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



 
THE BEST SERVICES AT THE LOWEST PRICE: MOVING BEYOND A BLACK AND WHITE 
                       DISCUSSION OF OUTSOURCING
=======================================================================

                                HEARING

                               before the

           SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 28, 2001

                               __________

                           Serial No. 107-80

                               __________

       Printed for the use of the Committee on Government Reform


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






                       U. S. GOVERNMENT PRINTING OFFICE
80-842                          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                   DIANE E. WATSON,California
ADAM H. PUTNAM, Florida              ------ ------
C.L. ``BUTCH'' OTTER, Idaho                      ------
EDWARD L. SCHROCK, Virginia          BERNARD SANDERS, Vermont 
JOHN J. DUNCAN, Tennessee                (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
                     Michelle Ash, Minority Counsel






                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 28, 2001....................................     1
Statement of:
    Gutierrez, Hon. Luis V., a Representative in Congress from 
      the State of Illinois......................................    32
    Harnage, Bobby, national president, American Federation of 
      Government Employees; Colleen Kelley, national president, 
      National Treasury Employees Union; Patricia Armstrong, 
      member, Federal Managers Association; Paul Lombardi, 
      president and chief executive officer, Dyncorp, 
      Professional Services Council; Timothy Psomas, president, 
      Psomas, American Consulting Engineers Council; and Colonel 
      Aaron Floyd (ret.), president AFB Enterprises, Inc., 
      retired Military Officers Association......................   112
    Holman, Barry, Director, Defense Capabilities and Management, 
      U.S. General Accounting Office; Angela Styles, Director, 
      Office of Federal Procurement Policy, Office of Management 
      and Budget; and Ray Dubois, Under Secretary of Defense for 
      Installations and Environment, U.S. Department of Defense..    50
    Sessions, Hon. Pete, a Representative in Congress from the 
      State of Texas.............................................     5
    Wynn, Hon. Albert, a Representative in Congress from the 
      State of Maryland..........................................    13
Letters, statements, etc., submitted for the record by:
    Armstrong, Patricia, member, Federal Managers Association, 
      prepared statement of......................................   182
    Davis, Hon. Thomas M., a Representative in Congress from the 
      State of Virginia, prepared statement of...................     2
    Dubois, Ray, Under Secretary of Defense for Installations and 
      Environment, U.S. Department of Defense, prepared statement 
      of.........................................................    85
    Floyd, Colonel Aaron, (ret.), president AFB Enterprises, 
      Inc., retired Military Officers Association, prepared 
      statement of...............................................   219
    Gutierrez, Hon. Luis V., a Representative in Congress from 
      the State of Illinois, prepared statement of...............    35
    Harnage, Bobby, national president, American Federation of 
      Government Employees, prepared statement of................   115
    Holman, Barry, Director, Defense Capabilities and Management, 
      U.S. General Accounting Office, prepared statement of......    53
    Kelley, Colleen, national president, National Treasury 
      Employees Union, prepared statement of.....................   174
    Lombardi, Paul, president and chief executive officer, 
      Dyncorp, Professional Services Council, prepared statement 
      of.........................................................   196
    Psomas, Timothy, president, Psomas, American Consulting 
      Engineers Council, prepared statement of...................   212
    Sessions, Hon. Pete, a Representative in Congress from the 
      State of Texas, prepared statement of......................     9
    Styles, Angela, Director, Office of Federal Procurement 
      Policy, Office of Management and Budget, prepared statement 
      of.........................................................    77
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................    43
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................    48
    Wynn, Hon. Albert, a Representative in Congress from the 
      State of Maryland, prepared statement of...................    16


THE BEST SERVICES AT THE LOWEST PRICE: MOVING BEYOND A BLACK AND WHITE 
                       DISCUSSION OF OUTSOURCING

                              ----------                              


                        THURSDAY, JUNE 28, 2001

                  House of Representatives,
 Subcommittee on Technology and Procurement Policy,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:15 p.m., in 
room 2154, Rayburn House Office Building, Hon. Thomas M. Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Tom Davis of Virginia, Jo Ann 
Davis of Virginia, Horn, Turner, Kanjorski, Mink, Waxman, 
Cummings and Kucinich.
    Staff present: Melissa Wojciak, staff director; Amy 
Heerink, chief counsel; George Rogers, counsel; Victoria 
Proctor, professional staff member; Jack Hession, 
communications director; James DeChene, clerk; Phil Barnett, 
minority chief counsel; Michelle Ash, minority counsel; Mark 
Stephenson, minority professional staff member; and Jean Gosa, 
minority assistant clerk.
    Mr. Tom Davis of Virginia. If there is no objection, I'm 
going to move ahead with our first panel and then we will give 
opening statements, because I know some of you have other 
things to do, and we appreciate you being here.
    Let me start with Mr. Sessions, and then Mr. Wynn, we'll go 
to you. You have a major piece of legislation you sponsored, 
and then we'll move to you, Mr. Gutierrez, and thank you for 
being with us.
    [The prepared statement of Hon. Thomas M. Davis follows:]
    [GRAPHIC] [TIFF OMITTED] 80842.001
    
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    Mr. Tom Davis of Virginia. Pete, go ahead.

