[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
THE NEXT STEPS IN SERVICES ACQUISITION REFORM: LEARNING FROM THE PAST, 
                        PREPARING FOR THE FUTURE
=======================================================================


                                HEARING

                               before the

           SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION
                               __________

                              MAY 22, 2001
                               __________

                           Serial No. 107-39

                               __________

       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

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77-329                          WASHINGTON : 2002
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                     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       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia                    ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida                  DANNY K. DAVIS, Illinois
DOUG OSE, California                 JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky                  JIM TURNER, Texas
JO ANN DAVIS, Virginia               THOMAS H. ALLEN, Maine
TODD RUSSELL PLATTS, Pennsylvania    JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida                 WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   ------ ------
ADAM H. PUTNAM, Florida              ------ ------
C.L. ``BUTCH'' OTTER, Idaho                      ------
EDWARD L. SCHROCK, Virginia          BERNARD SANDERS, Vermont 
------ ------                            (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

           Subcommittee on Technology and Procurement Policy

                  THOMAS M. DAVIS, Virginia, Chairman
JO ANN DAVIS, Virginia               JIM TURNER, Texas
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
DOUG OSE, California                 PATSY T. MINK, Hawaii
EDWARD L. SCHROCK, Virginia

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                    Melissa Wojciak, Staff Director
              Victoria Proctor, Professional Staff Member
                          James DeChene, Clerk
          Mark Stephenson, Minority Professional Staff Member














                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 22, 2001.....................................     1
Statement of:
    Cooper, David E., Director, Acquisition and Sourcing 
      Management, General Accounting Office; David R. Oliver, 
      Jr., principal Deputy Under Secretary of Defense, 
      Acquisition, Technology and Logistics; David A. Drabkin, 
      Deputy Associate Administrator, Office of Acquisition 
      Policy, Office of Government-wide Policy, General Services 
      Administration; Steven Kelman, Albert J. Weatherhead III 
      and Richard W. Weatherhead professor of public management, 
      John F. Kennedy School of Government, Harvard University; 
      Michael W. Mutek, senior vice president, general counsel, 
      and secretary, Raytheon Technical Services Co., 
      representing the Professional Services Council; and Mark 
      Wagner, Director of Federal Government Affairs, Johnson 
      Controls, representing the Contract Services Association...     8
Letters, statements, etc., submitted for the record by:
    Cooper, David E., Director, Acquisition and Sourcing 
      Management, General Accounting Office, prepared statement 
      of.........................................................    11
    Davis, Hon. Thomas M., a Representative in Congress from the 
      State of Virginia, prepared statement of...................     4
    Drabkin, David A., Deputy Associate Administrator, Office of 
      Acquisition Policy, Office of Government-wide Policy, 
      General Services Administration, prepared statement of.....    36
    Kelman, Steven, Albert J. Weatherhead III and Richard W. 
      Weatherhead professor of public management, John F. Kennedy 
      School of Government, Harvard University, prepared 
      statement of...............................................    48
    Mutek, Michael W., senior vice president, general counsel, 
      and secretary, Raytheon Technical Services Co., 
      representing the Professional Services Council, prepared 
      statement of...............................................    57
    Oliver, David R., Jr., principal Deputy Under Secretary of 
      Defense, Acquisition, Technology and Logistics, prepared 
      statement of...............................................    26
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................    98
    Wagner, Mark, Director of Federal Government Affairs, Johnson 
      Controls, representing the Contract Services Association, 
      prepared statement of......................................    68











THE NEXT STEPS IN SERVICES ACQUISITION REFORM: LEARNING FROM THE PAST, 
                        PREPARING FOR THE FUTURE

                              ----------                              


                         TUESDAY, MAY 22, 2001

                  House of Representatives,
 Subcommittee on Technology and Procurement Policy,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:01 a.m., in 
room 2154, Rayburn House Office Building, Hon. Thomas M. Davis 
of Virginia (chairman of the subcommittee) presiding.
    Present: Representatives Thomas Davis of Virginia, Ose, 
Schrock, and Turner.
    Staff present: Melissa Wojciak, staff director; Amy 
Heerink, chief counsel; Victoria Proctor, professional staff 
member; James DeChene, clerk; Trey Henderson, minority counsel; 
Mark Stephenson, minority professional staff member; and Jean 
Gosa, minority assistant clerk.
    Mr. Thomas M. Davis of Virginia. If we could have everyone 
take their seats, since we have opening statements, we will 
begin it now so that we can move on.
    Good morning and welcome to today's oversight hearing on 
services acquisition reform. As many of you know, in the early 
to mid-nineties, Congress and the administration worked 
together to reform the way government acquires goods and 
services. This collaboration resulted in landmark legislation 
that included the Federal Acquisition Streamlining Act of 1994 
and the Clinger-Cohen Act of 1996, along with significant 
regulatory revisions such as the rewrite of the FAR Part 15. 
Many of you at this hearing today worked with me and many 
others in Congress to achieve reforms that truly revolutionized 
the way government does business with the private sector. 
Today, I intend to see how those significant reform efforts 
have been implemented government-wide and what next steps we 
need to take to further streamline government acquisition of 
services.
    Over the past decade, the growth of service contracting has 
largely matched the increase of service contracting in the 
private sector. Unfortunately, there are many indications that 
the way government contracts for services has not matched the 
practices of the private sector. While acquisition reform 
touched on service contracting, it was not the emphasis of 
those efforts. Today, in light of the growth of service 
contracting, I will re-evaluate the need for a Services 
Acquisition Reform Act [SARA]. I believe this subcommittee 
needs to determine what can and should be done legislatively to 
promote greater utilization of commercial best practices, 
increased cross-agency acquisitions along with enhanced cross-
agency information sharing, share-in-savings contracting, and 
acquisition work force training.
    In fiscal year 1990, the government spent $70 billion on 
service contracts. That number has grown to over $87 billion in 
fiscal year 2000. That number represents an increase of 24 
percent over the past 10 years. Service contracts now represent 
43 percent of total government purchasing. This is larger than 
any other category of government purchasing. Additionally, 
contracting for information technology services has grown from 
$3.7 billion in fiscal year 1990 to $13.4 billion in fiscal 
year 2000, with that number only expected to increase as the 
Federal Government moves to transfer itself to a more citizen-
centric, streamlined service provider.
    The rise in service contracting has also coincided with 
several trends that suggest sufficient contract management is 
not occurring. The General Accounting Office has put contract 
management on its high risk list for both the Department of 
Defense and the Department of Energy. Collectively, these two 
agencies make 75 percent of the government's total purchases. 
The challenge of contract management is only heightened by the 
drastic reductions in the acquisition work force that appear 
likely to continue over the next several years, as 50 percent 
of this work force becomes eligible to retire. In no other area 
is the need for strategic human capital management so 
critically necessary. As we ask the acquisition work force to 
play a larger role in increasingly complex procurements and 
understand how to be program managers in addition to 
contracting officers, we have to determine how to give this 
already strained work force the training and the tools 
necessary to succeed.
    Moreover, it is clear that innovative contracting options 
are largely underutilized by the acquisition work force due to 
lack of training and resources. Although the Office of Federal 
Procurement Policy has stressed the importance of performance-
based contracting since 1991, the Procurement Executives 
Council recently recommended that agencies achieve a goal of 10 
percent performance-based contracting in fiscal year 2001. 
While the value of this type of contracting is widely 
recognized in the commercial sector for achieving greater 
efficiency, it is not clear that government yet understands how 
to write this type of performance statement or is adequately 
training acquisition personnel to use these types of contract 
vehicles.
    Training and understanding of commercial sector processes 
is crucial to the success of performance-based contracting 
because we are tasking a work force we have routinely asked to 
be risk averse to move in an entirely new direction and away 
from contracting solely based on the regulations included in 
the FAR. One of the main objectives of this hearing will be to 
determine what can be done to ensure government is effectively 
utilizing performance-based statements of objectives.
    I understand, after meeting with the GAO, that we do not 
have an understanding of how agencies are utilizing 
performance-based contracting. Additionally, we do not know if 
agencies have developed a set of best practices and if that 
information is being shared. We also do not know if agencies 
are working toward identifying how and when it is most 
appropriate to do horizontal acquisitions. I believe that part 
of developing a legislative package for acquisition reform 
includes having better measurements in these areas. Today, I 
would like to request that the GAO develop a report for this 
subcommittee that examines how agencies are performing in those 
areas.
    While there are a number of other initiatives that should 
be considered for SARA, there are two that I believe deserve 
immediate consideration. First, I would like to explore what 
needs to be done to increase the use of share-in-savings 
contracts. Section 5311 of the Clinger-Cohen Act authorized 
OFPP to conduct a pilot share-in-savings IT acquisition 
program. Unfortunately, that program has not been utilized. I 
believe this type of contracting, which is frequently used in 
the private sector, holds great benefits for government. The 
Department of Education has just entered into a share-in-
savings contract for information technology modernization that 
has the potential to revolutionize the way it does business. 
Other agencies could and should do the same.
    Second, I continue to believe that we are not allowing 
Federal, State, and local governments the opportunity to use a 
good government solution. I intend to revisit cooperative 
purchasing off the GSA schedules for IT products and services. 
Cooperative purchasing allows every level of government to 
leverage purchasing power to ensure the taxpayers' dollars are 
spent effectively and efficiently. I look forward to hearing 
from today's witnesses on our next steps for acquisition 
reform.
    Now today the subcommittee is going to hear testimony from 
David Cooper, GAO; Deputy Assistant Secretary David Oliver from 
the Department of Defense; David Drabkin from GSA; Dr. Steve 
Kelman from the John F. Kennedy School of Government at Harvard 
University.
    In the continued spirit of bipartisanship, I would like to 
note for the record that Steve and I recently went up against 
Harvard students in a rock-and-roll sixties trivia contest; 
with the same effort we brought to procurement reform, we won. 
[Laughter.]
    Mr. Thomas M. Davis of Virginia. Mr. Michael Mutek from 
Raytheon Technical Services, testifying on behalf of the 
Professional Services Council, and Mr. Mark Wagner of Johnson 
Controls, testifying on behalf of the Contract Services 
Association.
    [The prepared statement of Hon. Thomas M. Davis follows:]
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    Mr. Thomas M. Davis of Virginia. I now yield to Congressman 
Turner for his opening statement.
    Mr. Turner. Thank you, Mr. Chairman.
    The Federal Government is the largest purchaser of goods 
and services in the world, and in just the past fiscal year the 
U.S. Government contracted for $204 billion in goods and 
services. Unfortunately, we know Federal procurement is an area 
which historically has been prone to waste, fraud, and abuse. 
And the difference between doing it right and doing it wrong 
can literally be billions of taxpayer dollars. With this in 
mind, it is of the utmost importance that we ensure that the 
Federal Government procurement system is as efficient and 
credible as possible, and I commend the chairman for the 
emphasis placed upon this subject by holding this hearing this 
morning.
    Federal contracting has seen extraordinary changes in the 
past decade. The end of the cold war greatly reduced our 
spending requirements and changed our outlook on procurement 
policy. In the early 1990's, in an effort to adjust to the new 
marketplace, the Congress and the executive branch began a 
comprehensive statutory and regulatory overhaul of the Federal 
acquisition system. The result has been a shift in Federal 
spending patterns, a decline in the Federal work force, a 
simplification of acquisition rules, and the introduction of 
new contracting vehicles and techniques.
    Despite the progress that we have made to date, there are 
still concerns that acquisition reform is being delayed. This 
delay is due to problems that are longstanding, as well as to 
some problems that are of a more recent vintage. In particular, 
the concerns regarding human capital challenges, the rapid 
growth of service and IT contracting, poor oversight of 
contractor performance, and the inability of the Federal 
Government to adopt innovative contracting vehicles have given 
us good reasons to have this hearing today.
    Again, I thank the chairman for his focus on this issue. I 
look forward to hearing from all of our witnesses. The purpose 
of the hearing is to investigate what needs to be done, so that 
agencies and their managers will have the tools necessary to 
achieve true reform. While we have seen some successes, 
obviously, there are many challenges that still need to be 
overcome to ensure that the taxpayers are getting the best 
value for every procurement dollar.
    Thank you, Mr. Chairman.
    Mr. Thomas M. Davis of Virginia. Thank you, Mr. Turner.
    Mr. Schrock, any statement?
    Mr. Schrock. Mr. Chairman, no, I do not have a statement. I 
guess I would like to hear more about that rock-and-roll 
comment, but being politically correct, I won't do that. I am 
just looking forward to hearing the testimony today. Thanks for 
being here.
    Mr. Thomas M. Davis of Virginia. Thank you very much.
    I am going to call our first panel of witnesses to testify. 
As you know, it is the policy of this committee that all 
witnesses be sworn before you testify. Would you please rise 
with me and raise your right hands?
    [Witnesses sworn.]
    Mr. Thomas M. Davis of Virginia. Thank you. You can be 
seated.
    To afford sufficient time for questions, if you would limit 
yourselves to 5 minutes on your opening statements, we will 
have a buzzer up here. It will be green; it will turn yellow. 
That will give you a minute to sum up, and then when it is red, 
if you would try to end at that point. We have read the total 
statements which will be included in the record. So we can then 
go right to questions.
    We will begin with Mr. Cooper, followed by Mr. Oliver, 
followed by Mr. Drabkin, followed by Dr. Kelman, by Mr. Mutek, 
and Mr. Wagner. Please proceed, Mr. Cooper, and thank you for 
being with us.

