
laws.
    Although a FAIR ``commercial'' characterization of 5 
percent of EPA's work force may, at first glance, appear low; 
it is important to understand the context in which it is based. 
Historically, EPA's dependency on contractors has raised some 
special concerns. During the decade preceding 1995, the 
Agency's contract resources increased at 10 times the rate of 
EPA's staff. You may recall that the agency was severely 
criticized by the Congress, the GAO, and our own Inspector 
General for an overreliance on contractor support. Over time, 
we lost critical in-house scientific expertise and, in some 
cases, improperly contracted functions that are inherently 
governmental.
    In 1995, Congress approved the Agency's request to realign 
resources and convert 900 work years of contractor support to 
Federal work years. Currently, about 75 percent of EPA's budget 
or $5.7 billion supports extramural work, work performed 
outside of the Agency by contractors, States, universities, 
outside researchers and others. It was against this backdrop 
that the EPA inventory was performed.
    I submitted our inventory to OMB on July 1, 1999. OMB 
subsequently completed their review and consultation on our 
inventory and the availability of the inventory was published 
in the Federal Register on September 30, 1999. This started the 
30-day clock running for interested parties to submit their 
challenges. To date, we have received 22 requests for the 
inventory and one challenge.
    I should also add that the General Accounting Office which 
is represented here today is reviewing our inventory process. 
My understanding is, as Chris has testified, that they will be 
performing a thorough analysis of the similarities and 
differences among the several agency inventories. I welcome 
this effort and think it will improve our future inventories at 
EPA.
    I would like to take a moment to emphasize how useful we 
found it at EPA to link our FAIR inventories with structures we 
have put in place under the Government Performance and Results 
Act. We associated each FTE identified as ``commercial'' with 
one of the agency's strategic goals. This can contribute to 
more informed work force planning and budgeting by highlighting 
among each goal activity any opportunities for cost effective 
public private partnership.
    I want to thank the subcommittee for this opportunity to 
testify on our implementation of FAIR. We appreciate your 
interest in EPA's work and count on your continued support. I 
would be happy to respond to any questions that the chairman 
and subcommittee may have.
    [The prepared statement of Ms. Harper follows:]
    [GRAPHIC] [TIFF OMITTED] T4652.111
    
    [GRAPHIC] [TIFF OMITTED] T4652.112
    
    [GRAPHIC] [TIFF OMITTED] T4652.113
    
    [GRAPHIC] [TIFF OMITTED] T4652.114
    
    [GRAPHIC] [TIFF OMITTED] T4652.115
    
    Mr. Horn. Thank you. We'll proceed with Mr. William Early, 
the Chief Financial Officer of the General Services 
Adiminstration.
    Mr. Early. Thank you, Mr. Chairman, I'm pleased to be here 
today to share the experiences and perspectives of the GSA with 
regard to the development of our 1999 FAIR Act inventory. GSA 
is unique among Federal agencies in that it is our mission to 
provide commerical goods and services to the Federal community. 
GSA has a long and continuing history of successfully using 
various management tools to reduce its size and cost while 
continuing to meet its mission requirements. In 1989, GSA's 
employment was 19,000. Today it's 14,000, a 27 percent 
reduction.
    GSA has used OMB's Circular A-76, delegations of authority 
to our customers, GSA's Federal Operations Review Model [FORM], 
process reengineering and other reinvention initiatives 
stemming from the national performance review. We are 
continually reviewing and improving our operations, 
implementing the best delivery method for our customers and the 
taxpayer. We are nonmandatory and customer funded. Therefore, 
we are controlled by the marketplace and must be aware of 
commercial prices for our products.
    In the spring of 1998, OMB issued a data call for a 
complete functional inventory. We took that requirement very 
seriously. We were aware of pending legislation--the FAIR Act--
and developed an inventory using the full GSA management team. 
The inventory we released on September 30 under the FAIR Act 
requirements is the result of those efforts. Our basic set of 
principles was to one, develop an accurate inventory of all our 
functions; two, review and reflect an accurate assessment of 
each function without any preconceived notion about its 
nature--such as inherently governmental or commercial--and, 
three, support each assessment with factual information.
    We took the following steps to develop the inventory: We 
used a core team with representation from each of our services. 
This organizational approach led to the comprehensive organized 
involvement of the entire agency. We recognized that to produce 
the inventory, we needed an updated working knowledge of the 
pending legislation--the FAIR Act--and the latest issuance of 
OMB's Circular A-76 and its supplemental handbook. To acquire 
that knowledge, training was identified, tailored to meet GSA's 
specific needs, and conducted onsite exclusively for GSA 
personnel.
    After achieving a working knowledge of the requirement, the 
core team developed agency guidelines and further refined our 
training to emphasize the inventory requirement. GSA then 
trained hundreds of GSA personnel, representing all levels and 
organizations within the agency. In concert with our Office of 
Communications, we conducted a campaign to keep everyone 
informed. This included letters from the administrator as well 
as establishment of an Internet site that made available all 
pertinent documents available to all employees.
    Union representatives participated in our training and were 
included as potential team members within the various 
organizations. We conducted briefings of union representatives, 
and they received a copy of the final draft of the inventory 
before it was released to all GSA employees or to OMB. Even 
though heads of services and staff offices were involved from 
the outset in developing their respective inventories, an 
agency-wide inventory still needed to be created. Therefore, we 
contracted for professional facilitation services at an offsite 
location and convened a meeting consisting of leadership and 
management representatives from all areas, including our chief 
of staff and general counsel. We desired an open and frank 
dialog to surface, evaluate, and incorporate suggested 
alterations to our plan while ensuring that we were producing 
an inventory that was consistent, accurate, and responsive to 
the requirement.
    On September 30, 1999, GSA posted its entire inventory on 
its CFO Internet site, and used it as the inventory's primary 
method of distribution. Inquiries on inventory content were 
coordinated centrally. GSA has a single point of contact for 
inquiries, challenges and appeals which are logged and routed 
to all members of our core team for research and comment. I, as 
the Chief Financial Officer, will be issuing replies to 
challenges, and the Administrator will issue replies to any 
subsequent appeals.
    This process, in conjunction with performance measures, can 
lead agencies to improving the effectiveness of in-house 
functions or to contracting out those functions that can be 
performed more efficiently by the private sector. GSA has 
already achieved many such efficiencies through process 
reenginering, A-76 competitions, and bench marking. These 
efforts have improved the productivity of our in-house work 
force as we strive to ensure that GSA operations meet or exceed 
commercial standards.
    At GSA, we have always found that self-knowledge has value, 
and have shown a historical commitment to, and success with, 
the A-76, FORM, and FAIR Act processes. GSA has undertaken many 
initiatives to either improve the way we conduct business or to 
find better alternatives to meet government needs. We look for 
both low cost and best value. Our diligence and our review of 
the GSA's FAIR Act inventory will be guided by those same 
values. This completes my prepared testimony, and I look 
forward to answering your questions.
    [The prepared statement of Mr. Early follows:]
    [GRAPHIC] [TIFF OMITTED] T4652.116
    