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

    Mr. Sessions. Thank you, Mr. Chairman and members of this 
subcommittee. It's good to be back with you. Ms. Davis, it is 
good to see you here also.
    Mr. Chairman, thank you so very much for the opportunity to 
appear before this subcommittee this afternoon. I commend each 
of you for taking time to meet with this group of people, 
including this panel that are here today on such an important 
issue, and we look forward to your deliberations and the 
outcome on this issue.
    First, I want to say that I was one of those who is the 
sponsor of the FAIR Act, because the American people deserve to 
know that their hard earned tax dollars are being spent as 
effectively and wisely as possible. The FAIR Act was therefore 
the first step in a process of defining just what is government 
work, and also what might be considered competitive. Among what 
things those activities might logically be reviewed for 
alternate delivery strategies also. It was, and I believe 
remains an important first step for this government, like any 
other institution, public or private, simply cannot be expected 
to engage in such fundamental self-analysis and challenge on 
its own.
    In the private sector, such exercises are routine and 
driven by the competitive nature of the marketplace. Those same 
market forces are too absent from the government environment, 
and thus the FAIR Act is a tool to help us move forward and 
make progress, and I applaud this administration for its 
unyielding commitment to ensuring that the results of the FAIR 
Act inventories do not sit on the shelf, but rather capitalize 
on to help ensure that the taxpayers of our Nation, in fact, 
are getting the best value for their hard-earned tax dollars.
    Mr. Chairman, I think competition is a good thing and a 
healthy thing. It drives innovation and performance. It drives 
efficiency and, in a high performing organization, it also 
drives employee satisfaction and morale. I also believe in the 
tenets of the government's longstanding policy of relying 
whenever possible on the competitive private sector for the 
provision of goods and services. That policy is built on 
straightforward logic that is every bit as relevant today as it 
was more than 50 years ago.
    The private sector, not the government, is the engine that 
drives our economy. The creation and expansion of private 
sector employment, investment and profit is what makes this 
engine run. Therefore, where the government is performing work 
that a competitive private sector could perform, why wouldn't 
you want to allow competition to exist? Why wouldn't we want to 
seek and embrace the technology and innovations of the private 
sector? The results work to everyone's benefit. The government 
improves its efficiency and quality of service, the taxpayer 
gets assurance that their tax dollars are being wisely managed, 
and our economy grows. Quite frankly, I see no downside to that 
equation.
    This is not to say that everything done by the government 
that is not strictly defined as inherently governmental must 
simply be outsourced. In some cases, some form of competition 
between the existing work force and the private sector bidders 
does make sense, but in others, such competition are neither 
beneficial nor possible. Moreover, while I fully agree that the 
extraordinary men and women in our government and the work 
force, that they deserve to be treated with respect and 
fairness in recognition for the work that they do for this 
country, I do not agree that such treatment must be 
automatically extended to arbitrarily protecting Federal jobs.
    After all, when the functions are outsourced, the evidence 
is clear that few employees end up without a job and the 
government accounting office and Rand Corp. and others have 
made it clear that there is no evidence that they end up 
sharply reducing wages and benefits. Indeed, we have had 
testimony in this subcommittee that the opposite can happen.
    So I see outsourcing as a tool, one that the private sector 
uses every day and that we have responsibility to utilize. We 
have no right to arbitrarily perform work in the government if 
that work is neither inherently governmental nor of the kind 
that must absolutely be performed by the organic work force. 
And we have a responsibility as stewards of the public trust to 
aggressively utilize competition to ensure that we're 
fulfilling faithfully our roles.
    Mr. Chairman, I must admit that I am sometimes amazed at 
this debate and the rhetoric associated with it. After all, 
this is not an academic exercise. It is a policy discussion 
that has the benefit of years of experience and data in 
support. That data and experience are eminently clear. First, 
competition saves money. Although you don't need a study to 
know it, it is the foundation of our whole economic system.
    Second, the government is in an ever-growing danger of 
falling further and further behind the private sector in the 