   STATEMENTS OF DAVID E. COOPER, DIRECTOR, ACQUISITION AND 
   SOURCING MANAGEMENT, GENERAL ACCOUNTING OFFICE; DAVID R. 
   OLIVER, JR., PRINCIPAL DEPUTY UNDER SECRETARY OF DEFENSE, 
ACQUISITION, TECHNOLOGY AND LOGISTICS; DAVID A. DRABKIN, DEPUTY 
 ASSOCIATE ADMINISTRATOR, OFFICE OF ACQUISITION POLICY, OFFICE 
  OF GOVERNMENT-WIDE POLICY, GENERAL SERVICES ADMINISTRATION; 
    STEVEN KELMAN, ALBERT J. WEATHERHEAD III AND RICHARD W. 
  WEATHERHEAD PROFESSOR OF PUBLIC MANAGEMENT, JOHN F. KENNEDY 
  SCHOOL OF GOVERNMENT, HARVARD UNIVERSITY; MICHAEL W. MUTEK, 
SENIOR VICE PRESIDENT, GENERAL COUNSEL, AND SECRETARY, RAYTHEON 
TECHNICAL SERVICES CO., REPRESENTING THE PROFESSIONAL SERVICES 
   COUNCIL; AND MARK WAGNER, DIRECTOR OF FEDERAL GOVERNMENT 
 AFFAIRS, JOHNSON CONTROLS, REPRESENTING THE CONTRACT SERVICES 
                          ASSOCIATION