    [GRAPHIC] [TIFF OMITTED] T4652.117
    
    [GRAPHIC] [TIFF OMITTED] T4652.118
    
    [GRAPHIC] [TIFF OMITTED] T4652.119
    
    Mr. Horn. Thank you very much. Our last witness is Ms. 
Linda Bilmes, the Acting Assistant Secretary for Administration 
and the Acting Chief Financial Officer, Department of Commerce.
    Ms. Bilmes. I thank you. Good afternoon, Mr. Chariman and 
members of the subcommittee. I appreciate the opportunity to 
appear before you today to discuss private sector contracting 
with the Department of Commerce and, more specifically, the 
Department's implementation of the FAIR Act.
    Secretary Daley and the Department of Commerce are 
committed to the principles embodied by the FAIR Act; that is, 
we believe as a Department covering a great deal of the 
Nation's business that private sector firms should, to the 
greatest extent possible, have the opportunity to compete with 
Federal entities to carry out commercial activities.
    As the acting CFASA, as we call the Chief Financial Officer 
and Assistant Secretary for Administration, I am responsible 
for policymaking and oversight for a broad range of 
administrative functions. I consider the FAIR Act to be an 
important tool in our management portfolio available to help us 
serve the American public.
    We are also improving our performance by vigorously 
implementing the CFO Act, the Clinger-Cohen Act, the Federal 
Acquisition Streamlining Act, and, in particular, the 
Government Performance and Results Act. In fact, in the past 
year, we have expended a great deal of effort to increase the 
effectiveness and use within our agency of GPRA, in particular 
in the Annual Performance Plan, which this year received a 
score of 86 from Congress, the highest in government.
    Commerce also has an aggressive and innovative acquisition 
program. Over the past 11 years, the funds expended on 
contracts has more than doubled from just over $500 million in 
1987 to more than $1.1 billion in 1998. Our use of A-76 has 
been helpful in this regard with contract wins in many areas. 
Three examples include: PTO's work in providing copies of 
patents, which had cost the Department $1.5 million annually 
and required 78 FTE; NOAA's library and information services, 
which had cost the Department $722,000 annually and required 28 
FTE; and the Office of the Secretary's activity in providing 
mail and messenger service, which had cost the Department 
400,000 annually and required 8 FTE.
    The decennial census accounts for another billion plus 
dollars in procurements. We estimate that contracts in our core 
programs save the Department from directly employing somewhere 
between 5,000 and 7,000 FTEs.
    As part of our procurement innovations, we established the 
Commerce Information Technology Solutions, COMMITS, which is 
the first ever GWAC, Government-Wide Acquisition Contract, 
reserved exclusively for small, minority and women-owned firms. 
Over the next 5 years, this unique initiative is expected to 
make up $1.5 billion in Federal technology contracts available 
to the 29 participants.
    In the past 6 years, Commerce has increased its service 
contracting by approximately 15 percent and reduced its FTE by 
roughly 7 percent. During this time, we also reduced the number 
of managers and supervisors, placed greater staff on the front 
lines, and improved service delivery to our customers. Under 
Secretary Daley's leadership, we continued to explore 
opportunities for streamlining and improving Commerce 
management.
    Now, I'd like to discuss the process that we used to 
classify our activities and develop our A-76 inventory in 1998. 
We used a similar process this year to develop our FAIR 
inventory. First, we used the OMB-provided definitions and 
template; and we requested each bureau to develop and submit an 
inventory of all their activities. We met with bureau 
representatives and worked closely with them to ensure 
adherence to OMB guidance. We identified cross-functional 
activities, such as the classification of FTE assigned to human 
resource management and procurement, to develop and ensure 
consensus and a consistent approach throughout the Department.
    When we reviewed the bureaus' information, we met with them 
and clarified through dialog with our bureau contacts inventory 
where we had questions.
    Finally, we reconciled the Democrat's data with the 
official payroll information maintained by the National Finance 
Center.
    As a result of this process, we were happy to meet OMB's 
October 31, 1998, deadline; and to be the first department in 
government to submit its A-76 inventory to OMB under the Raines 
guidelines.
    Since the passage of the FAIR Act, we used essentially the 
same model to develop our inventory this year. Using OMB-
provided advice and formatting guidelines, we tasked the 
bureaus to review and update their portions of the inventory. 
We reviewed their input with the bureaus and used the same 
methods to reconcile the cross-cutting areas.
    Following this process, we were again among the first to 
transmit the Department's submission, delivering it to OMB on 
July 9th of this year. On September 30th of this year, OMB 
published a notice in the Federal Register that our inventory, 
along with 51 other agencies, was available to the public. 
Since then, we've received 34 requests for copies of the 
inventory and one challenge received just this morning having 
to do with coding.
    As reflected in the current inventory, 27 percent of our 
work force is involved in commercial activities. Of this, 13 
percent has been classified as exempt, 11 percent has been 
classified in core activities not open to competition, leaving 
3 percent in commercial competitive activities.
    We have reviewed this 3 percent in detail, and we believe 
it is reasonable because of the factors mentioned earlier: 
Extensive A-76 activity during the 1980's, the restructuring 
and 7 percent downsizing of the Commerce Department during the 
1990's, and an aggressive contracting program. All of which 
have contributed significantly to reducing that portion of the 
Department's activity that remains available for contracting.
    During fiscal year 1998 the last year for which we have 
complete data, the Department expended 28 percent of its 
discretionary funding on procurements. This is an increase over 
the past 15 years of 11 percent. In addition, we spent $1.1 
billion in direct grants. This limits the universe for 
additional contracting opportunities to 44 percent of our 
discretionary budget authority.
    Over the past 2\1/2\ years since Secretary Daley took 
office, the Department has used A-76 and the FAIR Act to 
provide valuable baseline data. We are currently assessing 
several new opportunities for outsourcing. These include 
substantial aspects of our information technology management 
and the administration of the Workers' Compensation program.
    During the last year, we have redirected staff resources 
and continued to build on our existing in-house expertise to 
implement the FAIR Act. We have also, just this summer, added 
an additional person to work full time on FAIR Act 
implementation.
    We will continue to review the Department's inventory in 
detail and to work closely with our bureaus to ensure that 
private sector firms have every opportunity to compete with 
Federal agencies.
    Let me just add that this is a new program. I believe that 
the feedback we have received and will continue to receive from 
GAO, OMB, and from you will prove helpful in this effort. I 
certainly look forward to receiving GAO's report on its 
findings as well as hearing how my colleagues in other 
departments are implementing the FAIR Act. Thank you again for 
the opportunity to appear before you today.
    [The prepared statement of Ms. Bilmes follows:]
    [GRAPHIC] [TIFF OMITTED] T4652.120
    