use and application of innovative processes and technology.
    Third, as the Federal work force grays and large 
percentages approach retirement, this is a movement in history 
where we can more aggressively than ever look at alternate 
sourcing strategies and change the very culture of government.
    Some would argue that we don't really know what outsourcing 
saves the government, that there is somehow question of 
accountability here, but such a suggestion ignores the facts. 
Fact one is that we do know at the local activity level exactly 
what is being spent on outsource services. Payments are subject 
to a wide range of audits, validation and even more.
    Unfortunately, the same cannot be said for our own internal 
government operations. How many agencies have been able to 
comply with the Chief Financial Officers Act? How many elements 
within the government have true activity based costing that 
enables full visibility into all costs? The answer to both 
questions is few. As the Senate Governmental Affairs Committee 
pointed out in a recent audit, and as GAO and others have 
repeatedly reminded us, we have a serious management problem in 
the government. It inhibits our ability as the representatives 
of the American taxpayer to account for ways in which tax 
dollars are spent. The problem with accountability lies not 
with our contract work, rather with our own internal 
operations.
    With all due respect to my colleague and my friend from 
Maryland, Mrs. Morella--excuse me, yes, Mrs. Morella, who is a 
friend of mine, that's why I am so opposed to H.R. 721, and I 
am sorry that she is not here today, but I am sure she will get 
the message.
    Mr. Tom Davis of Virginia. Mr. Wynn's a friend of yours, 
isn't he?
    Mr. Sessions. And Mr. Wynn is also.
    Mr. Tom Davis of Virginia. Just want to get that on the 
record.
    Mr. Sessions. Mr. Wynn is a friend of mine. The so called 
TRAC Act, it completely ignores the tremendous problems 
associated with internal accountability and assumes problems 
with accountability in our contracted work that simply do not 
exist. In addition, the bill creates onerous requirements that 
would make any further outsourcing extremely difficult. It 
would do so by subjecting every single contract, modification, 
task order or option to a public-private competition, 
regardless of whether the government needs to perform the work 
involved or whether the work force exists or whether it even 
needs to be hired to do so.
    The TRAC Act is a solution without a problem. It flies in 
the face of all the acquisition reform that we have made over 
the last 6 to 8 years and would limit Federal agency managers 
flexibility as they try to carry out their mission. The bottom 
line is that the bill amounts to a complete moratorium on all 
contracting efforts. If we really want accountability, I would 
suggest that the best way to achieve it would be to subject 
every commercial activity in the government to the same kinds 
of competitive pressures, accounting demands and performance 
requirements that are contracted work subjected to. That would 
do a lot more good for the American taxpayer than the current 
bill that we are discussing today.
    The government is not a business, nor can it be run exactly 
as one would run a business, but we can learn from the 
commercial sector. We can and should aggressively compete, and 
where appropriate, directly outsource commercial activities 
performed by the government so that our work force can focus on 
its true core competencies. We can and we should outsource and 
include competition as a tool that we cannot only use to enable 
improved performance, but we can also reduce costs and access 
to innovation, but also as tools through which the government 
appropriately supports and assists the further growth and 
strength of our national economy.
    Mr. Chairman, I will end by saying this, that the FAIR Act 
was a bill that we discussed across this committee and in this 
Congress and it was debated in negotiation with the former 
Clinton administration. It was one that was worked hard for a 
compromise and one that was hewn for success, and I believe 
that this new bill that we are talking about today would not 
only take that carefully crafted opportunity that we had and 
would do away with it, but it would lead this body to believing 
that what we need to do is invest more and more money in 
government without seeing the outcomes that would be based from 
our tax dollars.
    Thank you so much for allowing me the time.
    Mr. Tom Davis of Virginia. Mr. Sessions, thank you. I 
understand you may have to leave, and feel free to leave if we 
don't get there for questions.
    Mr. Sessions. Thank you so very much.
    [The prepared statement of Hon. Pete Sessions follows:]
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    Mr. Tom Davis of Virginia. Now, I'm going to call on your 
friend, Mr. Wynn, to speak. Our welcome and thanks for being 
here, and thank you for your interest in this subject.