    Mr. Cooper. Mr. Chairman and members of the subcommittee, 
thank you for inviting me to be here today. I look forward to 
sharing with the subcommittee the work that we've done on 
service contracting. Let me say from the outset that we're more 
than pleased to work with this subcommittee to provide you the 
information and reports that are needed to have proper and 
effective oversight of Federal procurement issues.
    Clearly, contracting for services is an issue of growing 
importance and an area in need of management attention. Last 
year Federal agencies spent more than $87 billion to acquire 
services. Service acquisitions now account for 43 percent of 
all Federal contract spending. This is a significant increase 
from just a few years ago, and the amount is likely to grow in 
the future. The growth in service purchases has been driven 
largely in two areas: information technology services and 
professional, administrative, and management support services.
    Along with the growth in service contracting, we've also 
witnessed significant changes in the way Federal agencies buy. 
Today there is a growing trend toward agencies purchasing 
services by using contracts awarded and managed by other 
agencies. For example, the General Services Administration, 
through its Federal Supply Schedule, offers a wide range of 
services, everything from engineering to laboratory testing and 
analysis to clerical and professional support services. Last 
year agencies used the Federal supply program to buy $7 billion 
of these services.
    Acquisition reform legislation in the 1990's also 
authorized the use of new contract vehicles, such as multiple 
award task and delivery order contracts and government-wide 
agency contracts [GWACs]. These new contracts provide agencies 
with a great deal of flexibility and allow government 
contracting personnel to procure services for their customers 
quicker than was previously possible.
    However, these new contracting vehicles and the rapid 
growth in service acquisitions have posed a challenge for the 
Federal acquisition work force. Our work, and that of other 
audit organizations, shows that service acquisitions are not 
always being run efficiently. In particular, agencies are 
sometimes not clearly defining their requirements, fully 
considering alternative solutions, performing sufficient and 
effective price evaluations, and adequately overseeing 
contractors' performance. Put simply, the poor management of 
service contracts undermines the government's ability to obtain 
good value for the money spent and puts taxpayer dollars at 
risk.
    Compounding these problems are the agencies' past 
inattention to strategic human capital management. We are 
concerned that Federal agencies' human capital problems are 
eroding the ability of many agencies--and threaten the ability 
of others--to perform their missions economically, efficiently, 
and effectively. Following a decade of downsizing and curtailed 
investments in human capital, Federal agencies currently face 
skills, knowledge, and experience imbalances that, without 
corrective action, could worsen, given the number of Federal 
workers that are eligible to retire by 2005.
    It is becoming increasingly evident that agencies are at 
risk of not having enough of the right people with the right 
skills to manage service procurements. Consequently, a key 
question facing government agencies is whether they have today, 
or will have tomorrow, the ability to acquire and manage the 
increasingly sophisticated services the government needs.
    Congress and the administration are taking steps to address 
some of these contract management and human capital challenges. 
For example, in April of last year, the Procurement Executives 
Council established a goal that 50 percent of service contracts 
will be performance-based by the year 2005. The goal of 
increasing the use of performance-based contracts was affirmed 
by the Office of Management and Budget earlier this year. And 
only this month, we saw the Federal Acquisition Regulation 
revised to establish a preference for using such contracts.
    We support the use of performance-based contracting. If 
properly implemented, performance-based contracting should 
result in reduced prices and improved performance. However, it 
should be recognized that moving to these types of contracts 
will not be easy. The success of using performance-based 
contracts will depend on the extent to which agencies provide 
the necessary training, guidance, and tools to their work 
forces, and establish metrics to monitor the results of the use 
of these contracts.
    With regard to human capital management, it is clear that 
both OPM and OMB will play substantial roles. OPM has begun 
stressing the importance of planning for strategic human 
capital needs and are focusing more attention in this area. 
They have also assisted agencies by developing tools to help 
work force planning. For example, it has developed a model and 
has launched a Web site to facilitate information sharing among 
the Federal agencies.
    OMB has played a more limited role. However, OMB's role in 
setting government-wide management priorities and defining 
resource allocations will be critical to inducing agencies to 
integrate strategic human capital planning into their business 
processes. Toward that end, OMB's current guidance to agencies 
on preparing their strategic and annual performance plans 
states that the plans should set goals in such areas as 
recruitment, retention, and training.
    Also, earlier this month, OMB instructed agencies to submit 
a work force analysis by June 29 of this year. The analysis is 
to include summary information on the demographics of the 
agencies' work force; projected attrition and retirements; an 
evaluation of work force skills; recruitment, training, and 
retention strategies being implemented, and barriers to 
maintaining a high-quality and diverse work force. The 
information developed from this initiative should prove useful 
in identifying human capital areas needing greater attention.
    In summary, the increasing significance of contracting for 
services has prompted--and rightfully so--a renewed emphasis by 
Congress and Federal agencies to resolve longstanding problems 
with service contracts. To do so, the government must face the 
twin challenges of improving its acquisition of services while 
simultaneously addressing human capital issues. One cannot be 
done without the other. Expanding the use of performance-based 
contracting approaches and emphasizing strategic human capital 
planning are welcomed and positive steps, but sustained 
leadership and commitment will be required to ensure that these 
efforts mitigate the risks the government currently faces when 
contracting for services.
    That concludes my statement.
    [The prepared statement of Mr. Cooper follows:]
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    Mr. Thomas M. Davis of Virginia. Thank you very much.
    Mr. Oliver.
    Mr. Oliver. Mr. Chairman and Congressmen, I'd like at the 
beginning to demonstrate a rare executive/legislative branch 
cooperation because I've made a graph that actually makes your 
point very well, I think, over there. What you're seeing is the 
problem that you, Mr. Chairman, are really talking about, which 
is that over the last 20 years the red line shows the 
acquisition dollars that are going to nonservice contracts, and 
the blue line shows what's going to service contracts. What it 
says is what your focus is, where the money is, and the money 
is coming there, and so therefore, it needs a significant 
amount of attention. That's in the Department of Defense.
    So the question is, what are we doing? What I would like to 
do is tell you about four things, one of which has to do with 
the people. It is important that we figure out how many people 
we need and how they're supposed to be trained. We have had a 
year study. We put a special task force together. They have 
been working on this for a year, and they report in to me this 
summer, and I'll have that analyzed before the end of the 
summer. In addition, that's going to tell us, talk to us about 
how the people should be shaped.
    Second is how you educate them. Four years ago, nearly 5 
years ago, we put out a policy that said, in accordance with 
industry standards, that we would train people for 40 hours a 
year; we would provide them training. So that goal was laid 
out.
    But the second part of that is how good that training is. I 
think that is getting better and we're going to see results. We 
have gotten a new president in Defense Acquisition University, 
and what we have done is gone to the business schools and said, 
``Give us your courses or you make up the courses to teach our 
people how to do better business.'' And so we're going away 
from the home-grown courses to the business schools and having 
them do that.
    I looked at the first five case studies about 2 months ago. 
That progress is moving out. The intention is, and a great deal 
of the training that exists now is Web-based, but the intention 
is to have first-class business school quality training on the 
Web.
    The second part is performance-based contracting. We have 
put out a goal to have 50 percent of the contracts, both by 
size, dollar value, and number of contracts, to be performance-
based by year 2005. We have a manual, a guide, about how to do 
that, which was published in December. The problem is, as you 
would say, where are the examples on the Web for people to use, 
and I don't have examples and templates and I will have within 
3 months on the Web, so that everybody can access it. So they 
cannot only use this guide about how to write the contracts, 
they can use the templates. So I've got a goal and I have the 
methods to achieve the goal, and then the question is about 
management and oversight.
    With the recognition as to where the money is, I briefed 
Under Secretary Aldridge yesterday, and he is speaking to the 
Secretaries this week. I expect us to start the same sort of 
review process that we do for capital investment programs such 
as airplanes and ships, to do this same thing with service 
contracts. In other words, we're going to start a review 
process so a contract at any level has to be reviewed at that 
level. There's a level of them that get reviewed by Pete 
Aldridge. There's a level that get reviewed by the Secretaries 
of the Services. There's a level that get reviews by the 
generals and admirals, and that process is set up.
    The final thing is incentive acquisition. All of this works 
with the fact that people have to bring in new ideas. The best 
one I've seen is the logistics modernization that the Army did, 
which is essentially a share-in-savings. It was done last year. 
You know, Mr. Chairman, how difficult that was to pull off, and 
we both were involved in making that happen. The interesting 
problem is there are still barriers to doing share-in-savings 
because of the length of contracts problem and with respect to 
the initial investment the companies have to put out.
    But the Department of Defense recognizes the problem that 
you are addressing. It's the problem that's on that viewgraph 
or that slide I brought to the left. I think it's a very 
dramatic problem, and we are focused on it. I would like to 
provide you an update in about 6 months as to how we're doing 
because that's when we're going to see whether or not these 
programs are coming together. Thank you, sir.
    [The prepared statement of Mr. Oliver follows:]
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    Mr. Thomas M. Davis of Virginia. Thank you very much.
    Mr. Drabkin, thanks for being with us.
    Mr. Drabkin. Chairman Davis and members of the committee, 
thank you for the opportunity to appear this morning and 
address a number of key issues concerning acquisition within 
the U.S. General Services Administration. As you are aware, 
GSA's Administrator has not been confirmed yet. We're hoping 
that happens next week. Therefore, it would be inappropriate 
for me to address during the course of my testimony, either 
oral or in writing, any specific proposals for the future.
    Preliminarily, let me comment that many of us in the room 
today played an important role in reforming the government's 
acquisition system. Beginning with the section 800 panel in the 
early 1990's, we saw a major effort to study our acquisition 
system and make changes that streamline the system, resulting 
in lower overall costs to the government; improved quality of 
the goods, services, and construction we acquire, and increased 
reliance on the private sector to provide solutions to the 
government's requirements. These changes have been dramatic.
    Just 6 years ago, if an employee required a tape recorder 
to perform her work, she would have likely had to prepare a 
requisition form in paper on a typewriter kept just for the 
purposes of completing those forms. The requisition was routed 
through the office mail process to a number of different 
offices for various approvals and eventually found its way to 
the Procurement Office, which would then generate more paper, 
mail it or fax it to a supplier, who would, instead of 
returning a product, return a promise to deliver a product and 
then some time later deliver a product to a warehouse, which 
doesn't exist anymore, where it would be accounted for, logged 
in, and then shipped through channels to the person that 
ultimately needed a taperecorder.
    How long did that process take? It used to take between 4 
to 6 months. And what did that process cost the government? 
Well, some experts have estimated that it cost the government 
in the hundreds of dollars per transaction. What has 
acquisition reform done to change that scenario? Today the 
government employee can log on the Internet from their desk, 
purchase the tape recorder using their government purchase 
card, and arrange for delivery as soon as the next day or 
whenever the time constraints make it necessary. The estimated 
cost to the government is less than $50 per transaction. At a 
minimum, whether you agree whether it costs $100 or $50 today, 
everybody we've talked to agrees that it at least avoids a cost 
of $20 per transaction, and last year alone in the Federal 
Government we did 24 million transactions. Multiply that times 
$20 and that's money.
    While acquisition reform has made our processes simpler and 
faster in terms of responding to internal government customers 
for low-dollar-value items, it has made the processes more 
difficult for members of the acquisition work force. In the 
beginning of the 1990's, the majority of GSA's contracting 
specialists had relatively well-defined processes to follow 
which did not require a great deal of specialized education and 
training. Generally, they received a purchase request. They 
made sure all the i's were dotted and the t's were crossed, 
attached the correct contract clauses, sent out an IFB under 
FAR Part 14 if the contract exceeded $25,000.
    On bid opening day, they opened all the bids received, 
prepared an extract of the bids that were received. They 
checked to see if the lowest price offeror was responsive to 
the requirement, and if the offeror was responsible, the 
contracting officer then awarded the contract to the lowest 
responsive responsible bidder. It was fair to observe that our 
contracting folks were in those days shoppers. Not so in 
today's environment.
    Today our acquisition work force faces a variety of 
challenges in acquiring the goods, services, construction, and 
real estate that their government customers need to perform 
their missions. The expectations and demands of our work force 
are greater than ever before. In addition to managing the 
procurement processes from cradle to grave, contracting 
specialists are now expected to have much greater knowledge of 
market conditions, industry trends, and the technical details 
of the commodities and services they procure. This is a much 
broader span of responsibility than they've ever had before.
    Turning to performance-based contracting, this is a 
completely different approach than the government used to have 
to doing business. In the past we told people how to make 
things, not what we wanted in terms of a solution. We spent 
pages--I mean Vice President Gore gave an award for the 
reduction of the cookie specification; T-shirts had multiple 
pages of specifications--instead of telling people what we 
needed were chocolate chip cookies or T-shirts. In today's 
environment our people under performance-based contracting--and 
it shouldn't be limited just to services--are required to 
define outcomes in terms that they can measure and then acquire 
those outcomes from industry.
    Also, there's been a significant change in terms of 
pricing. In the past we did pricing based upon the lowest 
responsible responsive bidder or we did it based upon adding 
costs and putting profit on. Today we don't do that. We expect 
our people to understand how the marketplace develops prices 
and then compete in that same marketplace.
    And finally, I would observe the next major change that we 
should be aware of is what has happened in the area of best 
value. In the past we only focused on getting lowest price. In 
fact, Senator Glenn was quoted--and I don't remember it 
exactly--about sitting on top of this rocket with all those 
explosives that went to the lowest bidder. Today we look for 
the best value. We look for what's the long-term cost, the 
life-cycle cost, the maintenance impacts, and the disposal 
impacts of what we buy.
    The rest of my comments are in my speech and then they're 
in the record. Thank you.
    [The prepared statement of Mr. Drabkin follows:]
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    Mr. Thomas M. Davis of Virginia. Thank you very much.
    Dr. Kelman, welcome.
    Mr. Kelman. Congressman Schrock, this trivia contest was--
the students had a great time; Chairman Davis and I had a great 
time, a good bipartisan team, and just to repeat a point he 