    [GRAPHIC] [TIFF OMITTED] T4652.121
    
    [GRAPHIC] [TIFF OMITTED] T4652.122
    
    [GRAPHIC] [TIFF OMITTED] T4652.123
    
    [GRAPHIC] [TIFF OMITTED] T4652.124
    
    [GRAPHIC] [TIFF OMITTED] T4652.125
    
    [GRAPHIC] [TIFF OMITTED] T4652.126
    
    [GRAPHIC] [TIFF OMITTED] T4652.127
    
    Mr. Horn. It is difficult to get it nicely timed in the 5-
minute modules. We appreciate every one of your statements. 
They have given us perspective on this. Now Mr. Ose, the 
gentleman from California, will begin the questioning.
    Mr. Ose. Thank you, Mr. Chairman. I think the first 
question I would have is perhaps to ask for a little guidance 
from you. If I understand the purpose of the FAIR Act, it was 
to identify those folks within government currently, the tasks 
of which might be convertible to a private contractor basis? I 
mean this was the first step, identifying what we could do and 
then there would be general legislation. Am I--I'm serious. I'm 
asking for guidance here. Is that what----
    Mr. Horn. This was tried in the Eisenhower administration. 
I was then Assistant to the Secretary of Labor, and I remember 
he griped about the contract employees all the time. He said, 
``They aren't like the civil service employees. This place is 
still dusty.'' So it didn't go too far then with some of the 
cabinet to say the least. And what we're trying to do here is 
in this round see first, how the agencies respond in terms of 
that commercial governmental bit. And then it's just an 
experiment. You've got to try it; people can challenge it if 
they don't like it. And we'll get into union participation and 
so forth on that.
    Mr. Ose. Do I----
    Mr. Horn. In other words, if you see a big gap in the 
existing law, please feel free to fill it.
    Mr. Ose. I'm trying to get to what the intent starting this 
process was. And if I understand correctly, it is to try and 
find those functions that could, for instance, be bid on by 
private contractors.
    Mr. Horn. That's correct.
    Mr. Ose. First step being identifying and then 
subsequently----
    Mr. Horn. Right.
    Mr. Ose. That does bring me to just a quandry that I have 
and that is that having started down this process through the 
legislative channels, the other branches of the government 
might be working in a different direction. And I bring that up 
because I have serious concerns about the implementation 
through our efforts to open up these job opportunities or what 
have you to private bidding if the administration is pursuing a 
different tact, in effect changing the FAR regs such as to make 
it far more difficult for companies not only to bid but to 
retain the jobs that they otherwise might successfully be 
awarded. I specifically--I'm sorry, I don't have the----
    Mr. Horn. Well I think Mrs. Lee can answer what the plan is 
down the line. We're just, at this point, identifying the ones 
that would be eligible. And then what kind of administrative 
guidance do you have next?
    Mr. Ose. That does bring me to my question. Because Ms. Lee 
and I have had a meeting previously. We had the benefit of 
having Mr. Davis and Mr. Moran join us regarding the proposed 
regulations to the FAR. And I don't want to see these proposed 
regulations which can be adopted from a regulatory standpoint 
completely obviate our ability legislatively to pursue this 
track that was clear in Congress's intent. I want to explore 
that a little bit if with Ms. Lee, if I may.
    Mr. Horn. Right. In other words, administrative regulations 
are supposed to carry out the will of Congress. But 
administrations, regardless of party, if they didn't like 
something, tried to work their way around it. Or if we put 
something in and we had a euphemism because maybe the Senate 
didn't agree to it and we put the euphemism in and nobody knows 
quite which direction that goes, and they tear their hair out 
in good faith saying, hey what do these people mean? So that's 
what you are fishing for.
    Mr. Ose. Correct. And the euphemism I'm referring to is the 
issue of black listing. You knew I was going to get to it.
    Ms. Lee. Yes, sir one way or another.
    Mr. Ose. The question I have and you were very kind, I mean 
someone, I think Ms. Gore, responded to our questions in the 
meeting in the Capitol about the statutory authority under 
which the regs were being promulgated and the case law has been 
cited dating from 1928, 1934 and 1940, but the question arises 
subsequent to those, to that case law there have been instances 
where Congress has expressed a clear intent, in particular, as 
it relates to this. And the net result of which is a 
determination that an agency cannot promulgate regulations 
which conflict with a clear expression of congressional intent.
    And that's why I asked the chairman the questions about 
this FAIR Act and what the intent was. And if I heard him 
correctly, it was to establish a process whereby certain jobs 
that currently exist in the Federal agencies could be bid out 
whether in house or otherwise for private contracting. And yet 
I see the standards that are currently out for comment closing 
a door that we're trying to open because of the full, nebulous 
nature of the criteria, that being worker training or worker 
retention, standards that really don't have much to do with 
what our challenge is right now.
    And specifically, I want to just get into the record a 
couple things. Congress has in fact--in line with what some 
call the black listing proposals, Congress has, in fact, twice 
considered and rejected efforts to add a provision to the 
National Labor Relations Act, first being in 1977 and the 
second in 1997, both of which were ultimately rejected. That 
would prohibit the award of a Federal contract to any entity 
that was found to have committed a willful violation of the 
act.
    In other words, Congress considered that as a piece of 
legislation and rejected its application. That was in 1977. In 
1997, Senator Simon sponsored an amendment to amend the 
National Labor Relations Act to include a debarment remedy 
based, in part, on the results of the 1995 GAO study, and again 
Congress rejected that amendment. So I have great trouble with 
the various criteria that are proposed for amendment within the 
FAR as currently defined especially as they relate to nebulous 
things. I'm scrambling here--oh, here we are. Never mind.
    Ms. Lee. Substantial noncompliance.
    Mr. Ose. Yeah, as to the definition of substantial 
noncompliance. Thank you. She knows where I'm going. I could be 
in deep trouble here.
    Mr. Horn. Now you know who runs the government.
    Mr. Ose. So I would appreciate any input you have. Because 
I am not yet comfortable with the proposed changes to the 
regulations. So if you would care to offer any comment, I would 
be happy to entertain it.
    Ms. Lee. That's a long one, Mr. Ose. I will try to make it 
very succinct for this group. We obviously are working on some 
issues regarding a proposed amendment. A proposed rule to the 
FAR is out for public comment. We're expecting public comments. 
It would be an understatement to say this is an issue of great 
interest, and we've got some issues to work on that.
    If I could jump over here for the FAIR Act for a minute, 
that the FAIR Act inventories are really the first step: Where 
agencies look and say why do I exist, what do I do, and then 
they look and say basically what are my people doing. And of 
those people, how many are doing commercial-like activities. 
They then look at the commercial-like activities and take the 
next management decision. And it truly is a management decision 
because I think we all agree, people say oh, engineers, you 
know certainly the commercial activity agency can do 
engineering. But we say we still need some expertise in the 
agency so you can't totally declare a type or a function to be 
outsourced. So there's some management decisions that must go 
on, and the agency must decide how to best conduct their 
business and how to do that balance.
    Once that decision is made, then we go into looking at a 
public-private competition process whereby we start to go into 
the procurement arena and we run an A-76 competition which is a 
private competition. Based on that you select a winner. Based 
on that you move over here to the most efficient organization 
whereby the government folks who now do that work are able to 
business reengineer or whatever, and then you then have a 
competition among those two.
    Wearing my Acting Deputy Director for Management hat in 
talking about the FAIR Act is one thing. When I really take 
that off and put on my OFPP hat, the FAIR activity, is of 
interest to us in the contracting community because that's one 
community where outsourcing and downsizing truly is an 
oxymoron. Because the more you downsize your people the fewer 
there are. But the more you outsource, the more and the more 
complex business arrangements we have. So there's a need for 
smart buyers, smart managers so we can spend this money wisely.
    So there certainly is a tension there. That's that process. 
The issue you're talking about does absolutely kick in to when 
we get into the procurement process; and we are running a 
private competition, how do we determine who should be 
considered and their eligibility requirements. And, yes, we are 
talking about responsibility in trying to further hone that 
rule, and that's where that fits into this piece here.
    Mr. Horn. If I might at this point, so some future Ph.D. 
Student who studies this will have all the documents in one 
place, the OMB proposal to amend the Federal Acquisition 
Regulation beginning with contractors' responsibility. And we 
will put that in the record at this point without objection.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T4652.128
    