  STATEMENT OF HON. ALBERT WYNN, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF MARYLAND

    Mr. Wynn. Thank you very much, Mr. Chairman. I am not 
always on this side of the table. But I am very delighted to be 
here. I thank you for the opportunity to testify as well as to 
be before our ranking member and my Democratic colleagues 
today.
    I also want to take this opportunity to thank the Federal 
employees who are here because all too often we talk about 
Federal employees, you don't get to see them enough. So they're 
here today, here and in the hallway and they have a very great 
interest in this issue because they are providing the services 
that run our government, and in my opinion they're doing a very 
good job.
    We're here today to talk about privatization, outsourcing, 
or more plainly, moving services previously performed by 
government employees out to the private sector to for-profit 
companies. I'm very pleased to discuss how we can assure that 
the American taxpayer receives the best value in the provision 
of these government services. One approach to assuring this 
best value is embodied in Truthfulness, Responsibility and 
Accountability and Contracting Act, H.R. 721, commonly known as 
the TRAC Act, which I have introduced and which, to date, 
enjoys a bipartisan support of more than 185 of our colleagues.
    As my good friend, Mr. Sessions, indicated, in almost every 
endeavor of human commerce, competition yields the best quality 
and the best value and that's essence of the TRAC Act to ensure 
there's a fair competition between hardworking in-house Federal 
employees and private contractors to determine who can really 
perform and provide the best value to the American public, both 
quantitatively in terms of dollars and qualitatively in terms 
of the service provided.
    In recent years there seems to be a notion that has gained 
momentum that outsourcing is the most cost efficient approach 
providing government services. Unfortunately, to date there's 
been no empirical evidence to prove this, either the 
quantitatively or qualitatively, and thus I really question the 
underlying assumption.
    Supporters of contracting out, as you heard, claim that it 
saves money for the taxpayers. Well, where is the evidence? GAO 
has yet to provide concrete evidence that such savings exists, 
and after several years and billions of dollars of outsourcing, 
GAO cannot say that taxpayers are well served. Even my 
Republican colleagues noted in the fiscal year 2000 defense 
appropriations bill, there is no clear evidence that current 
DOD outsourcing and privatization efforts are reducing the cost 
of support functions within DOD, with high cost contractors 
simply replacing government employees. In addition, the current 
privatization efforts appears to have created serious oversight 
problems for DOD, especially in those cases where DOD has 
contracted for financial management and other routine 
administrative functions.
    In the absence of accountability and congressional 
oversight, the problem caused by indiscriminate contracting out 
and privatization will grow worse in both DOD and other 
agencies. The TRAC Act basically prohibits any Federal agency 
from making a decision to privatize, outsource, contract out or 
contract for the performance of a function currently performed 
by such agency unless five requirements are met. I submit these 
are very reasonable and prudent requirements.
    Prior to contracting out, agencies would have to meet the 
following five objectives. First, many of the safeguards 
against indiscriminate contracting out such as effective 
contract administration to reduce waste, fraud and abuse 
statutes prohibiting the management of Federal employees by 
arbitrary personnel ceilings, as well as provision of the 
Federal Workforce Restructuring Act to prohibit replacing 
displaced Federal employees with contract employees have not 
been followed. Commitments to Federal employees to make 
contracting out and privatization more equitable have not been 
kept.
    The TRAC Act would temporarily suspend new contracts until 
these oversights have been corrected and we have in place a 
procedure which effectively reviews this issue. This will give 
agencies an incentive to correct these longstanding problems. 
There would be exceptions for national security, patient care, 
blind and handicap contract and situations involving economic 
harm. So the suggestion that somehow the TRAC Act would grind 
government to a halt is simply not true.
    Second, the TRAC Act would require the establishment of 
systems to monitor the cost efficiency and savings of this 
outsourcing. Currently agencies do not monitor the cost or the 
efficiency of billions of dollars in contracting out and 
privatization. There's no oversight of contracts after they 
have been awarded to compare past costs with current costs, 
which is to say that the contract goes out and there's an 
assumption that this is the most efficient way to do business, 
but yet there is no monitoring to see if there is actual 
savings.
    The third requirement of the bill, it will allow agencies 
to hire additional Federal employees when they can do the work 
more economically and efficiently than private contractors. 
There are instances when if an agency had been allowed to hire 
three or four more additional personnel, they could have done 
the work more cheaply than the outside contractor.
    The fourth provision of the act requires that Federal 
employees and private contractors have the same level of 
public-private competition, and here we get back to that 
notion. Public-private competition should work both ways. 
Contractors compete for Federal Government jobs. Federal 
employees ought to be able to compete for their own jobs.
    Right now there are twice as many contract employees 
working on the Federal payroll as Federal employees, and they 
perform this work without any competition. So for those who 
believe we need more competition, I suggest the TRAC Act 
provides it.
    Fifth, the TRAC Act requires Office of Personnel Management 
and Department of Labor to compare the wages and benefits of 
Federal employees and their contractor counterparts. The point 
here is it is not good policy to contract out simply to avoid 
paying health benefits, and we ought to analyze this issue to 
compare whether or not we're handing government work to 
contractors who simply are able to low ball because they don't 
offer reasonable benefits.
    I believe the TRAC Act addresses the major concerns that we 
in government have about quality and taxpayer value without 
interfering with the operation of government. As I indicated, 
the suspension of contracts is prospective only, only affecting 
new contracts. Any existing contract would not be interrupted. 
The suspension is only temporary until the requirements of 
reasonable oversight are put in place and at that point the 
agency may proceed. There has to be a competition, a simple 
competition analyzing whether we can do a better job in 
government or outside of government.
    Now, one of the criticisms that you will hear is that the 
A-76 circular, which is a vehicle for this competition, is too 
burdensome and that may be, but then what we ought to do is 
focus on streamlining the A-76 procedure rather than 
eliminating the competition between Federal employees and 
private sector employees. We have a responsibility to the 
taxpayers to ensure that they get best value, and the only way 
we can do this is through a real competitive analysis of what 
Federal Government employees can provide in terms of quality 
and cost with that which is provided on the outside by the 
private sector.
    I believe that the TRAC Act is a reasonable approach to 
solving this problem. I believe it shows respect for the 
efforts that have already been made by very loyal and committed 
Federal employees, and I hope that this committee, in analyzing 
this bill, other pieces of legislation, as well as the GAO 
study that is currently underway, would keep in mind that we do 
need a fair competition and we do need significant oversight of 
the contracting out that's occurring, and that ultimately, our 
responsibility is not to the notion of outsourcing or the 
philosophy of outsourcing, but to assuring best value for the 
taxpayer.
    Thank you for your time, Mr. Chairman.
    Mr. Tom Davis of Virginia. Mr. Wynn, thank you very much 
for your interest in this subject.
    [The prepared statement of Hon. Albert Wynn follows:]
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    Mr. Tom Davis of Virginia. Mr. Gutierrez, thank you for 
being with us.