made, we did emerge victorious from this contest.
    But, Mr. Chairman, I just wanted to share with you, I was 
listening a few nights ago to ``The Top Ten at 10:00'' on the 
oldies station in Boston. It was the top 10 last week in 1969. 
And I remember you asked a question, which of course the 
students flubbed, about who did the title song from the musical 
``Hair,'' which of course was----
    Mr. Thomas M. Davis of Virginia. The Cowsills.
    Mr. Kelman. The Cowsills, of course. [Laughter.]
    Now here's the interesting thing: This week in 1969, that 
was No. 2. Do you know what was No. 1 that week? Fifth 
Dimension, Age of Aquarius. So two songs from ``Hair'' were one 
and two that week in 1969.
    Mr. Thomas M. Davis of Virginia. That will add a lot to the 
record, and I appreciate that. [Laughter.]
    Mr. Kelman. Yes, I'm sure it will. I'm sure it will.
    Mr. Thomas M. Davis of Virginia. Thank you.
    Mr. Kelman. Let me move to a more interesting topic, 
government procurement. I wanted to highlight, if I could, two 
areas from my written testimony. Let me also thank Chairman 
Davis, Congressman Turner, and Congressman Schrock for inviting 
me here today.
    I want to talk, first, about share-in-savings contracting, 
which is I think one area that is ripe for legislation right 
now. Let me also, before I talk about it, briefly, just for the 
interest of full disclosure, indicate that I've done consulting 
for Accenture, formerly Andersen Consulting, on this issue.
    What is share-in-savings contracting? Share-in-savings 
contracting begins by looking at the benefits in terms of lower 
costs or improved agency performance that the government is 
seeking from a contract. Then what it says is, we pay the 
contractor as a percentage of the benefits that the contract 
actually realizes. So the more the savings, the more the 
benefits from the contract, the more the contractor gets paid. 
The fewer the savings, the less the contractor gets paid. In 
fact, in some versions of share-in-savings contracting, if the 
contract fails and doesn't deliver any benefits at all, the 
contractor isn't paid at all.
    We still have, unfortunately, too many IT projects that 
fail, and I think we should see share-in-savings contracting 
mainly as a way to increase the success rate of our IT service 
contracting in the Federal Government by creating this 
dramatically increased incentive for the contracts to do well. 
The more they deliver for the government, the more money they 
make, as they should. If they don't deliver for the government, 
they don't make money.
    Mr. Chairman, you indicated in your opening statement, you 
talked about the first share-in-savings contract in the 
information technology area that was signed last year within 
the Federal Government. We now actually have a track record 
under that contract. This week's Federal Computer Week features 
a story about that first share-in-savings contract that you 
referred to. The cover says, ``Share-in-Savings Contract Earns 
High Marks,'' and the story says, ``Education share-in-savings 
contract grades A.'' The contract came in on time. It's 
successful. It's already delivering about $3 million--by 
January, it delivered about $3 million in savings. The 
Education Department official was quoted as saying in the 
story, ``It's truly awesome. We didn't pay anything until we 
achieved our business results. This is the way the government 
will be doing business in the future.''
    Share-in-savings contracting isn't easy. I think it has a 
lot of promise. I think that GSA's Federal Technology Service, 
under the leadership of Commissioner Sandy Bates and Ken Buck, 
deserve a lot of credit for the work they have been doing over 
the last few years to try to expand knowledge and interest in 
this.
    In my written testimony, I suggest a number of legislative 
changes that I would urge Congress to make as expeditiously as 
possible to try to encourage share-in-savings. Again, I discuss 
some of those in my written testimony.
    The other topic I'd like briefly to address in the area of 
service contracting is what I call contract consolidation, 
sometimes called ``contract bundling.'' This really fits into 
the category of the Hippocratic admonition, ``First do no 
harm.'' Because, unfortunately, there are lots of proposals for 
dangerous overregulation in this area that continue to emerge 
from parts of Congress, although, happily, not from this 
committee.
    Although contract consolidation is certainly not always 
appropriate, frequently this is a contracting method that 
brings great value to the government. When buying products, 
contract consolidation often allows a buyer to get significant 
quantity discounts--buying in bulk, every child knows, if you 
buy in bulk, you save money--better terms and conditions on the 
contract, and more attention from the supplier because we're a 
larger customer for the supplier.
    When buying IT services involving business process 
modernization, the alternative to contract consolidation will 
generally be to have a whole bunch of legacy contractors 
continuing to work and the government having to act as a 
systems integrator for this kind of effort, which we know from 
long experience is a recipe for disaster.
    So, for these reasons, purchasing departments in commercial 
firms generally regard contract consolidation, or appropriate 
contract consolidation, as one of their core responsibilities 
in the best practice.
    If I can just briefly--I, actually, last night happened to 
get two annual reports from companies I happen to own stocks 
in. They just literally came yesterday. I was reading them, 
reading them last night, and both of them refer in their 
section on achievements for the last year about things about 
contract consolidation. One of the reports says, ``We use our 
considerable purchasing power to negotiate favorable pricing 
and improve our ability to recover repair costs under 
manufacturers' warranties.''
    The other, which is an Internet business-to-business e-
commerce company, talks about on behalf of one of their 
customers, ``The customer uses the system to concentrate its 
total purchasing volume through common suppliers and 
immediately experienced savings, an average of 15 percent in 
various indirect product categories.''
    Contract bundling or contract consolidation is already an 
area that is very extensively regulated, in my view 
overregulated. I urge the committee to beware of proposals, 
particularly coming from other committees, in this area. This 
is an area of this committee's jurisdiction, and I very much 
hope you will continue to exercise your traditional 
responsibility on taxpayers' behalf to avoid very costly and 
dangerous legislation in this area. Thank you.
    [The prepared statement of Mr. Kelman follows:]
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    Mr. Thomas M. Davis of Virginia. Dr. Kelman, thank you very 
much.
    Mr. Mutek.
    Mr. Mutek. Mr. Chairman, Congressman Turner, Congressman 
Schrock, thank you for this opportunity to testify before you 
today. I am Michael Mutek, and I appear on behalf of the 
Professional Services Council. PSC has been an outspoken 
advocate of acquisition reform since its founding some 30 years 
ago. We are proud to have been involved in these efforts, 
particularly over the last decade, during which we have 
witnessed a significant transformation in the way the 
government procures its goods and services.
    The acquisition reforms of the 1990's gave government 
buyers more freedom to define program requirements with 
performance objectives, which you heard about; make price-
quality tradeoffs; streamline the competition process, and also 
emphasize past performance in contractor selection. Also, the 
reforms of the 1990's acknowledged that, through the imposition 
of unique burdens and risks, the Federal procurement process 
could raise prices and discourage companies from doing business 
with the government.
    We agree with the GAO. Its testimony today is in line with 
what we have advocated for a long time. Specifically, education 
and training is the acquisition work force tool to achieve 
acquisition reform. Real, meaningful, and important progress 
has been made. Most observers would agree that acquisition 
reform ranks with one of the real success stories over the last 
decade. It is the result of a collaboration between Congress, 
agencies, and the private sector. This collaboration needs to 
continue.
    However, despite this progress in transforming the largest 
buying organization in the world today, the Federal Government, 
more improvements are needed. There still are too many non-
value-added requirements and processes that remain. We must 
ensure our focus is on performance and not the process itself.
    In addition, more work is needed to enable the government 
to access more fully the innovation and technologies available 
in the private sector. Nowhere is this truer than in the buying 
of services. The record is clear that much of the government's 
historic emphasis has been on how to buy products faster, 
better, and cheaper. The acquisition of services has received 
little attention. However, as our economy overall has moved to 
become a service economy--and services now comprise the 
majority of government procurement--it is vital that greater 
attention be paid to how the Federal Government acquires these 
services. These services are vital to the government. Yet, the 
processes by which the government buys services has lagged. The 
question is, what more needs to be done to ensure that these 
professional and technical services are acquired in a cost-
effective and efficient manner?
    The first critical issue is education. By enacting laws and 
implementing regulations, we do not create change. The 
government must devote adequate resources to the most critical 
element of success reform, which is the training and education 
of the work force. Training has not kept up with the reforms or 
with the capabilities of the services sector. As a result, the 
issue in the professional services arena, where the services 
are much more complex, is how the Federal Government work force 
can gain a better understanding of the services market, and 
particularly what's available commercially, and how the 
services sector can, and should, be leveraged in the Federal 
marketplace.
    Congress must make a determined effort to ensure that 
training resources are made available and are a top priority 
among all agencies. In the past Congress has attempted to get 
agencies to make training and education a higher priority, but 
the investment has not been made. Training is just too easy an 
item to cut or delay.
    We propose that Congress require that a percentage of 
administrative fees, perhaps 5 or 10 percent, be collected 
through the governmentwide, multiple-award contracts and/or 
purchases from the GSA schedule, and devoted to the Federal 
Acquisition Workforce Training Fund. Our vision is that these 
funds will be forwarded to the Federal Acquisition Institute 
where they could be made available throughout the government to 
provide training.
    The second critical issue is successful implementation of 
performance-based service acquisition, something we've heard 
quite a bit about today. This allows the government to move 
away from dictating processes and permits the private sector to 
offer innovative solutions to complex problems. As you know, 
this is one of the first major initiatives of the Office of 
Federal Procurement Policy, under Dr. Kelman, and has been 
successful, but there still is more that needs to be done and 
that is adequate training of the work force.
    Third, we recommend that Congress extend to the civilian 
agencies the same authority now available to the Department of 
Defense to purchase services under FAR Part 12. Extending this 
authority would incentivize both the use of performance-based 
strategies and open a door to new and innovative solutions for 
a broader cross-section of the services industry.
    Fourth, the PSC advocates a horizontal, rather than 
vertical, integration of acquisition functions. Such an 
integration helps to promote vital cross-functional involvement 
in acquisitions.
    And fifth, it is time to re-evaluate the role of the 
Service Contract Act as it relates to the mid-to high-end 
services. The Service Contract Act was designed to cover those 
for whom the marketplace offered inadequate protection. Today's 
robust marketplace has changed. We offer you some ideas on this 
in our written material.
    Finally, it is vital that the government recognize that 
technology itself is not the solution, but rather the enabler. 
There must be a real emphasis on re-engineering processes 
rather than simply automating legacy systems.
    Mr. Chairman, your leadership, and that of the 
subcommittee, is essential and greatly appreciated. We look 
forward to working with you and your staff. Thank you.
    [The prepared statement of Mr. Mutek follows:]
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    Mr. Thomas M. Davis of Virginia. Thank you very much.
    Mr. Wagner, thank you for being with us.
    Mr. Wagner. Thank you, Mr. Chairman, members of the 
subcommittee. My name is Mark Wagner, and I'm here on behalf of 
the Contract Services Association, which represents over 330 
companies providing a wide array of services to the Federal 
Government.
    My company, Johnson Controls, provides facility management 
and base operation support for a number of government agencies, 
including the Departments of Defense and Energy as well as 
NASA. We also provide facilities support for a large number of 
commercial private sector companies, such as Microsoft, Sun 
Microsystems, EDS, IBM, Compaq, and many others.
    I might also note that it's a special pleasure to be before 
the subcommittee today, as I am a resident of the 11th District 
of Virginia.
    Mr. Thomas M. Davis of Virginia. That means I'm going to be 
pretty easy on you.
    Mr. Wagner. Pardon me?
    Mr. Thomas M. Davis of Virginia. I'll be pretty easy on 
you.
    Mr. Wagner. Yes, thank you. I was hoping so. [Laughter.]
    Mr. Chairman, thank you for entering my statement into the 
record. I would just like to emphasize a few key points.
    You were right in your opening statement. While much has 
been done to reform and streamline Federal acquisition policy 
with respect to purchasing hardware and equipment, improving 
how we contract for services has in the past been relegated 
much to the role of the lowly stepchild. We're delighted that 
you are considering promulgating a Services Acquisition Reform 
Act [SARA].
    Areas that could be addressed include allowing longer 
contract terms to enable potential investment by contractors, 
encouraging more award-term contracts to reward good 
performance and penalize poor performance, revising profit 
policies and advancing the share-in-savings concept, which 
would encourage and reward innovation and efficiencies, and 
revising payment terms because it will be good for business, 
both government and the contractor. These and other issues are 
covered in detail in our written testimony.
    I would like to take the remainder of my time to answer 
some specific questions that you posed in your invitational 
letter. You asked, Has the Federal Government undertaken 
strategic planning in its acquisition work force challenge? 
While good efforts have been made with respect to hardware 
acquisition, unfortunately, we don't see the same evidence on 
the services side. Much more needs to be done to train and 
attract good individuals in this field. As we have seen, the 
Federal Government is increasing the amount of services it 
purchases.
    You asked to what extent the Federal Government used 
performance-based contracting. Many agencies are trying, 
particularly OFPP and DOD, but the results are less than 
stellar. Performance-based contracting is a powerful tool to 
unleash the full creative capability of contractors and bring 
more efficient, cost-effective services to the government, but 
it is not easy to write a good performance-based RFP. And it's 
even harder to evaluate competing proposals for award. But as 
long as we are wed to the old ways, telling contractors how to 
do business rather than the outcomes you want, and an 
unwillingness to transfer process control from the government 
to the contractor, then the Federal Government will never gain 
the best thinking that service companies have to offer under 
performance-based contracting.
    You've asked what barriers are there to share-in-savings 
contracting. Not enough contracts employ this splendid 
motivator for improvement in savings. If share-in-savings is 
allowed, often it doesn't reach its potential because there's 
an unwillingness on the part of the government customer to 
permit the changes and to transfer the process control to the 
contractor. Until contractors have control of their processes 
and are held to performance-based metrics, and the government 
stops telling how to do business rather than what they want, 
the shared savings will be inhibited.
    You asked if the Federal Government's developed best 
practices for contracting. While there have been some attempts, 
they seem to be the exception, not the rule. In Federal 
contracting procurement, we do not see the best practices and 
processes that we see in our commercial private sector 
business, including the operational, financial, and contractual 
best practices. What we do see, unfortunately, in Federal 
procurement is a lack of standardized procurements and no 
uniform performance standards, even in common areas of service. 
Often this is only complicated by last-minute changes in bid 
requirements.
    Finally, I'd like to add one question, and that is: What 
can the government do to reduce the cost of bidding and, 
therefore, increase competition? Bid and proposal dollars are 
limited within any company and across the industry, but the 
cost of bidding seems to keep escalating, which only dampens 
competition. And unlike some of our brethren companies on the 