    [GRAPHIC] [TIFF OMITTED] T4652.129
    
    Mr. Ose. Thank you, Mr. Chairman. As always, you're very 
thorough. What I'm trying to avoid is again have we opened the 
door for us to, if you will, run the government more efficient. 
I don't want us to close the door by virtue of these proposed 
regulations and place us back into this purgatory where we 
don't know whether we can or we can't. The standards under 
which or the standards that are under consideration right now, 
in my mind, will serve to frustrate and prevent our ability to 
pursue Congress's intent starting in the last session of 
Congress. And I think if I could just reenforce one thing to 
Ms. Lee, it would just be that that will not make some of us 
very happy. Because----
    Mr. Horn. Well, the question certainly is is it in the law 
or isn't it?
    Mr. Ose. Correct. And it's clear here from our discussion 
alone that it's the intent of Congress to examine whether or 
not we can privitize or run the government more efficiently. 
And yet the net result of this, Mr. Chairman, with the nebulous 
nature of these standards is that we will have achieved with 
one hand an objective that is taken away from the other. That 
is a serious, serious concern. Whether you talk about IT or 
real estate or mere supplies or what have you, it is an 
evisceration of our ability to achieve our goal. With that I 
yield back.
    Mr. Horn. Well, you have a very pertinent point there. And 
I think it should be taken into account. If it is specifically 
said in the law somewhere, that's one thing in the regulation. 
If it isn't, it shouldn't be an undercutting of the basic law 
that is trying to get government to be more efficient.
    And if we take Mayor Goldsmith's view of how he turned 
Indianapolis around, he had not only the workers but unions 
also participating in that. And we don't have a lot of--as I 
understand it, we don't have a lot of criticism on that because 
he kept--got everybody involved. And I think that's basically 
what the Congress and, I think, the administration, certainly 
some of the things the President said before he was President 
as well as when he has been President, that efficiency and 
effectiveness are very important.
    So I would hope that the two branches of government can 
agree on that. And then the question is the procedures. And 
you've made a very good point. Does one set of procedures 
countermand the overall attempt here to have effectiveness, 
financial savings, so forth. But what Mr. Kucinich brought up 
is certainly a realistic question in terms of look at the 
benefits. And that's what a lot of people would say. Wait a 
minute, you know, all you're gaining is taking benefits away. 
So that comes into play.
    Mr. Ose. If the proposed changes to the FAR were to come 
forward legislatively that's a different question, again. But I 
keep going back to what the intent of Congress was. And that's 
the thing that I find so frustrating. It's clear to me that the 
intent of Congress is to move further in the direction as 
outlined by the FAIR Act from the last session. And yet my 
antenna, however poorly refined, tell me that this other action 
will serve to frustrate that. I don't want to lose regulatorily 
what we achieve legislatively.
    Mr. Horn. Well put. And that's the relationship and a 
question that we could apply to almost every agency where an 
authorizing committee might do this, the appropriations 
subcommittee which isn't supposed to legislate on an 
appropriations bill, strong rule of the House, but it's waived 
on every appropriations bill. So pretty soon, you have the 
appropriations people giving the signals, and the authorization 
people giving them. And when you've got two bodies, you've got 
four entities some of which are undercutting the other. So what 
else is new in 200 years of democracy and efficiency and 
effectiveness? So Mr. Walden didn't have any questions.
    Mr. Ose. I think I drove him out of the room.
    Mr. Horn. No, you've got a very pertinent point. Does staff 
feel we should ask one or two questions, or should we just send 
it to them and have them file it for the record? Staff feels 
one question is worth asking.
    So the FAIR Act authorizes OMB to review each agency's 
commercial activities inventory and consult with the agency 
regarding its content. Describe the guidance and feedback each 
of you receive from OMB in the development of your inventories. 
You want to start with the Department of Commerce then go to 
GSA then go to EPA. You're a cross section of the American 
executive branch.
    Ms. Bilmes. We worked closely with OMB on this as with all 
issues, but basically they send out their instructions in the 
form of memos. And we supplied our inventory. They subsequently 
sent us questions.
    Which we are in the process of answering at the moment, 
including questions about our coding and other particular 
issues. For example, they've asked us about the National 
Logistics Supply Center which was listed as exempt. There was a 
question as to why it was listed as exempt. The situation with 
this one was that it had been through an A-76 process and was 
contracted out. There was a problem with the contractor, and 
the activity come back in house, but with the result that we 
went from originally--pre-FAIR Act--doing this function in 
house, with 72 people to contraction out, then to it being done 
once again in the Commerce Department with only 26 people.
    I think the question from OMB was basically to explain the 
situation; the background with this particular entity. I think 
it was a worthwhile question because the issue was unclear. 
Then there is a question about one of our codes, R-600, applied 
research that we have added for NOAA. Obviously this is a new 
program. There's some teething pain with the coding. One size 
did not fit all in terms of how you code what every agency 
does. We didn't feel there was a code that was appropriate for 
some of the NOAA functions. So, we requested the R-600 series. 
They've asked us about that. I think you could summarize by 
saying that we've had a constructive engagement with OMB to try 
and refine the process. I discussed with Dee that should she 
convene any kind of interagency group to work on this and 
refine it further, we would be happy to participate.
    Mr. Horn. Let me ask you, the word participation is what I 
have not asked about. But did you have an opportunity to go and 
participate at a lower level of the particular civil service 
group, let's say with GS-5's down so forth, how did that work 
in Commerce? Did you get them involved in the participation of 
this process or was it simply trickling down to the management-
side of Commerce? Because when you're into a reform thing like 
this, having been a chief executive that's reform oriented, you 
got to make sure that the people at the grass roots understand 
what's going on. Because there's a lot of fear that's going to 
come, the rumor mill, the water coolers, and all the rest. And 
sometimes the water-cooler gossip is right and way ahead of 
management. But what did you do on that front?
    Ms. Bilmes. I think that's a very good question, and I take 
your point exactly in terms of what you're saying. At the 
Commerce Department as you know, we have numerous bureaus with 
different tasks. We had decentralized this to each bureau. I am 
not familiar with what exactly each bureau did. I will submit 
back to the record the answer on that.
    Mr. Horn. The question is did the Commissioner or the 
Administrator or the Director consult with other people.
    Ms. Bilmes. No, I understand your question very well.
    Mr. Horn. And that includes the employee unions. I mean 
granted they can represent sometimes, but sometimes it's just 
worthwhile to get them all in a room and say here's--Congress 
did this or didn't do this and OMB is doing it now. And here's 
what this all means.
    Ms. Bilmes. I would suspect that some bureaus did and some 
bureaus did not. But I will go back and ask each bureau how 
exactly they put together the categories.
    Mr. Horn. We'll save a place in the record, and without 
objection it will be put in the record at this point.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T4652.130
    