   STATEMENT OF HON. LUIS V. GUTIERREZ, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Gutierrez. Good afternoon, Chairman Davis, Ranking 
Member Turner, and members of the subcommittee. I want to thank 
you for the opportunity to testify today. I have come to talk 
to you about a bill I introduced in March, H.R. 917, the 
Federal Living Wage Responsibility Act of 2001.
    The bill has a simple premise: Employees who work full time 
should be paid a wage that assures that they will not live in 
poverty. This legislation mandates a livable wage for all 
employees under Federal contracts and subcontracts. 78 
representatives currently cosponsor this important legislation.
    It is important to note that the Federal Government does 
not collect data on Federal contract workers. The only data 
available concerning the number of workers earning less than 
$8.50 an hour comes from the General Services Administration. 
With the implementation of the TRAC Act, we would be able to 
acquire these necessary data since the TRAC Act mandates the 
Secretary of Labor to conduct a study on the wage and benefit 
levels of contractor employees.
    However, GSA data and other data is startling and 
demonstrates the importance of quick Federal action. A recent 
study by the Economic Policy Institute finds that an estimated 
162,000 Federal contract workers earn less than $8.50 an hour. 
Their income does not reach the poverty threshold of $17,650 
per year for a family of four. These workers represent 11 
percent of the total 1.4 million Federal contract workers in 
the United States.
    According to the Office of Personnel Management, a total of 
4,974 full-time Federal employees earn a salary below the 
poverty level for a family of four, as dictated by Health and 
Human Services. The majority of these low-wage contracts and 
subcontracts are concentrated in the defense industry, 62 
percent, and most of them are large business, 59 percent. 
Private sector workers earning less than a living wage are 
mostly female, adult, full-time workers, and they are 
disproportionately minorities.
    My bill addresses these inequities. It mandates that the 
Federal Government and any employer under a Federal contract or 
subcontract of an amount exceeding $10,000, or a subcontract 
under that contract to pay each of their respective workers an 
hourly wage or salary equivalent sufficient for a worker to 
earn while working 40 hours a week on a full-time basis the 
amount that the Federal Government dictates is above the 
poverty level for family of four as determined by the 
Department of Health and Human Services.
    The bill also requires an additional amount, determined by 
the Secretary of Labor, based on the locality in which a worker 
resides sufficient to cover the costs to such a worker to 
obtain any fringe benefits not provided by the worker's 
employer. Fringe benefits include medical, hospital care or 
contributions to health care insurance plans, contributions to 
retirement, life insurance, disability, vacation and holiday 
pay. Although Congress passed laws such as Davis Bacon Act and 
the Service Contract Act to help ensure that employees of the 
Federal contractors earn a decent wage, thousands of Federal 
workers and federally contracted workers still do not earn 
enough to support themselves or their family according to our 
own Federal Government and the standards set forth by Health 
and Human Services.
    This legislation will allow hardworking Americans to earn 
quality wages and to increase their savings for such essential 
needs as their retirement and their children's education. The 
Federal Government must take responsibility, workable steps to 
reward working Americans and to help keep them out of poverty. 
This bill represents a practical step toward that goal.
    In 1999, only 32 percent of Federal contract workers were 
covered by some sort of law requiring that they be paid at 
least a prevailing wage, which is usually defined as the median 
wage of each occupation and industry. But even this minority of 
covered workers are not guaranteed a living wage under current 
laws. For example, the Department of Labor has set its minimum 
pay rate at a level below $8.50 an hour for workers covered 
under the Service Contract Act in 201 job classifications.
    Health and Human Services says you have to earn $17,700 for 
a family of four to live above poverty, and our government then 
in another Department says we are going to pay you less than 
that.
    I believe it's vital for the Federal Government at a time 
of record surpluses to send all of its full-time employees home 
with a paycheck that allows them to lift their families out of 
poverty.
    Mr. Chairman, it should be noted that 65 cities and 
counties nationwide have already passed laws that require 
companies doing business with tax dollars to pay a living wage 
to employees. There are an additional 75 cities considering 
enacting living wage laws. This legislation also has gained 
backing from profamily worker advocates around the country, 
groups like ACORN and the National Campaign for Jobs and Income 
Support in Chicago, New York, Boston and dozens of other cities 
have rallied in support.
    I share a deep concern for many workers who, although 
employed full-time, are unable to support themselves and their 
families in a dignified manner. Today the working poor are the 
largest growing sector of the economy. They fulfil many of the 
basic needs of our community, but their efforts are not 
rewarded with wages sufficient to care for a family's basic 
need.
    This bill is in keeping with the President's initiative to 
raise the pay and benefits of enlisted military personnel. 
Civilians employed by the Department of Defense are among the 
government employees most likely to earn subpoverty level wages 
while two-thirds of contractors paying poverty level wages are 
in the defense industry. The defense of our Nation is a 
combined effort involving military personnel and their civilian 
peers. President Bush's effort to increase the pay of uniformed 
personnel would be well complemented by an effort to ensure 