weapons systems sides, we don't get our bid and proposal costs 
covered directly.
    But if we can find ways to reduce the costs of bidding, 
more companies can bid more contracts, which means better 
competition for the government. There are a number of ways to 
consider holding down the cost of bidding, which I would be 
happy to discuss in detail later rather than take any more time 
this morning.
    So, again, thank you for the opportunity, Mr. Chairman and 
members of the subcommittee.
    [The prepared statement of Mr. Wagner follows:]
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    Mr. Thomas M. Davis of Virginia. Mr. Wagner, thank you very 
much.
    We will start the questioning with Mr. Schrock.
    Mr. Schrock. Thank you, Mr. Chairman.
    Gentlemen, thank you for being here. That was fascinating.
    Mr. Cooper asked, one of the things he said, why won't 
performance-based contracts be easy? I want to ask him about 
that. Mr. Oliver said DOD can do performance-based contracts 
and likely will by 2005, unless I misunderstood you. Mr. 
Drabkin, it sounds like GSA is on its way to performance-based 
contracting. Dr. Kelman says we don't pay until we get results. 
That's the whole crux, I think. Mr. Mutek leans toward 
performance-based contracts, and Mr. Wagner said we need to 
reward good performance and innovation.
    I guess, to go back to Mr. Cooper, you said, why won't 
performance-based contracts be easy? When I was in the Navy if 
I didn't perform, I didn't get promoted. When I was a 
stockbroker, if I didn't perform, I didn't get paid. Why can't 
we do that in government?
    Mr. Cooper. I think the difficulty, and the reason I said 
it won't be easy, is again related to whether we have a work 
force in place that can implement that initiative and get the 
kind of results that everyone's looking for.
    The concept of performance-based contracting goes back to 
the 1980's. It's been around a long time. Mr. Oliver mentioned 
that the Department of Defense issued a guide, some guidance, 
in December of just last year. We're just starting to see some 
guidance and tools being provided to the work force so that 
they can understand the concept and the procedures that need to 
be followed, things like having a very clearly defined work 
statement that is put forth in terms of what the government 
needs, not telling the contractor how to do it. The guidance 
also talks about a metrics for measuring whether, in fact, the 
performance is achieved, and it talks about having a 
performance assessment plan so that everyone understands how 
performance will be measured and how it will be translated into 
payment to the contractors.
    So I guess what I'm trying to say is, until the work force 
gets used to this new kind of contracting and starts employing 
that type of contracting, it's going to be a difficult 
challenge.
    Mr. Schrock. Mr. Wagner, you said, following up on that, 
Mr. Wagner, you said, why can't we write a good performance-
based contract? My guess is Mr. Cooper outlined some of those. 
It's just we're getting in the way? I mean, when I say ``we,'' 
I mean the Congress is getting in the way. Should we make it 
more simpler? Simpler, not more simpler, but make it simpler? 
And then when we do it, just not try to nickel and dime them to 
death? Is that what is causing all this?
    Mr. Wagner. Well, I think, first, you have to get there. 
What I always like to say is, if you can measure it with a 
ruler, it's not a performance-based RFP. I think there are good 
ones out there. In our business, base operations support, there 
are a lot of very similar services out there. We need to, I 
think, find some templates out there and share some things in 
terms of how you do that, what our metrics look like. I think 
oftentimes we find people at individual sites trying to 
reinvent the wheel and create this themselves. There's a lot of 
good stuff that's out there in the private sector. I think this 
needs to be disseminated and out there.
    Now, certainly, with the metrics, it's individual within 
the site, but I do think that it is possible to do it. I just 
think it needs a true commitment and a sharing of some of those 
best practices to look where other people have done it and to 
look, reach out for those examples.
    Mr. Schrock. I agree. Thank you, Mr. Chairman.
    Mr. Thomas M. Davis of Virginia. Mr. Turner.
    Mr. Turner. Mr. Wagner, you mentioned that the experience 
in share-in-savings and other contracting, innovative 
contracting techniques have not been very successful. Could you 
kind of bring this down to sharing with us a good example of 
some place where it really didn't quite work but it was tried 
in the government?
    Mr. Wagner. We've got a share-in-savings contract in one of 
our base operations support contracts out at Bangor sub-base in 
the State of Washington. It's in there. We have done some very 
innovative things to share some savings, but I do think that 
you've got to have an attitude to want to make some real 
fundamental changes out there. I think that's the exception. We 
have a number of base ops contracts; that's the only one we 
have that even has a share-in-savings provision in it. Again, I 
think it's the exception, not the rule.
    When people are asked to be out there and be pioneers, 
frankly, the contract community is sometimes risk-averse. You 
know, they're a little tentative to make some broad changes 
here. I think we need to give them encouragement. I think we 
need to give them air cover. I think we need to ask them, ``Why 
not?'' Rather than say, ``Where can you do this?'' I think 
we've got to ask the question, ``Why aren't you doing it all 
over?'' And make sure that it is something that we instill as 
the rule here.
    Second, I think the share-in-savings is really important in 
our commercial contracts where we have it. We're kind of joined 
at the hip with our partners. They want us to succeed, and we 
want them to succeed, and we're both very interested in making 
sure that both succeed because, when we do, we drive down 
costs, as opposed to oftentimes in the Federal Government the 
concern is oversight of the contract and are you doing the 
things that we're supposed to, rather than trying to be out 
there and be innovative and truly both be sharing in a 
partnership way.
    There's some good examples out there. I'm not painting a 
broad-brush over words, but those are some real fundamental 
things that we've found in the commercial sector that makes the 
share-in-savings type of concept work.
    Mr. Turner. Maybe I ought to address this next question to 
Dr. Kelman, but when you think in terms of utilizing share-in-
savings contracting in the government, what kind of things 
would distinguish between the use of those type of contracts in 
the government and the utilization of those contracts in the 
private sector that might be worthy of our consideration?
    Mr. Kelman. I think probably the biggest legal barriers 
involve the implications of the annual funding process. In a 
share-in-savings contract you have a stream of benefit as the 
contractor makes an investment up front, and they're not paid, 
or only paid a little bit, up front. You wait until the 
government begins to see the benefits of that investment before 
the contractor gets paid. So the contractor has to get paid 
over a period of time based on the benefits that are then sort 
of thrown out in the outyears, so to speak.
    Well, of course, we run generally by an annual 
appropriations cycle. Agencies generally don't have no-year 
money. There are abilities that were instituted in the 
Acquisition Streamlining Act of 1994 to allow what's called 
multiyear contracting, where you can sign a contract now that 
gives you some commitment, let's say, for example, to share 
savings in the future.
    Right now, though, under that multiyear contracting 
authority, the agency needs to fund in advance any liabilities 
it might have to cancel the contract. So that can often be a 
lot of money, and that's been an inhibition to agencies being 
willing to do share-in-savings contracting.
    There's a congressional precedent in the act Congress 
passed in 1992 which created share-in-savings contracts for 
energy conservation in Federal buildings. That's sort of one of 
the first uses of share-in-savings. It wasn't in the IT area. 
It was in a different area. In that legislation Congress said 
in statute that the agency did not have to fund these 
liabilities in advance; they could do the multiyear contracting 
without those. I think Congress ought to seriously look at 
using that same or creating that same ability for agencies in 
the area of share-in-savings in the information technology area 
or more broadly in the services area.
    So that's one difference, and that's an issue the private 
sector folks don't have to worry about, that people in 
government get very scared about because the Antideficiency Act 
is a criminal statute and you'll have the contracting people 
say, if I violate this, I'm off to jail. And it gets a lot of 
them very scared about doing share-in-savings contracting.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Thomas M. Davis of Virginia. Thank you very much.
    Mr. Kelman, I read your statement. There you're concerned 
that the share-in-savings contracts could be used just because 
you don't have the current year money in some cases, and that's 
really the wrong utilization? It could certainly be a factor, 
but it would be the wrong utilization.
    There's also the problem of contractors walking off with 
tremendous profits coming from some of these share-in-savings 
contracts, which would be fine because you share the risk and 
there has to be a good potential upside or you're not going to 
get people in, but then you get the public perception, when 
they hold up the ashtray or something and say, ``Gee, look what 
we're paying for.'' It's subject to a lot of demagoguery. So I 
do think you do have to, as Mr. Wagner said, you need to prop 
up some of these contracting officers and some of these 
procurement officials to let them know this is OK. Otherwise, a 
lot of this stuff will never get done. Is that a fair----
    Mr. Kelman. Yes, I think we have to get away from the 
destructive attitude that says, in effect, it's OK if the 
contractor performs poorly or performs marginally, or whatever, 
as long as they don't make a lot of money. It's almost like a 
lose/lose kind of approach that says, we don't care if the 
contract doesn't perform that well as long as they don't make 
too much money. We should instead be trying to move toward a 
win/win environment where the contractor makes more money the 
more they succeed on behalf of the taxpayer, on behalf of the--
--
    Mr. Thomas M. Davis of Virginia. It's like a contingency 
almost?
    Mr. Kelman. Absolutely.
    Mr. Thomas M. Davis of Virginia. That's what it's like, a 
contingency fee in the law.
    Mr. Oliver. I don't think that's the problem right now.
    Mr. Thomas M. Davis of Virginia. Mr. Oliver.
    Mr. Oliver. I don't think that's the problem right now. I 
think the problem is the legislation, as interpreted by the 
lawyers, is the problem that Steve said. In other words, right 
now let's say that you have a contract that the government's 
paying $40 million to do right now, and some guys come in--and 
this is an actual example--and say, ``I can do this for $12 
million in 4 years.'' I'm going to have to put up $50 million 
to make this work, but I'm going to make my money back in 3 
years, and I'd like to do this.
    Now the problem is, since it's an annual appropriation, 
when they put their money up, after 3 years they're actually 
doing this for, say, $23 million. You know, they're on the 
slope down to 12. Now the problem is, Does the contracting 
officer continue to pay them $40 million to do $23 million of 
work? And what's that termination liability that you had to put 
up front? In other words, they're going to put up $50 million. 
You have to put up $50 plus the $40 you've already spent. 
You're spending $40 that year; you've got to put up $50 more. 
You have to spend $90 million right up front in order to get 
this.
    So the problem is with our laws working against each other, 
and I had to work this one out, and I worked this one out very 
difficultly. It was not that the contracting officers were 
unwilling to do something new. It was that the law is not 
crafted well enough to get past--to meet our lawyers and the 
other laws and to be effective.
    Mr. Kelman. Congressman Turner, there's another difference 
between the public and private sector, which is that, of 
course, in the private sector, if you generate savings, they go 
straight to your bottom line, or whatever; they stay within the 
organization.
    There's a widespread and not unjustified fear on the part 
of Federal Government folks that, if I generate savings in year 
1, the very next year, if OMB doesn't take them all away from 
me, the appropriators will. I don't think you can deal with 
that by legislation, but I do think we need to be more creative 
in terms of essentially agreements, informal agreements, 
between appropriators, OMB, and the agencies that, if they're 
able to generate savings, let them keep at least a portion of 
those in the outyears, so there's not in effect 100 percent 
taxation of the savings that they generate.
    Mr. Thomas M. Davis of Virginia. OK. Interesting. It's more 
complicated than it sounds, but we can get at it a little bit.
    OK, let me ask Mr. Cooper a couple of questions. In your 
testimony you indicate, in particular, agencies are not clearly 
defining their requirements, fully considering alternative 
solutions, performing vigorous price analysis, and adequately 
overseeing contractor performance. In your view, how can 
agencies do a better job of achieving these goals? Beyond 
aggressive oversight, do you think there's a need for 
additional legislation?
    Mr. Cooper. OK. The kind of things that you talked about 
are fundamental, good contracting things. Seeking competition--
--
    Mr. Thomas M. Davis of Virginia. Best practices, basically?
    Mr. Cooper. Yes. Evaluating prices, monitoring contractor 
performance. What we're seeing in that is a multiple number of 
causes. Let me give you an example.
    We did a review of service purchases using the GSA Federal 
Supply Schedule. What we found in that situation is very little 
competition being employed by the contracting people and really 
a misunderstanding on the part of the contracting people on how 
to use the schedule. Part of that stemmed from some special 
operating procedures that basically said, you can't use the 
schedule to buy services like you do brand-name products. You 
just can't go on the schedule, look at a couple of prices, and 
know they're good prices.
    Mr. Thomas M. Davis of Virginia. But that's what they're 
doing, basically?
    Mr. Cooper. That's what they were doing.
    Mr. Thomas M. Davis of Virginia. And they're comparing it 
in terms of trying to get some comparison in competition with 
just schedule prices.
    Mr. Cooper. Well, it's even worse than that. What we found 
was that the program office who's putting the requirement on 
the contracting community would get an estimate from its 
incumbent contractor about a level of effort in terms of number 
of labor hours and mix of labor, and things like that, and then 
turn around and say that was the basis for evaluating any 
prices. Well, normally, only one price came in, and the price 
was exactly the same----
    Mr. Thomas M. Davis of Virginia. Sure.
    Mr. Cooper [continuing]. As the statement of work. So they 
just weren't taking advantage of the benefits of competition.
    Mr. Thomas M. Davis of Virginia. Well, they're comfortable 
with the contract, isn't that it? They're comfortable with the 
contractor. They know this guy can produce. So what the heck?
    Mr. Cooper. Absolutely. What we recommended in that effort 
is that the special operating procedures that really talked 
about the difference between services and products be put in 
the regulations, and that is happening. So that should help.
    But, just to give you an example--and, again, this goes 
back to education and training of the work force--one of my 
colleagues just attended a conference a week or so ago, had 
about 300 contracting officers at the conference. He asked the 
contracting officers to show a show of hands on how many people 
were aware of, and actually used, those procedures. There was 
only a handful of hands that came up in that conference. That's 
pretty discouraging.
    As far as legislation on that issue, hopefully, if these 
rules and regulations get into the FAR and adequate training is 
done, hopefully, this problem will be mitigated in the future.
    Mr. Thomas M. Davis of Virginia. OK. One of the big 
problems, it looks like to me, continues to be not just 
training people in place, but attracting them, retaining good 
people, because not just anybody can do this work. Some of the 
stuff anybody can do with appropriate education and training, 
but some of this stuff is pretty sophisticated. I mean, what 
kind of changes are we going to have to make in personnel to 
get good people to come in and stay in the business for a 
little bit and continue to train them and keep them in the 
business as opposed to walking across the street where they can 
double or triple their salary?
    Dr. Kelman, you had an innovative idea about bringing 
people in for short periods of time and moving them in and out. 
Can you give me some help on that? I mean, what's the best way 
over the long term? I don't know if we can pay people enough, 
given where we are with the Federal pay schedule.
    Mr. Kelman. It's interesting, Mr. Chairman, many of my 
students--not all of them, but many of them--if you sort of say 
to them, ``I'm going to start a job at age 23 in some 
organization, work in that organization for 40 years and then 
retire,'' whatever, they look at you as if you come from 
another planet. A lot of the kids today, that's not their view 