    Mr. Horn. How about GSA, Mr. Early?
    Mr. Early. We opened communication with OMB at the 
beginning of this activity in the spring of 1998, and 
maintained a dialog with them through the conclusion of the 
process. Throughout, we kept OMB apprised of our approach. When 
we had questions, we discussed them with OMB, and factored 
their input into our action plans. Once we submitted our 
inventory to OMB, the only feedback we received was a request 
for additional detail and a few technical questions. We 
provided the detail requested and answers to their questions, 
and that concluded our review and consultation process. OMB did 
not question the identification of our functions.
    Mr. Horn. Within GSA, are you aware how far down into the 
hierarchy the discussion and ideas percolated? GS-5s, for 
example, did they get talked to and exposed to and had a chance 
to ask questions?
    Mr. Early. We did a top-down approach, but when we 
conducted training, we involved the union with that. We 
included our regions. We had numerous communication pieces that 
went out to all employees by letter and by web to keep all 
employees at all grade levels current with what we were doing, 
what our approaches were and the processes that we were 
undertaking. In the political discussions and decisionmaking, I 
do not believe we had the grade 5 levels involved. We certainly 
did have 11's, 12's, and 13's, participating in the 
identification of functional areas and classifications.
    Mr. Horn. Having, in a previous incarnation, taken it down 
right to the groundwork--the janitors, the Secretaries, the 
Assistants, so forth--I found you got some terrific ideas 
there. And all I'm saying is I think--don't underestimate what 
your people know. Because often they say, why doesn't the boss 
just think of this? And yet they're too shy to go in and say it 
because they're afraid somebody will put something in some file 
or something they'll never get promoted.
    Mr. Early. We thought about that. And when we looked at the 
assignment of addressing the classification of inventories, we 
did not go to that level. The discussion that we had during our 
training was that when we addressed how to do the business, how 
to contract it out, how to evaluate the cost, the best way of 
addressing the delivery of services and such organizations, at 
that time we would include all those people because that's when 
those ideas are most helpful and would affect the outcome.
    Mr. Horn. Well, thank you.
    Ms. Harper, how about the EPA?
    Ms. Harper. Mr. Chairman, we also had had extensive 
consultation with OMB from the prior--A-76 prior year exercise 
and continued that as we formulated our inventory. We did a 
bottom-up inventory. We went out to each of the regional 
locations and each of the national program managers.
    On our central work group, a group looking at consistency 
and defining issues, we did not go down to the GS-5 level. That 
was usually a management side representative and union 
representative. At the EPA, the representative function for our 
workforce belong to the unions; the labor-management 
partnership, makes it more challenging to reach far down into 
the organization without full involvement of the unions.
    That said in the individual entities, for instance, in a 
region, they did have to do a bottom-up. So although it was not 
a centrally managed involvement, there were entities, I 
believe, that did get that far down, although I wouldn't be 
able to tell you right now which those were.
    The one thing I would say about our OMB consultation and 
review, it was an interesting and I think very fruitful dialog 
between the management side of OMB and our budget examiner side 
of OMB. I think that was one of the benefits of their review 
and consultation because we were able to have it put in the 
context of how much we already contract out and give out grants 
and cooperative agreements. So that was a very helpful thing 
that OMB did.
    Mr. Horn. Director Lee, what do you think on this? Does OMB 
ever go down and get the grass-roots feeling on what could be 
improving the government's efficiency and effectiveness?
    Ms. Lee. Mr. Chairman, as you know, OMB is a relatively 
small organization, some 500 people, and----
    Mr. Horn. That is not small to most Americans.
    Ms. Lee. OMB itself is a very collegial group. People work 
together, side by side, hand in hand. We certainly have Mr. 
Childs, who is the A-76 and the FAIR Act expert, but he worked 
through the resource management offices, the budget examiners, 
who in turn worked with each of the agencies. So I would say 
there is a great deal of knowledge and awareness of what we're 
trying to do, a recognition that this is the first step of an 
inventory, those tough management decisions, and how do we and 
when do we outsource? If that's the right answer, what are the 
next steps?
    Mr. Horn. How many people do you have in OMB that are 
dealing with management, by the way?
    Ms. Lee. All the people at OMB deal with management.
    Mr. Horn. You must have been here when Mr. Koskinen gave me 
the same silly answer, because if 540 people are devoting their 
efforts to management, it means nobody is devoting their 
efforts to management. He gave me that at his last appearance 
here before retirement and before reincarnation as the czar of 
Y2K.
    But no, how many seriously spend a lot of time on 
management? I'm just curious.
    Ms. Lee. Seriously, a lot of people, because we've tried to 
integrate management and the budget better. So the budget 
people who used to just focus on the budget, they actually do 
more. In fact, they're doing Director's reviews as we speak 
here.
    The Director's review packages, actually they address GPRA, 
how did your agency address GPRA? If there were specific 
management issues identified, and in fact, there were a couple 
of agencies where we have some issues with the area acquisition 
system, you actually have the people who are considered the 
resource management officers, who used to be considered the 
budget people, have those things in their review package with 
the Director and the statutory offices participate in those 
reviews.
    Mr. Horn. Well, I'm glad in the annual budget review that 
management questions come up. That had been my hope. But I've 
had so many tell me that it hasn't worked for the last 10 
years, that we just aren't getting anywhere on major--well, Y2K 