that no individual involving keeping the Nation secure is 
vulnerable to the difficulty and risks of poverty.
    Mr. Chairman, more than 50 years ago the General Assembly 
of the United Nations adopted the Universal Declaration of 
Human Rights. Article 23 of that document states, ``everyone 
who works has the right to just and favorable remuneration, 
ensuring for one's self and one's family an existence worthy of 
human dignity.'' However, this is an impossibility for 
countless families nationwide in the 21st century America. The 
Federal Government goes to great lengths to monitor the poverty 
level and with good reason, but the government should also 
determine whether it is allowing its own workers to meet that 
standard.
    Mr. Chairman, the basic purpose of the legislation is 
simple. We should not pay Federal employees that work for us or 
contractors that work for us to a family of four less than what 
our own Health and Human Services Department dictate is 
poverty, and if we do that Mr. Chairman, here's what we're 
doing, they're collecting Medicaid, they're collecting food 
stamps, they're section 8 subsidies on their rental. All we're 
doing is subsidizing the very contractors by allowing them to 
pay, because then these employees obviously are allowed, under 
our welfare standards, to apply for other--it's terrible to 
work for the Federal Government on the one hand, full-time 40 
hours a week, and on the other hand, get a check from another 
part of the government because the Federal Government hasn't 
ensured that you made a living wage.
    Thank you very much, Mr. Chairman.
    Mr. Tom Davis of Virginia. Mr. Gutierrez, thank you very 
much for that testimony.
    [The prepared statement of Hon. Luis V. Gutierrez follows:]
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    Mr. Tom Davis of Virginia. Mr. Wynn, thank you. Do we have 
any questions? I know we have two other panels. I think--Mr. 
Wynn, sure.
    Mr. Wynn. Mr. Chairman, with your indulgence I'd like to 
add two statements to my testimony if that could be submitted.
    Mr. Tom Davis of Virginia. We'd be happy to enter that into 
the record, and we appreciate both of your interests in this 
and Mr. Sessions, too, who's left. I know y'all have very 
strong feelings about this. You have put forward legislation 
and we appreciate the opportunity to hear from you today.
    Before I call our first panel, I think I'm going to go now 
to opening statements from Members so that Members will have an 
opportunity to put in statements, and I will start as the 
chairman of the subcommittee and welcome everybody to today's 
oversight hearing about outsourcing in the Federal Government.
    In light of the recent creation of the General Accounting 
Office's commercial activities panel, I decided to call this 
hearing to review whether or not outsourcing is an effective 
means to enhance cost savings and efficient delivery of 
services while ensuring the equitable treatment of Federal 
employees. We will also take a look at Federal agencies 
implementation of the Federal Activities Inventory Reform Act 
[FAIR] Act.
    Over the years, the executive branch has emphasized 
spending reductions and focused on maximizing efficiencies in 
the Federal Government. The introduction of competition in the 
procurement process has played a decisive role in creating the 
incentives necessary to achieve cost savings and improving 
efficiency. The executive branch has encouraged outsourcing by 
Federal agencies as a way to purchase commercially available 
goods and services from the private sector instead of competing 
against its citizens.
    In 1966, OMB formalized this policy in circular A-76. The 
subsequent supplemental handbook explains the procedures for 
conducting cost comparison studies through managed competitions 
to determine whether an agency's commercial activities should 
be performed in-house by Federal employees, by another Federal 
agency through an interservice support agreement or by 
contractors. GAO has reported that the policy results in cost 
savings in the Defense Department. However, most other Federal 
agencies choose not to implement A-76 studies. Have these 
agencies found alternatives to A-76? Are they still realizing 
cost savings while improving their delivery of services? It's 
understandable that some agencies may shy away from using the 
A-76 process. It is lengthy, it's complex, it's burdensome and 
participants in the Federal work force as well as the private 
sector have raised valid concerns which we will hear more about 
later today.
    As we review the process today I think we need to keep in 
mind the Federal Government's responsibility to the taxpayers. 
The government should strive to provide taxpayers with the best 
quality services at the lowest price. So the first question I 
pose to our witnesses today is should the lowest price continue 
to be the deciding factor for job competitions? Is there any 
benefit for using best value as the benchmark?
    I have several other concerns that I hope witnesses will 
try to address. First, Federal employees are disadvantaged 
during A-76 cost comparison studies because they are not 
adequately trained to write performance work statements. 
Additionally, if the contract is awarded to the private sector 
the Federal employees are seldom trained to write contracts and 
effectively manage them to protect taxpayer interest.
    Second, the lengthy A-76 process creates uncertainty among 
Federal employees whose jobs are being competed. Frequently you 
can have such a demoralizing effect that our best skilled and 
dedicated employees look elsewhere for the work. Since the 
Federal Government work force is dwindling rapidly and nearly 
50 percent of Federal employees are eligible to retire over the 
next 5 years it's imperative that the government establish 
initiatives to prevent the unnecessary loss of Federal workers.
    And third, there's a perception among some contractors that 
costs such as overhead are calculated differently in the 
private sector from the Federal Government, and therefore, not 