of how they see their careers. They see themselves working in a 
lot of different organizations.
    Mr. Thomas M. Davis of Virginia. But that's Planet 
Government today. I mean, that's kind of the way it works.
    Mr. Kelman. Well, I think what we need to do is find ways 
to leverage that because I think there are a lot of young 
people who would like to spend some time in public service but 
aren't able or willing to do a whole career in public service. 
Right now, generally, people come into public service either at 
the entry level or at the political level with very little in 
between. I think we need to do a lot of things to make it more 
possible to allow people at, let's say, age 28, 29, 30 to come 
into government and do public service for 3 years at a mid-
management level, a GS-13/14 kind of level, without the 
expectation that they're going to spend their whole career in 
the public sector. I think we need that.
    Actually, I also believe that would have--if we can do 
that, in addition to getting smart kids or young people, it 
would have an additional positive function of exposing a larger 
number of Americans to public service and to government, and do 
something about the stereotypes that people have about folks 
who work in the Federal Government. So I think we need to be 
very aggressive in thinking about ways to rethink our whole 
career model to make a larger aspect of it, people coming in at 
mid-levels for a few years, doing public service without an 
expectation that they're going to necessarily stay for a 
career. We'll also have some people stay for a career, but I 
think right now we have almost nobody like that. We need to 
start having some more like that.
    Mr. Thomas M. Davis of Virginia. Go ahead, please.
    Mr. Oliver. Demonstrating the power of Mr. Kelman's ideas, 
the Department of Defense has a legislative proposal in. We did 
it targeted for 11 and 12 and asked for the authority to do a 
pilot project. So we would appreciate your assistance in this 
because we think it's a good idea and want to try it.
    Mr. Drabkin. More importantly, Mr. Chairman, I would point 
out that there is no plan for the career folks in the 1102 and 
the acquisition work force career series generally. We've just 
hired people and we bring them in. There's no career path. 
There's been no planning for what to do with them in the mid-
level of their career. There's been no planning what to do to 
retain them as they get to the twilights of their Federal 
careers.
    What we really need, at least on the civilian side of the 
house, is a focus on doing the kind of planning you would do if 
you were in a private business and wanted to make sure you had 
a stream of well-qualified employees that handle the largest 
part of your business. Private industry would tell you today 
that contracting equals a minimum of 65 percent and in many 
cases 85 percent of their dollars. That's a big chunk of money, 
and we ought to spend some time developing career paths for the 
people who spend it for you.
    Mr. Mutek. Mr. Chairman? Two observations from industry: 
First, there are certain dynamics that we see in the 
acquisition work force today. With the human capital crisis and 
the aging of the acquisition work force, there may be greater 
opportunity for upward mobility within the government in the 
very near future, and that puts a premium on effective 
training.
    The second observation is specific to the services 
industry. The services sector of government acquisition has 
been, by and large, a backwater for a long time. The most 
prestigious jobs are generally in the big systems, the high-
visibility jobs, and as a result, we're seeing some of the 
issues today with the acquisition of services. As we see the 
consolidation of service requirements, the bundling, the A-
76's, we're seeing some flawed procurements that not only 
reflect lack of training, but also the attention to the service 
acquisition work force.
    Mr. Thomas M. Davis of Virginia. OK. I know Mr. Ose had a 
couple of questions as well. I am going to get him, but I want 
to keep it going. Mr. Turner, why don't I go to you? Oh, I'm 
just waiting for him to come in. I will ask one more question 
while we're waiting for him to come out.
    I will go back to Mr. Cooper. In a number of statements 
reviewed by the subcommittee for this hearing, there has been 
an indication that much of the problem with acquisition reform 
is due to the lack of implementation in the changes seen in the 
early to mid-nineties. I mean, there was a huge cultural change 
in many cases. In GAO's view, has lack of implementation been a 
deterrent in achieving the comprehensive acquisition reform? 
Has the GAO reviewed what portion of the agencies' budgets are 
spent on work force training? And have you reviewed the 
effectiveness of agencies' training programs?
    Mr. Cooper. OK. Let me make one thing very clear. GAO has 
been very supportive of acquisition reform, the Federal 
Acquisition Streamlining Act, the Clinger-Cohen Act. I think 
you're exactly right, Mr. Chairman, the implementation has not 
gone as smoothly as everyone had hoped and we have not always 
gotten the benefits from the reforms.
    Having said that, we've heard a lot of other things said 
today about where successes have occurred. The purchase card is 
a good example. We can buy things a lot quicker. It costs a lot 
less to do all those. All those are positive things.
    As far as looking at the training budgets of agencies, only 
where we have looked at that in any detail involves a report we 
did about a year ago on GSA and the VA. Those are the two 
largest civilian purchasing organizations. We were looking at 
whether those agencies were complying with some of the 
provisions in Clinger-Cohen. We did find problems there. They 
weren't always identifying the training that was in their 
budgeting documents for the work force. There were incomplete 
records on whether the contracting personnel actually got the 
training and whether they got the required levels of training.
    We are starting to do some broader work now, looking at 
work force issues, and we'll be exploring issues like training, 
recruiting, retention, all those issues across the Federal 
Government. So a lot remains to be done.
    Mr. Thomas M. Davis of Virginia. Thank you very much. I 
have some followup to that, but let me recognize Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman. My questions are 
primarily directed at Messrs. Cooper, Oliver, and Drabkin. We 
had a discussion in the last Congress about contracting 
officers being given the responsibility of determining whether 
or not bidders or potential contractors are eligible under what 
became known as black listing regs or standards. I have seen 
the questions that the committee proposed to you. Amongst all 
your other responsibilities, training, evaluation, keeping 
current on new procurement practices, and what have you, I am 
curious as to your respective opinions regarding the proposed 
black listing standards that came forward in the last Congress.
    Mr. Oliver. I thought it was a terrible idea. There's two 
problems with it. One is there are no agencies that maintain 
the kind of records you're supposed to check against to see 
whether or not a various contractor had done something. And, 
second, the burden that you're adding to the contracting 
officer, who is a GS-9, who is trying to award a contract and 
is asked to evaluate purported behavior and compare it to, one, 
a standard--to be honest with you, the behavior in each of the 
industries is different, and if one spends time in it, one 
acquires that there's a difference between the garment industry 
and the transportation industry, and there are various 
standards for each. To expect the contracting officer, who is 
27 years old and training to do a many other tasks that are 
terribly important, so that we do not have any waste in the 
government, to also deal with items for which there are no 
records and no agency that maintains an evaluation, I thought 
was extraordinarily difficult. I am very happy that rule has 
been held in abeyance.
    Mr. Drabkin. Mr. Ose, I would take it from a different 
approach. We have already existent in the FAR and in statute 
any number of ways to deal with contractors who violate the 
law. There are debarment proceedings. And if you take a look at 
the debarment list, it's a relatively long list; people are 
added regularly because they violate the law or deal 
inappropriately with the government.
    Almost every agency mentioned in the proposed regulation--
well, in the regulation that was implemented on January 19, 
almost every agency who's responsible for oversight of the 
laws, specifically mentioned the IRS, the EEOC, the Labor 
Department, have their own independent authority to debar 
contractors who violate the substantive laws they're 
responsible for administering. That process exists.
    If a contractor fails to perform and is terminated for 
default on a contract, they're automatically ineligible for the 
follow-on award. They get past performance evaluations now 
which address their ability in terms of current performance and 
which follow them in future performance. There are so many 
current ways of dealing with people who either violate the law 
or perform poorly that this additional task, which involved an 
additional certification, an additional possibility that a 
contractor would be subject to Civil False Claims Act 
litigation and possibly even criminal violations under title 18 
for making a false statement, was simply unnecessary. To add 
that to the list of things that a contractor has to give us, it 
wasn't going to get us any additional benefit.
    Mr. Ose. Mr. Cooper.
    Mr. Cooper. I would agree with the two other government 
witnesses. There are adequate regulations in place now to deal 
with bad contractors, and I think that's adequate.
    Mr. Ose. I just want to make sure, one of the things which 
always seems to be a divergence of opinion when you get a 
different panel in here, and I want to make sure for the 
record--Mr. Cooper, you're the Director of Acquisition and 
Sourcing Management for----
    Mr. Cooper. Yes.
    Mr. Ose [continuing]. The entire Federal Government?
    Mr. Cooper. Yes, that's correct.
    Mr. Ose. OK, over at GAO.
    Mr. Cooper. Right.
    Mr. Ose. And, Mr. Oliver, you're the Deputy Under Secretary 
of Defense for Acquisition and Technology at DOD. So you do all 
of that for the DOD?
    And, Mr. Drabkin, you're over at GSA in the Office of 
Government-wide Policy.
    Are there others similar in stature in the Federal 
Government that would have differing views that you're aware 
that we might need to visit with?
    Mr. Drabkin. I can tell you, based upon the result of what 
happened when we issued our deviation, that nearly every senior 
procurement executive in the civil side of government issued a 
deviation immediately after January 19, which I think speaks 
for how they felt about that particular rule.
    Mr. Ose. Thank you, Mr. Chairman.
    Mr. Thomas M. Davis of Virginia. Thank you very much. Mr. 
Turner.
    Mr. Turner. I have no further questions.
    Mr. Thomas M. Davis of Virginia. OK, good. Mr. Turner has 
no further questions. I've got a few.
    Let me go back to GAO for a minute. Well, let me just ask, 
did you review the effectiveness of the agencies' training 
programs?
    Mr. Cooper. Not at DOD. Only in GSA and the VA. And there 
we were looking more at the level of spending and whether the 
Clinger-Cohen continuing education----
    Mr. Thomas M. Davis of Virginia. And it's just a small 
sliver they're spending on training at this time?
    Mr. Cooper. Right.
    Mr. Thomas M. Davis of Virginia. Which is understandable. I 
mean, I do know how agencies work. But, clearly, there is a 
cost to that. I think that is what everybody is saying.
    Mr. Cooper. Absolutely.
    Mr. Thomas M. Davis of Virginia. DOD's testimony indicates 
that they are leading the way in the performance-based 
contracting, including having met the administration's goal for 
20 percent performance-based contracting already. Have you 
reviewed DOD's efforts in that area?
    Mr. Cooper. No, we have not yet. That's a very recent 
phenomena, and I would applaud the DOD for moving out 
aggressively in this area. I would issue a caution though. 
Measuring performance-based contracting by just the number of 
contract actions is not necessarily the best measure. I think 
what we're really after here is whether those performance-based 
contracts produce the outcome that everybody wants.
    Mr. Thomas M. Davis of Virginia. Of course.
    Mr. Cooper. And that's what's important.
    Mr. Thomas M. Davis of Virginia. Of course. Well, we might 
ask you to look at that downstream. But at least they are being 
proactive and they are championing this.
    Mr. Cooper. Right. And with the new guide coming out in 
December, they're all positive steps and they're moving in the 
right direction.
    Mr. Thomas M. Davis of Virginia. Well, let me go to DOD. In 
your view, has the acquisition work force received sufficient 
training in the legislative changes made in the early nineties? 
And what do you do to measure the success of your training 
efforts?
    Mr. Oliver. The measure of success will be how well we can 
put in performance-based contracting, which is very difficult, 
and also by what we see as results. I can't do that right now.
    Mr. Thomas M. Davis of Virginia. I understand.
    Mr. Oliver. We're really working very hard on improving the 
training. I mean, we have the hours. Candidly, I've got the 
hours required, and I think it's the right number because it's 
a number that everybody in the industry uses, and we have 
meetings and everybody argues for fewer, which indicates to me 
that I've got it about right.
    My problem right now is the quality of them, and I'm not 
getting the business school--I've been to a couple of business 
schools, and I'm not getting the business school quality that I 
want. Now this is related to the questions you were talking 
about upgrading the force, where we put in requirements for 
essentially a college education, and we're bringing in 
different people and requiring them either to come in with a 
degree or gain a degree, because this business is getting much 
more difficult.
    At the same time, we have to make the training better. It's 
got to be not only Web-based, it's got to be really 
substantive. I was talking to the president of the Defense 
Acquisition University and his staff last week, and I said, 
``You know, I want this to be the hardest school that anyone 
has ever attended. I want it to be so difficult--I want it to 
be so dense that it's rewarding. I want the people to feel like 
they're learning every second.'' And we're not there yet, and 
we've got to get there.
    Mr. Thomas M. Davis of Virginia. It seems to me, if you get 
there, then some of what Dr. Kelman talked about, bringing 
people in from industry for a short period of time and training 
them, they can go back out smarter than they ever were and get 
experience they never could get otherwise. I think it makes 
their stay in government worthwhile----
    Mr. Oliver. No, I agree. In fact, that's the reason we're 
asking you for this. We're asking you for this pilot. We've 
also asked for another pilot to send people out to industry and 
come back. I mean the same sort of thing.
    I go down and talk to the people. We bring in the Defense 
Acquisition University, we bring in many people from industry. 
I go down and talk to each class that graduates, and then I 
hang around and I smoke outside and wait for someone who smokes 
to come out who's from industry, and then I talk about what 
they thought of it.
    Mr. Thomas M. Davis of Virginia. You're only getting the 
smokers' views? [Laughter.]
    Mr. Oliver. But they're a higher quality group. [Laughter.]
    Mr. Thomas M. Davis of Virginia. Well, being from Virginia, 
I'm not going to argue with you. [Laughter.]
    Mr. Oliver. And so what we're trying to do is to reflect 
that and upgrade the course so that we're getting those right 
kind of people.
    There's a lot of effort going into this, but I won't see 
the results for a while.
    Mr. Cooper. I'd like to again congratulate DOD because they 
really are taking education of the work force very seriously. 
We have done a substantial investment of resources in best 
practices for major weapons programs, for example, and our 
reports are being used now by the Defense Acquisition 
University to share that knowledge and expand the understanding 
of some of those best practices in the government work force.
    Mr. Thomas M. Davis of Virginia. All right. Let me ask a 
question. I am going to start with Mr. Drabkin, and then I will 
be happy to hear from any of the rest of you--at least from Dr. 
Kelman and Mr. Mutek and Mr. Wagner.
    Would it be difficult for GSA to open their IT products, 
just IT products and services, schedules to State and local 
governments? Have you been asked to revisit cooperative 
purchasing for State and local governments?
    Mr. Drabkin. The answer to your first question is no, if 
you change the legislation. What objections the IT industry may 
have, I don't know. As you know, we got cooperative purchasing 
authority back, I believe, when FASA----
    Mr. Thomas M. Davis of Virginia. Correct.
    Mr. Drabkin. And shortly after we got it, a number of 
industry groups were concerned about the impact providing 
access to State and local governments would have on their 
markets, and they convinced Congress to withdraw that 
authority.
    I'd like to suggest that we need more than cooperative 
purchasing with the States and local governments, though. I 
think this is an opportunity, as we build the electronic 
marketplace of the future, for us to share with them the 
building of that marketplace. There certainly is no sense in 
creating a Federal Government marketplace and a State and local 
government marketplace in the e-marketplace.
    I think there's an opportunity for us to share training. 
Mr. Oliver referred to what DAU is doing. Last summer FAI began 