is a good example--should have been done years before, took a 
lot of work to get them to even do it. And they should have 
been doing it when the Social Security Administration started.
    Ms. Lee. I was supposed to be in a review this afternoon, 
but I told them I would rather spend the afternoon with you.
    Mr. Horn. I knew. I'll forget the oath I've administered to 
you. I wonder if we have a U.S. attorney that can deal with 
that response. But OK. I know we don't.
    So anyhow did the EPA--let me ask you, did EPA and the 
Department of Commerce go through a similar process to develop 
a lot of their inventory basically? Has there been 
comparability between agencies in terms of the use of the 
inventory, the categories and the inventory, this kind of 
thing?
    Ms. Harper. Mr. Chairman, we did not--given that this was 
our first time through the inventory, we did not do broad 
consultation with the other agencies and departments. We did 
have, it sounds like, a very similar process to the Department 
of Commerce; and in terms of the categorizations that we used, 
we stuck with the A-76 definitions and we stayed very close, as 
did the Department of Commerce, with the OMB guidance. Although 
there was a lot of flexibility, we followed the ``let's try and 
keep it as simple and straightforward as possible'' rule.
    Ms. Bilmes. I think we did follow a fairly similar process, 
although we did not link our inventory into our GPRA and our 
strategic plan. But I think that is an excellent idea. As we 
are redoing our strategic plan, we'll certainly consider doing 
that this year. I think that's a great idea.
    Mr. Horn. You are becoming a professional congressional 
witness when you say words like that. We are very pleased with 
that. So thank you.
    Let me ask you, Mr. Mihm--I don't want to leave you out 
here this afternoon, and you looked at the analysis, very 
thoroughly as usual by the General Accounting Office, how would 
you rate Federal department and agency compliance with the 
requirements of the FAIR Act? Did you get a nice little matrix 
somewhere along the line that checked them off?
    Mr. Mihm. That's still work to be done, because we're still 
at such an early stage with many of the agencies. As I 
mentioned, some of our largest agencies haven't released their 
inventories to the public.
    We still have the challenge process. As Mr. Ose was 
mentioning, even beyond the challenge process, we have to start 
getting into the substantive use of these inventories and 
decide whether or not we're going to contract out or whether or 
not, if we do go through a competitive process, the Federal 
Government wins that competitive process.
    It is certainly clear that the FAIR Act has moved 
competition and competitive contracting much higher on 
agencies' agendas than I think it was under A-76. A-76, 
especially in civilian agencies, had been relatively dormant. 
When OMB requested inventories of commercial activities a 
couple of years ago, those that they got in some cases were a 
number of years old. There wasn't a lot of effort to update bid 
inventories. So unquestionably the current effort to develop 
inventories effort, because of FAIR, knowing that there would 
be hearings such as this has certainly moved contracting to a 
much higher level on the agencies' agendas. Now, of course, as 
I mentioned, the next step is to keep carrying through to get 
better in the inventories next time around and to actually 
start using those inventories substantively to start making 
decisions.
    Mr. Horn. Well, well said. When do you think some of that 
will be completed?
    Mr. Mihm. Well, one important indicator will be the results 
of the challenges that interested parties are now eligible to 
make. We'll be looking very closely at the reports that 
agencies are required--or that OMB is requiring that they 
submit. And I think that Ms. Lee's decision to require that 
agencies in their next round of submissions talk about how 
they're using these inventories, I think is a wonderful idea 
and an important achievement. So I think all of that will begin 
to start giving a very rich body of information as to how these 
inventories are being used.
    Mr. Horn. Are there some models, Ms. Lee, that are 
acceptable across the executive branch? Is there a possibility 
here to get a uniform type of appeal system? What's the 
thinking on this?
    Ms. Lee. The uniformity right now is the timeframe. In each 
agency they were to designate someone to handle the initial 
appeal, and the Secretary is the final appeal. There has been, 
I know, some cross-agency discussion about how to answer those. 
But we are saying, address each individual issue and respond to 
that challenge as appropriate.
    Mr. Horn. Now, is OMB leaving that to the agency and is 
there an appeal beyond the agency to OMB?
    Ms. Lee. No, sir. The FAIR Act specifically says initial 
appeal must be filed within 30 days to whoever is designated in 
the agency. And I know the agencies have all designated 
someone.
    The agency has 28 days to respond. Then there's 10 more 
days if the person receiving the response wants to appeal the 
challenge. They appeal to the Secretary and the Secretary must 
respond.
    Mr. Horn. Is there guidance one way or the other in terms 
of who does this in an agency? Is it a member of management? Is 
it a member of the area that is perhaps being contracted out, 
outsourced, whatever you want to call it; or is it through the 
administrative law judge approach? What's the thinking on that?
    Ms. Lee. It's left up to the agency to designate the 
appropriate appeal point.
    Mr. Horn. OK. So you could have 14 different ways to solve 
this?
    Ms. Lee. Yes, sir.
    Mr. Horn. That's fair enough. Maybe we'll learn something 
from it. And then go and do it another way the next year or 
something.
    I understand, Ms. Lee, some of the interested parties that 
have had difficulty obtaining the inventories, some inventories 
were published on agency websites while others were made 
available in hard copy. For those that wish to challenge the 
inclusion or exclusion of an activity on the inventories, it is 
important that they be readily available. So how would OMB 
suggest making future inventories more accessible? Do you feel 
there's a need for that?
    Ms. Lee. I feel there's a need to make them readily 