enough accurate cost information is available to ensure fair 
cost comparisons, and after a contract has been awarded, there 
are some concerns that the government accounting system is not 
advanced enough to accurately track cost savings.
    The A-76 process, in my opinion, is broken, but what can be 
done to fix it? To help in this regard, section 832 of the 
Floyd D. Spence National Defense Authorization Act for 2001 
mandates GAO convene a panel of experts to study the policies 
and procedures governing the transfer of the Federal 
Government's commercial activities from its employees to 
contractors. The panel will report to Congress next May with 
recommendations for improvements, and I look forward to the 
panel's report.
    Now I'd like to reiterate that the government's job is to 
provide taxpayers with the best value for their money. It's 
neither our responsibility to protect jobs nor is it our 
responsibility to outsource jobs. In addition to our 
examination of outsourcing, I think we should reevaluate Civil 
Service rules and employee compensation as part of the larger 
human resources crisis facing the Federal Government today.
    My colleague, Representative Wynn, introduced the TRAC Act, 
which would place a moratorium on new contracting and prohibit 
Federal agencies from exercising options, extensions and 
renewals of current contracts. It affects all contracting at 
every level of government, and there's no termination date for 
the bill. The TRAC Act is one proposed solution. It's the 
result of the frustrations felt by public sector employees in a 
process that, in my opinion, needs revamping.
    But an adversarial approach to Federal Government 
outsourcing raises other concerns about the continuity of 
service delivery to taxpayers. Let's focus our attention on 
constructive reforms to improve the government's performance of 
its core functions. How can it provide the greatest efficiency 
and highest quality of services at the best value to taxpayers? 
We need to examine these issues in the context of the Federal 
Government's human capital management crisis and determine what 
initiatives and reforms must be implemented to recruit and 
retain well-qualified employees.
    And finally, while the FAIR Act does not require that 
agencies outsource commercial functions, it's a potentially 
powerful strategic tool to help agencies identify possible 
opportunities for outsourcing and/or management reform. But I 
am alarmed by the OMB's recent directive that in the fiscal 
year 2002 agencies are required to outsource 5 percent of 
Federal jobs designated as not inherently governmental and 
listed on the agency's inventories under the FAIR Act. And just 
last week, OMB added a directive requiring 10 percent of these 
jobs be outsourced in fiscal year 2003. No justification for 
these percentages has been offered to date. I remain 
unconvinced that arbitrarily assigning Federal agencies target 
figures is the best means to ensure cost savings in the 
government. I expect OMB will clarify this directive today.
    I thank you and I would now recognize my ranking member Mr. 
Turner, for any statement he'd like to make.
    Mr. Turner. Thank you, Mr. Chairman. I appreciate very much 
the fact that you have held this hearing today on contracting 
out by the Federal Government, and I think this is, perhaps, 
the best attended subcommittee hearing that we have had in my 
memory with a long line of our loyal Federal employees out in 
the hall unable to get into the hearing room, but we do 
appreciate the interest that has been expressed by all of you, 
and I want to join in expressing my appreciation to all of our 
participants today and to our Federal employees who do such a 
fine job, taking care of the business of the public in their 
roles in the respective agencies.
    I understand today we may have people from all over the 
United States. I know the American Federation of Government 
Employees tell me that they have people here from California 
and New York and Maine and Florida today. So we are certainly 
glad to have all of you here.
    Our purpose, of course, is to conduct a hearing to try to 
ensure that the taxpayers receive the very best services at the 
lowest cost. That sounds like a simple goal to try to achieve, 
and yet it is fraught with complexity and in ensuring fair 
treatment for our Federal employees must certainly be a 
priority in this process. This subcommittee will explore why 
Federal agencies implement so few public private competitions 
under the circular A-76, and also examine what alternatives we 
may pursue to ensure efficiency in cost savings.
    Contracting out of commercial services has become an 
increasingly important and controversial teacher of Federal 
procurement in recent years, and the Bush administration has 
indicated that it will promote greater outsourcing by the 
Federal Government. It is in light of that that it is 
particularly timely that this hearing be held.
    I want to thank the chairman for giving Mr. Wynn the 
opportunity to use this hearing to lay out his bill, the TRAC 
Act. He has done an exceedingly large amount of work over the 
years with regard to these issues, and he represents, of course 
as you do, Mr. Chairman, a large number of Federal employees. 
His legislation raises many of the issues that we as a 
committee need to be addressing.
    Circular A-76 contains the Federal policy that governs how 
contracting out decisions are made in the Federal Government. 
The objective of that program has been to achieve efficiencies 
by encouraging competition between the private sector and 
Federal employees for commercial activities. No one seems to be 
particularly happy with the way A-76 works in practice, no 
matter which side you sit on. That is why I think it's 
important that the Congress authorize the study contained in 
the Defense Authorization Act of last year in which the GAO is 
directed to examine the A-76 procedure and to report its 
findings to Congress no later than May 1, 2002.
    I was particularly pleased to see the GAO taking this 