working with DAU to leverage what the two institutions are 
doing across the entire enterprise of government. And, 
certainly, we could share that same information and gain from 
the information State and local governments have developed and 
share that across the whole enterprise of government, from the 
local level all the way to the Federal level.
    Mr. Thomas M. Davis of Virginia. OK.
    Mr. Drabkin. So cooperative work with the State ought to 
include more than just purchasing. But if you change the 
statute, we'll make it happen, sir.
    Mr. Thomas M. Davis of Virginia. All right, that's good. 
I'm going to ask, Dr. Kelman, you were imminently involved with 
this.
    Mr. Kelman. Yes. Cooperative purchasing was a good idea 
when it was first passed, and it's a good idea today. It is a 
fully voluntary program that simply opens up to State and local 
governments the option, if GSA prices are better or the 
warranty is better, or if they find it a more advantageous way 
to buy products than whatever other contract vehicles they have 
available, it says you may do this. No requirement, no 
regulation.
    Mr. Thomas M. Davis of Virginia. Let me ask you, there were 
two objections, one of them from the middle guys who were 
selling on commission to State and local governments, and they 
get cut out of it. They got organized and everything. But by 
doing it to IT services, you eliminate that argument.
    Second, not services again, but there are products that are 
sold at discounts to the Federal Government that different 
manufacturers don't want to sell at discounts to State and 
local governments because they can continue to gauge them, and 
I understand that. We're realists. But you really don't get 
that on the services level.
    It seems to me, if we can satisfy that--I've already had 
some meetings with some of the groups that opposed it--and just 
say, look, we just want to do this for services contracts, it 
makes a lot of sense here, and we're working on that.
    Mr. Kelman. Interesting. That might be a good way to go, 
given some of the objections last time. I do think that, to 
some extent, this really comes to what I see as the basic 
tradition of this committee. I mean, this committee has 
traditionally served as a taxpayer guardian, and there are a 
lot of special interests in this town, a lot of special 
interests out there. I just think it is in the best traditions 
of what this committee stands for as a taxpayer guardian, in 
this case a guardian of State and local taxpayers, but they're 
the same folks; they're the same citizens--to provide as many 
options as they can for getting a good deal.
    Mr. Thomas M. Davis of Virginia. And, also, State and local 
governments many times are not as sophisticated in their 
procurement rules and regulations. This just makes it a lot 
easier for them to get something cheaper, faster, and 
everything else.
    Mr. Mutek and Mr. Wagner, care to comment?
    Mr. Wagner. Sure. Mr. Chairman, this is very similar to the 
collaborative purchasing concepts that are being seen in 
industry right now. We've shown a great interest in this. We 
have been collaborating with even our competitors to achieve 
economies of scales, and eventually the government reaps the 
benefits.
    A difference, of course, is that we're generally looking in 
collaborative purchasing with commodities, and services is 
different. You could look at a range of services that are 
almost commodity-like, but there is the issue of best value and 
tailoring the service for your needs that needs to be 
considered.
    The objections that have been raised usually come out from 
smaller businesses, some of the same type of objections that 
Dr. Kelman talked about during his discussion on bundling. 
Those objections are real and need to be considered, impact on 
smaller businesses.
    Mr. Thomas M. Davis of Virginia. But smaller businesses can 
get on the schedule and it can allow them to grow.
    Mr. Wagner. Yes.
    Mr. Thomas M. Davis of Virginia. I mean, the point here is 
that this allows you to kind of get on television to the people 
that you are selling to. Otherwise, State governments are 
already putting up their own schedules, and it's very 
inefficient, it seems to me.
    Mr. Wagner.
    Mr. Wagner. There are some other areas, too, beyond, I 
think, even IT. Dr. Kelman spoke before about energy-saving 
performance contracting, and there are a number of energy 
service companies out there that have been approached by State 
agencies saying, ``Can we use those Federal contracts because 
you've done them; you know how to do them.'' They're fairly 
complicated, and they want to take advantage of that.
    So I might just say that, if we look toward that, we may 
not want to just limit it to the IT schedules and all their 
other avenues that I think benefits to the Federal procurement 
base that might be advantageous for States to use as well.
    Mr. Kelman. This might be an opportune time, because of the 
energy situation, to take advantage of that opportunity to help 
the States and localities out by giving them access to those 
forms of contracts.
    Mr. Thomas M. Davis of Virginia. We tried to do that with 
Y2K compliance problems, and we got stiffed by the drug 
companies. But I hear you. This is an opportune time at least 
to put it forward and give Members an opportunity to vote it up 
or down.
    Mr. Drabkin. One other point, Mr. Chairman, is that I get a 
call at least once a day from someone in a State or local 
government asking to get access to our schedule. So I'm sure 
you'll find support in the State delegations if they turn to 
their constituents.
    Mr. Thomas M. Davis of Virginia. OK. Let me ask--Mr. Ose, 
do you want to ask another question or two?
    Mr. Ose. Yes.
    Mr. Thomas M. Davis of Virginia. Then I still have a few 
more and then I will get us out of here at a reasonable time.
    Mr. Ose. I want to go back to this question on the black 
listing issue. I just want to make sure I've got a clear 
understanding of Mr. Cooper, Mr. Oliver, and Mr. Drabkin's 
credentials.
    One issue that might come up here, and I'm anticipating, 
given your unanimous opposition to the rule that came out 
January 19--Mr. Cooper, you're not a political appointee? 
You're permanent Federal Government?
    Mr. Cooper. Career service.
    Mr. Ose. Mr. Oliver, same with you? You're a political 
appointee?
    Mr. Thomas M. Davis of Virginia. Are you saying they can't 
get fired if they give the right answer or wrong answer on 
this? [Laughter.]
    Mr. Ose. I don't know. They can get fired for whatever they 
want.
    Mr. Drabkin, are you----
    Mr. Oliver. I'm a political appointee.
    Mr. Ose. You are or you are not?
    Mr. Oliver. I'm a political appointee.
    Mr. Ose. You are? OK. Now when did you come to the Federal 
Government?
    Mr. Oliver. Three years ago, sir.
    Mr. Ose. So you didn't come with this administration, the 
current administration?
    Mr. Oliver. That's correct.
    Mr. Ose. OK. Mr. Drabkin, are you a political appointee?
    Mr. Drabkin. No, sir, I'm a career employee.
    Mr. Ose. Now you are also on the FAR Council, are you not?
    Mr. Drabkin. I am one of the three FAR signatories.
    Mr. Ose. OK, and the three signatories to the FAR Council, 
what is the role that they play?
    Mr. Drabkin. Title 41 establishes a scheme for the 
development of acquisition policy across the Federal 
Government. It created the FAR Council, chaired by the 
Administrator of OFPP, and then on the Council are the 
representatives of the Secretary of Defense, the Administrator 
of NASA, and the Administrator of GSA.
    They're responsible in the first instance for generating 
procurement policy for the entire Federal Government. Of 
course, there's a role that OFPP plays both in chairing the 
Council and initiating the President's agenda on procurement 
policy.
    Mr. Ose. OK. The reason I bring this up, Mr. Chairman, is a 
week from now or a month from now, or whatever, I just didn't 
want to hear that the testimony we had received today had been 
orchestrated, if you will.
    Mr. Drabkin. Mr. Ose, I would also point out that we're in 
a period of time right now where we are accepting comments on 
the proposals to change the rule. We plan to hold a public 
meeting----
    Mr. Ose. I understand.
    Mr. Drabkin [continuing]. Later next month. In terms of my 
position, my position will be swayed by the weight of the 
comments and what the right thing to do is. I'm not saying at 
this moment that I've made up my mind in terms of what to do 
with the rule. Obviously, I need to wait and hear the comments, 
and, plus, we await political leadership from the White House 
when the Administrator of OFPP is confirmed.
    Mr. Ose. OK, we will proceed with that caveat. I just want 
to be clear that I have felt that the proposal that did come 
forward from Ms. Lee's organization as inappropriate from its 
outset, and I am pleased to hear the breadth of concern that 
was expressed here today.
    Mr. Drabkin. I think it would be unfair to characterize 
that proposal as coming from Ms. Lee.
    Mr. Ose. I stand corrected.
    Mr. Oliver. Particularly since I've now hired her at the 
Department of Defense. [Laughter.]
    Mr. Ose. Mr. Drabkin, your point is well made.
    Mr. Thomas M. Davis of Virginia. Thank you. Let me ask, Dr. 
Kelman, turning to you for just a few questions. Let me start 
by saying we not only have a problem with procurement officials 
not getting the right training and attracting and retaining 
them, but even when it comes to performing duties within 
government. So much outsource is going out today because we 
don't have in-house capability to do that. Is that fair?
    Mr. Kelman. Yes. I think most of the outsourcing that takes 
place I think takes place because it's more appropriate to be 
outsourced. I mean, for the vast majority I don't think is an 
issue of, you know, lack of skills, or skills, whatever, in the 
government, but just these are the kinds that are most 
appropriately performed by the private sector.
    Sometimes I think, particularly in some of the IT areas 
where it's very difficult for the government to get especially 
entry-level talent, programmers, people who do a lot of stuff, 
that's another reason to outsource.
    Mr. Thomas M. Davis of Virginia. I just wonder long term, I 
mean, I don't know--that's another problem for government in 
terms of having the resources to hire and retain people. 
Because, if nothing else, having a governmental component that 
can perform these services keeps the private sector honest, 
doesn't it? You can always bring it in-house if you can't 
perform inside.
    Mr. Kelman. I think as long as we have a very competitive--
in the IT area, you know from northern Virginia, it's a 
hypercompetitive industry. There's no shortage of world-class 
suppliers trying to deal with the government. In fact, one of 
the positive results of procurement reform is that, because 
we've made the government be more commercial and lowered the 
barriers to entry, more new high-tech firms are entering the 
government marketplace more quickly than they did before.
    So I guess the worry I would have, or the issue I would 
raise, is not so much that we need to keep a bunch of 
programmers in-house and data base managers, and stuff like 
that, to keep the private sector honest, because the private 
sector competitors will keep the private sector honest. I do 
think that we need to be concerned about it, and I have a few 
thoughts in that area, about how do you monitor a contractor 
who is doing programmer or data base management, or whatever, 
if you have no programming or data base expertise in-house. 
That's a tougher one.
    Mr. Thomas M. Davis of Virginia. Yes, that's a whole 
other--that's where you get your losses financially because you 
can't monitor.
    Let me go to Mr. Wagner and then back to Mr. Oliver.
    Mr. Wagner. I might add that nothing keeps us working 
harder and trying to please the customer than knowing that 2 
years from now our competitors are nipping at our heels and 
would love to take whatever contract we have away from us. It 
is an extremely competitive environment out there in the 
private sector, and I think that's what drives innovation and 
cost savings in the long run, is knowing that we've got to do a 
better job the next time we bid this contract because there is 
vigorous competition out there.
    Mr. Thomas M. Davis of Virginia. I view this committee's 
role as not being pro-contractor or anti-contractor or pro any 
type of thing, but, basically, just making sure the taxpayers 
get the best value for their dollar. Competition is the best 
way to do that. I think we can agree on that. We try to write 
rules that make sure we are getting as many efficiencies as we 
can. Sometimes that may mean moving things in-house; sometimes 
it means outsourcing them, but most of all it means having a 
procurement system that works, so you can drive down and bring 
competition to cost.
    From some of the testimony today, we are finding out we are 
not always using what is available to us in terms of soliciting 
other bids and the like.
    Mr. Oliver. Mr. Chairman, I'm a contemporary of Willie 
Mays, but I'm not sure that my baseball skills kept him on the 
edge throughout his career. I'm similarly not sure that keeping 
the IT capability inside Defense, for example, keeps the 
industry on edge and moving on.
    I think this is really a key component because me having a 
specialist in Ada who has worked for the government for 40 
years does not help me evaluate, does not help anybody evaluate 
a C++ solution that a couple of contractors are bringing 
forward. In fact, I have watched this happen because I was in 
industry before, and I watched this happen. What truly happened 
was, if you had a government person on the evaluation team, 
then you went to him, you looked at him and looked at his 
background and said, ``What is it he's comfortable with?'' He's 
comfortable with Ada. Then let's bid this in Ada. Even though 
it cost the government 30 percent more, we're both going to do 
it so we can get his vote, so he doesn't say there's so much 
risk in the software. We are going to bid a non-state-of-the-
art proposal because we want to have the bid. This is really an 
important area. This is really key.
    Mr. Thomas M. Davis of Virginia. But that goes back to the 
lack of in-depth experience in government, doesn't it?
    Mr. Oliver. No, this is really hard. I think this goes back 
to that this is an area in which industry has just gone away 
like this. So the question is not so much how I'd better get 
people to do that, but how I can attach onto that.
    For example, see, I would take Steve's point. What I'd like 
to do in this area is go out and take somebody who's 40, 45, 50 
who's retired from the industry----
    Mr. Thomas M. Davis of Virginia. Now you're saying 
particularly in the IT sector?
    Mr. Oliver. IT is really funny. Yes, I'm saying this is 
really----
    Mr. Thomas M. Davis of Virginia. OK.
    Mr. Oliver [continuing]. An interesting area because it's 
gone up so much and the salary's gone up. For example, I've 
talked to most of the major industries and say to them, ``I 
think you ought to outsource all that from Lockheed-Martin.'' I 
mean, in other words, break it off so that it's not subject to 
your payscales, same problem, whatever industry, and then bring 
back some guys who are 40 or 50 years old from industry and 
bring them back and they're your supervisors of this. I think 
IT is a particularly difficult one, and I just don't want to 
let go by that this is important to have a government, a strong 
government organization exist.
    Mr. Thomas M. Davis of Virginia. OK, I think your point is 
well taken. I appreciate that because this has to do with other 
legislation we have pending, and I appreciate hearing from you.
    Mr. Kelman. There are two strategies for how you might go 
about doing the appropriate oversight or working with a 
contractor in a highly technical area like IT. First of all, 
the more you have performance-based work statement, you want to 
get away from micromanagement, telling the contractor how to do 
it, but you do need some expertise to evaluate proposals and 
some other things.
    I agree with Dave; I think that rather than saying the 
traditional idea is we have a bunch of programmers, we have a 
bunch of data base managers, we have a bunch of working-level 
IT folks who then get promoted internally within the government 
to a situation where they then oversee contractors--let's get 
rid, by and large, of that working-level data base management, 
programmer group and, instead, hire people at a 13 or 14 level 
maybe for a few years who have already developed the expertise 
in industry. They may only stay for a few years. It may be part 
of a career trajectory, whatever. Get the expertise from there.
    Mr. Thomas M. Davis of Virginia. OK, your point is well 
taken.
    Mr. Mutek. Mr. Chairman, one issue is the proper role of 
competition. All too frequently we hear that frequent 
competition keeps industry honest. In reality, particularly in 
the services, there's a real benefit in looking at longer-term 
contracts and forgoing frequent recompetitions to gain 
benefits. A lot of the service contracts we're talking about 
are similar to the outsourcing agreements that private industry 
does. We've learned that there are investments made by the 
company that's doing the outsourcing and it takes time to 
recoup the benefits. It leads to a more stable work force. It 
cuts the cost of frequent recompetition. It also develops a 
partner relationship, a closer relationship. This really allows 
performance-based acquisitions to provide great benefits to the 
company that engages in this and to the government, if it were 
to use this.
    We haven't seen much in this area of partnering, although a 
lot of usefule tools have come about, award terms, various 
types of incentives. Longer-term contracts might be a good way 
to go. That would make us relook at the cost of frequent 