accessible and as user friendly as we can. As Congressman 
Sessions noted, we plan to go through and get them all out 
there so people can see the first round and then get together. 
And I had committed to his staff or anyone else that's 
interested that we would work together on that.
    It is interesting to note that as we talk about commercial 
endeavors, as you know, there is a commercial entity that very 
quickly picked them up and did consolidate the inventories. So 
it's an interesting question there of government presentation 
and commercial value added to this process.
    Mr. Horn. This might sound like a silly question, but 
sometimes people worry about words like this: Many of the 
inventories used the term ``exempt'' or ``competitive'' and 
``core'' to classify the commercial activities. Could you give 
us a definition for these terms or do you leave that to the 
agencies?
    Ms. Lee. No, sir. We actually have some codes that specify. 
When I did a cursory review myself, I said, if we were looking 
at these, I would be looking for Bs and Fs because it clearly 
tells you that the B code says that it's being looked at and 
the F code indicates that they have to do some further 
restructuring or decisionmaking process.
    There are reason codes in the A-76 itself.
    Mr. Horn. Now, does that go into a computer program at most 
of the agencies, or is there a common program that they can 
plug into that when they're totaling it all up as to is this 
position exempt or competitive or core, as the case may be, I 
mean, how do we keep reports on that? Or are we not keeping 
records on that?
    Ms. Lee. We haven't provided them a template. They have 
determined how to do it themselves, and as we move down this 
path, we'll figure out if those are going to merge or whether 
there's some common points that we need to deal with.
    Mr. Horn. On page 1, Ms. Bilmes, of the Department of 
Commerce's inventory, you list a number of activities as core 
and exempt yet you provide a reason code B for these 
activities. And reason code B, we believe, says that the 
activity is subject to a cost comparison.
    Could you describe how an activity can be listed as core or 
exempt yet be subject to cost comparisons?
    Ms. Bilmes. I can't answer that question off the top of my 
head.
    Mr. Horn. Why don't you answer it for the record?
    Ms. Bilmes. I will answer it for the record.
    I would note that we have questioned a number of things 
that look like apparent discrepancies. For example, we have 177 
FTEs in our aeronautical mapping and charting, which were 
listed as competitive, but then coded with a G which said 
``prohibited by legislation from being competitive,'' so that 
didn't seem to be reconcilable.
    When we actually looked back, and I'm familiar with this 
particular division because they are one of our last to be Y2K 
compliant, it developed that the reason is they are being 
transferred. In fact, the money has already been transferred to 
the Department of Transportation, but the FTE have not been 
transferred yet, pending the Y2K compliance effort. We didn't 
have a specific code in which to capture this situation.
    When NOAA did the coding, they basically said this group is 
competitive but were prohibited by legislation from being 
competed.
    Mr. Horn. Which legislation was that, by the way?
    Ms. Bilmes. It would be the legislation that was 
transferring them to the Department of Transportation.
    Mr. Horn. I see.
    Ms. Bilmes. Legislation that is completely unrelated to the 
FAIR Act legislation.
    Mr. Horn. You rang a bell way in the back of my head that 
in the 1950's I remember the fight between the private 
enterprise on mapping versus the Department of Commerce on 
mapping. And that was a long night up here of letters back and 
forth and all the rest of it. So I guess that's still--that 
little battle is still around. You're saying somebody, some 
friendly member, put legislation in on that.
    Ms. Bilmes. It's nice to know--I just came back from 
maternity leave--that after 12 weeks some things are still 
around. It must be nice to know after 30 years some things are 
still around.
    Mr. Horn. Same old thing, right.
    And, Ms. Lee, there are only about one or two questions 
more. As I indicated in the opening statement and as GAO 
testified, the vast majority of activities have been classified 
as exempt from the A-76 cost comparison process.
    What steps has the OMB taken to ensure the thoroughness and 
accuracy of the FAIR Act inventories?
    Ms. Lee. I think Ms. Bilmes actually addressed what's 
happening as we go through these; we are asking questions, 
we're dealing with the agencies. Are we going to catch them all 
first round? No. But as we do the next inventory--and they 
actually have to say, here's what I reported last year, here's 
what has been accomplished on that--we'll just continue to work 
through it.
    Mr. Horn. OK. We might send you a few questions for the 
record and they would be put in the record at this place. And, 
sorry, I didn't mean to take all that time.
    I didn't see you come back into the room.
    Mr. Ose. I have been sitting here listening. I'm sitting 
here listening to your questions.
    When you talked about how many folks are at OMB, it spurred 
a question in my mind and, Ms. Lee, I want to come back to you 
on this: These proposed regulations that we were talking about 
earlier, who's preparing them? Who prepared them? Who's in 
charge of them?
    Ms. Lee. The proposed regulation is to--the proposed 
regulation of the Federal Acquisition Regulation, it is 
prepared by the FAR Council. The council is made up of--the 
principals on the council are representatives from the General 
Services Administration, which is currently Ms. Ida Usted.
    Mr. Ose. Would you spell that please?
    Ms. Lee. I-d-a U-s-t-e-d. She has been ill. And there is 
someone acting in her stead. The Deputy--the Administrator for 
Procurement at NASA, and that is Mr. Tom Luedtke and----
    Mr. Ose. Would you spell that. I know how to spell Tom.
    Ms. Lee. L-u-e-d-t-k-e, I believe.
    Mr. Ose. L-u-e-d-t-k-e.
    Ms. Lee. A good Wisconsin man.
    And Ms. Eleanor Spectre, who is, you probably know, from 
the Department of Defense. The makeup of the council is like 
that because they basically--DOD Title 10, GSA Title 41 
represents civilian agencies, and NASA is sometimes Title 10 