recompetitions.
    Mr. Thomas M. Davis of Virginia. OK, thank you. Mr. Wagner, 
you made similar comments in your opening statement.
    I will try to move through this quickly. Dr. Kelman, you 
are asking that OMB, in cooperation with GSA, work actively 
with agencies to seek out share-in-savings opportunities. Are 
there specific examples of the share-in-savings contracting 
approach that agencies might emulate?
    Mr. Kelman. Are you talking about types of contract areas?
    Mr. Thomas M. Davis of Virginia. Yes, yes.
    Mr. Kelman. One of the big ones--and Dave Oliver referred 
to it before--is logistics modernization in the Defense 
Department, where you have enormous savings in terms of number 
of parts you need to keep in stock, these enormous warehouses 
filled with stuff that gets on ``60 Minutes'' every once in a 
while, and the GAO folks go to investigate. If you had a state-
of-the-art logistics system, you could take a lot of those 
extra parts, and so forth, out of the system, generating 
enormous savings. All the services, in my view, in DOD really 
should be pursuing share-in-savings as a way to bring their 
logistic systems from 1960's technology to turn-of-the-century 
technology.
    The second big area is various kinds of business process 
re-engineering----
    Mr. Thomas M. Davis of Virginia. You might not have gotten 
the bids coming out of the private sector to do that kind of 
thing, 10 or 15 years ago. It was risky. We weren't sure where 
the science was going. But today I think there is a consensus 
that the private sector could respond to that.
    Mr. Kelman. Right. The interesting thing there, Mr. 
Chairman, is that logistics is a classic example of a 
commercial function that is a way that commercial firms like a 
Wal-Mart or, obviously, UPS or FedEx, it's essential to the way 
they compete. There's a lot of progress on that in the 
commercial marketplace that the government ought to be taking 
advantage of using commercial companies.
    And the government is learning. Like to tell just a brief 
anecdote, I was at a thing where the Defense Logistics Agency 
was preparing for their business systems modernization 
contract, which they've since awarded, and it is a performance-
based contract for major logistics modernization there. It was 
a meeting with various potential bidders, and they asked for 
people's names and phone numbers. They were very interested in 
getting the commercial side of these various firms' operations, 
not the government side. I'm convinced that they were very 
carefully looking at the area codes that all the people gave--
no offense--to make sure there were no 703's, no 202's, and 
301's. They wanted 650's and 415's and 312's, and so forth. 
They wanted the commercial side of these businesses. So I think 
there are real opportunities there, as in the broad area of 
business process re-engineering.
    Mr. Thomas M. Davis of Virginia. All right, thank you very 
much.
    Mr. Mutek, let me ask a couple of questions for you. In 
your testimony you cite the need for better acquisition work 
force training. In your experience have the civilian agencies 
or DOD actively tried to coordinate with the private sector to 
ensure that training goals are consistent with the problems 
that you observe as a Federal contractor?
    Mr. Mutek. The PSC has cooperated with DOD, and we have an 
ongoing relationship with them. Also, we have begun discussions 
with GSA about training, coordinating training opportunities.
    Mr. Thomas M. Davis of Virginia. I would just say to both 
agencies, I think that's very important that we coordinate with 
private sector on these issues and that we are talking to each 
other as you arrive at your--not necessarily let them dictate 
it, but you can learn a lot by talking to your customer on 
this. We can pass all the laws we want, but if we don't have 
the appropriate training going up the ladder, nothing else is 
going to work. We are seeing that going back to FASA.
    You indicated that Congress has to make a determined effort 
to ensure that training resources are available and are a top 
priority among all agencies of government, particularly in the 
civilian agencies. Are any specific training opportunities 
available in the commercial marketplace that you would 
recommend for Federal employees?
    Mr. Mutek. The PSC would like to get back to you with a 
memo on that.
    Mr. Thomas M. Davis of Virginia. That would be great.
    Mr. Mutek. There are significant opportunities, and the 
bottom line is it is very easy to quickly eliminate that line 
item, save some money, and it's not being done.
    Mr. Thomas M. Davis of Virginia. OK, and we'll let you get 
back and keep the record open on that.
    Let me just move to Mr. Wagner. In your testimony you note 
that there are still many private sector companies that are 
unwilling to contract with the government. Do you have examples 
of specific companies or a specific example that made a 
decision not to work with the government and what regulations 
might have driven that decision?
    Mr. Wagner. I think generally----
    Mr. Thomas M. Davis of Virginia. We will allow you to 
supplement this if you would like to come back to it.
    Mr. Wagner. Sure. We would be happy to.
    But I think generally a lot of it is the accounting 
requirements that are imposed by the Federal procurement 
regulations. Frankly, I think the profit margins as well are 
looked at. In some places they're very competitive and they're 
thin. Right now in that particular sector if the private sector 
is booming, where you put your investment capital, if you will, 
to bid jobs often goes to the private sector, if you've got to 
choose.
    I think another thing that is very daunting in Federal 
procurement is the length of time the procurements are taking. 
Not only do they cost more to bid, they are taking longer to 
bid, and bid decisions are taking longer. What that does is it 
ties up our investment capital, if you will, because we're 
waiting for those decisions. Tell me if I've won or lost. Just 
let me get me on to the next bid. And we can't often do that 
because decisions are dragged out.
    Mr. Thomas M. Davis of Virginia. Well, that's important 
because the markups are not as big at the government level as 
you get in the commercial sector, by and large.
    Mr. Wagner. Right. So right now we have got a dozen 
contracts out there and we're waiting for bid. Once we find 
out, we can turn over and go bid some more, but it's difficult 
when your basically venture capital is tied up waiting out 
there for decisions.
    Mr. Thomas M. Davis of Virginia. So I think what you're 
saying is that longer contract periods in the commercial sector 
comes with commensurate financial benefits to the customer as 
well?
    Mr. Wagner. Yes, definitely. On the longer-term side, it 
allows us to make investments in equipment, vehicles, software, 
things that we wouldn't do on a 5-year. We have got one 10-year 
base operations support contract. Trust me, we can make 
investments there that we can't on 3 to 5-year-type contracts.
    Mr. Thomas M. Davis of Virginia. Even with people, too, I 
guess?
    Mr. Wagner. Pardon?
    Mr. Thomas M. Davis of Virginia. People as well as the----
    Mr. Wagner. Yes, and people as well.
    The other thing it does is on share-in-savings, I think 
it's very important if you're going to do that. Because if I'm 
in the 3rd or 4th year on a contract, am I going to propose 
share-in-savings ideas, a value engineering-type thing, if it's 
not going to pan out. But if I've got a 10-year horizon out 
there, it may be very advantageous for me to suggest those type 
of ideas that can really pay off in the long run for both the 
customer and the contractor.
    Mr. Thomas M. Davis of Virginia. I think it is important, 
if we move to share-in-savings, that we make the first few 
work, be very successful, if we're going to lure the private 
sector in. I mean, starting out and losing patience after 3 
years and going into some kind of cancellation would be awful 
in terms of the message it would send to the private sector 
bidders. Do you agree with that?
    Mr. Wagner. We've got some specific examples on a contract 
that I will submit to the committee.
    Mr. Thomas M. Davis of Virginia. The last question for you 
is, you stated that award term contracts is an innovative 
concept that guarantees the needs of the government while 
giving the contractor an incentive to achieve or exceed the 
agreed-upon performance. Could you try to provide us with some 
real-life examples that might be employed in the commercial 
world?
    Mr. Wagner. Certainly.
    Mr. Thomas M. Davis of Virginia. You don't have to do it 
today, but you could supplement it.
    I also want to ask, in your testimony you noted the 
importance of medium-sized businesses in the Federal 
marketplace. It's an important question.
    Mr. Wagner. Yes.
    Mr. Thomas M. Davis of Virginia. I've noted with concern 
the shrinking marketplace for mid-size companies. We even had a 
mid-sized company we talked to where they got a solicitation 
from a large company saying, basically, you guys are toast; 
come with us, acknowledging this and giving them a buyout 
offer. Have you seen the same trend within CSA? Do you have any 
suggestions for highlighting the innovations that these unique 
mid-sized companies bring to the Federal marketplace?
    Mr. Wagner. Well, I think it's----
    Mr. Thomas M. Davis of Virginia. Recognizing your 
organization is large and----
    Mr. Wagner. Yes, we are a large business, and oftentimes 
with the small businesses, you know, the grass is always 
greener in terms of contracts. At times my colleagues that are 
in those mid-sized businesses are almost caught in between. 
They can't go after the set-aside contracts, and sometimes they 
find it difficult to compete on some larger package contracts.
    I do think that's something that we need to constantly be 
aware of. The thing is, as we structure certain contracts and 
put scopes of work together, what we find is that we team with 
a lot of contracts in a certain expertise in a certain area. So 
we're always looking out there for teammates and going after 
large contracts, because often we don't even do everything 
ourselves. So I do think it's a question of looking at that.
    That might be something to do from an overall standpoint, 
too, from any agencies looking at their acquisitions overall, 
saying, ``Do we have the right mix out there? Do we have a 
split?''
    Last, I would like to add, the worst thing that can happen 
is, if a procurement is out there and it's coming, many of us 
watch opportunities out there for 2 years in advance and spend 
resources looking and preparing to go after that. Then if 
there's a change in the procurement--oftentimes they're set 
aside at the last minute or something changes--the rug feels 
like it gets pulled out from the company, either way, if it's 
not set aside or if it is. I think that's very detrimental to 
the process, too, like any other companies, we have to plan. 
Last-minute changes are very difficult to be able to do that 
for any company.
    Mr. Thomas M. Davis of Virginia. My last question, and it's 
kind of to everybody, and I'll start with you, Dr. Kelman. This 
has just gotten me for years. The thing I like about share-in-
savings and performance-based contracts is you allow the 
companies to run it the way they want to run it. In so many 
government contracts you've got auditors over telling what's 
G&A and what's overhead. Sometimes what the government may feel 
are appropriate incentives, the private sector has long since 
moved beyond.
    I'll just give an example. In one company I worked with we 
had a great Christmas party every year. We had the Beach Boys 1 
year. I'll never forget the----
    Mr. Wagner. The Cowsills.
    Mr. Thomas M. Davis of Virginia. We never got the Cowsills. 
[Laughter.]
    But we got a lot of the groups. We had the Shirelles. I can 
go through it. They had the Four Tops a couple of times. 
[Laughter.]
    I will never forget the government auditor coming in, 
reviewing it, and saying, reminding me he had a cash bar at his 
Christmas party, and then it was reduced to $50. But, you know, 
that was a huge retention issue. Everybody knew that Adtech had 
the great Christmas party, and it was a huge recruiting vehicle 
for us. Now you make these employee award ceremonies and they 
try to jazz it up a little bit.
    But why does the government, what incentivizes people? Why 
are they smarter than the people that are out there trying to 
hire people in the competitive marketplace?
    It seems to me I think the FARs go overboard on this, in my 
opinion, but the nice thing about the share-in-savings and 
performance-based is, basically, don't they, wouldn't they 
allow these companies to spend their money the way they want 
to?
    Mr. Kelman. Right. And one of the features of a share-in-
savings as a kind of contract is a form of firm-fixed-price 
contract, and there's an established schedule of payment to 
contractor. Firm-fixed-price contracts do not involve auditors 
at all. Just that's the way firm-fixed-price contracts work in 
general.
    Mr. Thomas M. Davis of Virginia. There's a lot of money 
just not having to put up with all the auditing for the private 
sector.
    Mr. Wagner. Mr. Chairman, in our share-in-savings contracts 
we provide bonuses to the employees who come up with the ideas. 
So we share down the line with them, and that's a tremendous 
incentive for them to come up with ideas, the people who are 
out in the field doing the work, if you will. I might suggest 
that maybe we think about that on the government side, too, 
here. Award people to come up with savings ideas. It happens in 
the private sector.
    Mr. Thomas M. Davis of Virginia. Absolutely. We did that in 
Fairfax when I was there, and we got some of our best ideas 
downstream a little bit and saved actually a lot of money with 
that, that people might not have come forward with otherwise.
    Anybody want to add anything? Yes?
    Mr. Drabkin. Mr. Chairman, part of the problem is we're 
changing from a culture where, as a result of ill wind in the 
mid-eighties, we were concerned about every expenditure a 
contractor made and we were concerned with telling them how to 
do their work and tying expenditures to work. As we move to 
performance-based contracting and fixed-price-type 
arrangements, what we ought to be focusing on is the outcome 
and how we measure it to make sure we're getting what we paid 
for. So what they spend their money on is up to them. Their 
challenge is to be price competitive, along with value, with 
the other people in the marketplace. If they want to spend 
their money on parties, then that's OK as long as they make it 
up someplace else, so that the best value comes to the 
government.
    Mr. Thomas M. Davis of Virginia. OK, thank you. Mr. Oliver 
and then Mr. Cooper.
    Mr. Oliver. Yes, sir. I would really encourage you to--I 
think all of us believe share-in-savings is the right way to 
go. It's not properly constructed legally right now. It doesn't 
work in the Department of Defense, and I would encourage your 
staff to talk to OMB and the Office of Federal Procurement 
Policy and my staff. We'll all be happy to help. We've been 
trying this really hard, and I'd like to help you point out 
things that we think are causing us problems.
    Mr. Thomas M. Davis of Virginia. Well, we would like to 
work with all of you on this, on something that really works. I 
know Mr. Turner is interested in doing this as well, and come 
up with something between us that we can move rather quickly. 
So we appreciate your comments today, but we'll, I think, flag 
some of this language by you to see what works as well, through 
your organizations. We very much appreciate your being here.
    Mr. Cooper, do you want to add anything, have the last word 
here?
    Mr. Cooper. Well, as the only auditor at the table, I feel 
compelled to at least comment on your observation. Clearly, if 
the government can get its needs met through commercial 
products and services, the kinds of things that you're talking 
about, Christmas parties and other things, don't become issues. 
But there remains a significant part of procurement on a sole-
source basis. In that situation, the taxpayers' interests have 
to be protected.
    I've spent 17 years looking at contracting, and I've seen 
all kinds of abuses. I even testified on a beer can collectors' 
club at McDonnell Douglas one time.
    But, anyway, I think Mr. Drabkin made a very astute 
observation, and that is, we are going through a transformation 
and we are going to rely more on commercial products and 
services. The extent that we do that, then we don't have to 
worry about the auditors coming in and looking at Christmas 
parties and other kinds of things.
    Mr. Thomas M. Davis of Virginia. Thank you all very much. I 
appreciate it. I think this is very helpful to us. We expect 
some legislation to come out of this, and we hope to continue 
dialog with the different organizations.
    Before we close, I just want to take a moment, again, to 
thank everybody for attending this important oversight hearing. 
I want to thank the witnesses. I want to thank Representative 
Turner and other members for participating. I also want to 
thank my staff for organizing it. I think it has been very 
productive.
    I will enter into the record the briefing memo distributed 
to subcommittee members.
    We will hold the record open for 2 weeks for anything you 
would like to supplement and for those who may want to forward 
submissions for possible inclusion. Anybody who was excluded 
today from the hearing who would like to forward anything, we 
would be happy to have that in the record as well.
    These proceedings are closed.
    [Whereupon, at 12 noon, the subcommittee was adjourned, to 
reconvene at the call of the Chair.]
    [The prepared statement of Hon. Jim Turner and additional 
information submitted for the hearing record follow:]
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