and sometimes 41. And that's how that council is made up. Below 
them, of course, they have a subcouncil made up of working 
folks who--and I actually have a review with this group 
probably every other month of all the cases and all the rules 
that they are promulgating, most of them generating from 
various pieces of legislation or changes in our system, 
clarifications that are requested. The FAR, as you know, is 
actually kind of the working book for the many, many 
contracting officers out there.
    Mr. Ose. Could you tell us the legislation under which Ms. 
Usted, Mr. Luedtke, and Ms. Spectre are proposing these changes 
to the FAR? I mean, not the authority, but the--because I got 
the authority cited, but the legislation driving the change?
    Ms. Lee. There is not a specific legislation that I--on 
this particular activity. As you know, we're proposing to 
clarify or add a parenthetical under some policy that is 
already in the FAR. There is a statement currently, right now--
I wish I could give you the cite, 9105.4(d) maybe--that says 
that every offer, before you can do business with the 
government, you must have--one of the many conditions, you must 
have a satisfactory record of business ethics and integrity. 
That is currently in the Federal regulation based on the Office 
of Federal Procurement Policy regulation, which I couldn't 
provide you the cite of, but there is a legislative, statutory 
basis for that.
    We're proposing to add the parenthetical under there that 
further describes what a satisfactory record of business ethics 
and integrity is.
    Mr. Ose. I think that is where the discussion is based.
    Ms. Lee. Yes, sir, I think it is.
    Mr. Ose. Thank you, Mr. Chairman.
    Mr. Horn. Thank you very much.
    I guess we could say in summary here that the Federal 
agencies' Office of Management and Budget still have a lot of 
work ahead to fully implement the FAIR Act, and that would 
include the public release of more inventories and the 
resolution of challenges.
    What would be the other big categories that your own 
feeling is?
    Ms. Lee. You clearly articulated the next releases of 
inventories that everyone is probably familiar with; DOD is a 
large one. I owe an answer to Congressman Sessions about how we 
are going to make this some 2,000-page inventory easily and 
readily available. And that's something we're working on.
    After we get those all out--the goal is to get all the 
inventories out by December--we need to get back together and 
say what did we learn, what did we learn in the challenge 
process, what did we learn in the preparation process and what 
direction and information do we need to get out better 
information, because it's already almost time to start for next 
inventories next year. June 30th, they're due.
    Mr. Horn. Yeah. Does OMB anticipate making any changes in 
its guidance for the remaining inventories that are already due 
out?
    Ms. Lee. No, sir. The inventories with three exceptions are 
in the consultation and review process. The one significant 
change we have made. Mr. Childs and another person in our 
office have called every single number and said, are you ready, 
do you understand what you're supposed to do when it comes out 
tomorrow? Because we did have two erroneous phone numbers the 
last time. So they've been on the phone, making 42 phone calls, 
checking and double-checking.
    Mr. Horn. Well, beyond the ones we've had in this exchange 
and what you said in your testimony and what you said just now 
and tomorrow, how do you plan to improve the process for the 
future? Any other particular plans that we haven't discussed?
    Ms. Lee. I don't have the specifics--certainly we are 
concerned about the timely accessibility because of the short 
challenge period. And I think we'll need to discuss among the 
agencies, abd certainly with you and your staffs, any 
recommendations for that. I've had everything from people who 
say, put it on a disc and distribute the disc, to put it on the 
Internet, to make sure we have a method of distribution. And 
there has been some comment perhaps about more commonality 
among the inventories themselves.
    The other quite valuable comment that I've heard is, to 
provide more of an explanation on the front of the inventories. 
We probably missed that because we saw it as a big picture, but 
yet if you just pull one agency's inventory without the big 
picture to support it, it can be quite confusing. So maybe we 
need an instruction to the reader that says, here's what you're 
seeing, here's what that all means. And that's a possible part 
of the new package.
    Mr. Horn. Well, I think that's a very good idea. I 
certainly think using the Internet is very good idea. I think 
we've got to use it a lot more throughout government in just 
this type of situation. It could save everybody a lot of time 
once you get the thing working in some sensible way.
    And I think we'll be asking the General Accounting Office 
their thoughts on that. But that's another meeting, shall we 
say.
    And I guess in terms of the other things we might think 
about is the degree--you mentioned FAR, and the degree to which 
the Clinger-Cohen Act has made a difference. And you've got 
obviously a very fine set of people on there that deal with 
those. And you dealt with those as a member in NASA, didn't 
you?
    Ms. Lee. Yes, sir.
    Mr. Horn. So we'll be holding a hearing in a few months on 
the Clinger-Cohen thing and streamlining the acquisition 
process, if it's happening. If it isn't, why, then why not--
that sort of thing.
    So thank you all for coming. I am now going to thank the 
staff for its work in putting this together. And most of you 
know the staff director, J. Russell George, chief counsel; 
Randy Kaplan is on my left, your right, who set up the 
immediate hearing; Bonnie Heald is director of communications 
down there at the end, professional staff member; Chip 
Ahlswede, clerk for the subcommittee. And then we've got Rob 
Singer, a staff assistant; P.J. Caceres, an Intern; and Deborah 
Oppenheim, an intern--they're both giving all of us great help.
    Minority Staff: Trey Henderson, professional staff member; 
and Jean Gosa, minority staff assistant.
    And Julia Thomas has been today's court reporter.
    Thank you very much, all. And with that, we're adjourned.
    [Whereupon, at 4:45 p.m., the subcommittee was adjourned.]

                                   - 