responsibility very seriously as I think particularly indicated 
by the fact that the head of the agency, General Walker, chose 
to chair the panel himself. I think this hearing today will be 
very productive, and I think that if we all approach it with 
the right objective in mind, that is, trying to provide the 
best services for our Federal employees at the best price 
possible, we will make significant process.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Jim Turner follows:]
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    Mr. Tom Davis of Virginia. Thank you very much.
    Ms. Davis.
    Ms. Jo Ann Davis of Virginia. Thank you, Mr. Chairman. I'd 
just like to say thank you for holding this hearing and I'm 
anxious to hear from the witnesses to learn more about it. I 
have heard a lot about the A-76 program in my own home 
district, and I'd like to know where we're going on it. So 
thank you very much.
    Mr. Tom Davis of Virginia. Thank you very much.
    Mr. Waxman. Mr. Kanjorski.
    Mr. Kanjorski. Thank you very much, Mr. Chairman, and I 
congratulate you for holding the hearing. I just hope that Mr. 
Turner recognizes that we also have people from Pennsylvania 
here as one of the States.
    Mr. Tom Davis of Virginia. Let the record be so reflective.
    Mr. Kanjorski. Mr. Chairman, I have been very familiar with 
A-76 over the last 14 years, and at one time in the past served 
as chairman of the subcommittee, the jurisdiction of those 
factors. I am disturbed in the beginning of the 21st century, I 
have heard the testimony of my two colleagues from Maryland and 
from Illinois, when they indicate that we actually have Federal 
employees that are being paid below the poverty level working 
for the U.S. Government, and I think it is important that we 
set an example, not only that they should get a fair wage but 
also that we don't allow ourselves to go to the least common 
denominator, and to a large extent contracting out is, as I 
have observed it over the last decade or better, we are missing 
the fundamental points of what government work is all about in 
terms of looking at quality for the best price. But we also 
tend to drive those jobs that are at the lower income scales 
out into the private sector and the private contractor 
generally gets the benefit by not providing the basic service 
that all of us believe workers should have, that is, medical 
and health care, pension programs and a minimum earning wage 
for a family.
    I had the occasion to see firsthand some of this work, and 
I just make two more observations. One, as Mr. Sessions says, 
we should do this because we can save money at practically any 
expense. Well, I made two visits to two military installations 
more than 12 years ago, one in Utah and one in Alaska. In Utah, 
the private contractor came on the base and within several 
months of running the security operation on the base, 21 
missiles were missing and never found. I don't know how you 
account for that lack of security when you have private workers 
coming and going and opening up these bases.
    In Kodiak, AK, they actually contracted out the entire base 
operation, and the contractor failed to perform, and after 1 
year, the base itself was in jeopardy of operating and that is 
the main headquarters for the Coast Guard of the United States.
    So, in many regards, I have seen contracting out turn into 
an absolute disaster. I think the bill that Mr. Wynn has 
introduced, the TRAC bill, represents the best thinking to get 
the best job done for the American worker and the American 
taxpayer, and I urge the sunlight to shine on this problem so 
that we don't dumb ourselves down to the least common 
denominator.
    Thank you, Mr. Chairman.
    Mr. Tom Davis of Virginia. Thank you.
    Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman. I want to 
thank you for holding this hearing. As you know, I joined 22 of 
our colleagues on this committee requesting that Truthfulness, 
Responsibility and Accountability in Contracting Act [TRAC] 
Act, be the focus of the hearing. Although today's hearing 
covers all the issues of outsourcing, I'm pleased that we'll 
have the opportunity to review the TRAC Act. The TRAC Act now 
has over 180 cosponsors and deserves our serious attention.
    Since 1955 the executive branch has promoted outsourcing by 
Federal agencies as a means to purchase commercially available 
goods and services from the private sector. In 1966 the Office 
of Management and Budget issued circular A-76, which 
established how contracting out decisions should be made in the 
government. Most recently, the Bush administration moved to 
promote increased outsourcing by the Federal Government. 
Advocates of outsourcing believe this action will enhance the 
cost savings and efficient delivery of services.
    Well, in my view, the key to cost savings and efficiency is 
competition between the private sector and Federal employees 
for commercial activities, not automatic outsourcing. I'm 
amazed how often the assumption is that outsourcing is always 
better and is automatically accepted as fact. The real fact of 
the matter is that Federal employees all across our country do 
superb work and often at a fraction of the price contractors 
would charge. The Federal work force is an invaluable resource 
that is often taken for granted and, even worse, sometimes 
deliberately denigrated. That makes no sense and it absolutely 
makes no sense to insist on outsourcing when work can be done 
more efficiently and better by Federal workers.
    Unfortunately, the Federal Government has often avoided 
competition, avoided competition by directly converting work to 
the private sector or by labelling work as new so that 
competition becomes impossible.
    Every Member of Congress should support government 
efficiency and saving taxpayer dollars, but in order to 
determine whether taxpayers are receiving savings, true cost 
comparisons must be performed.
    In addition, agencies should be required to keep records of 
the costs and savings associated with both contracting out and 
contracting in. That's why I support the TRAC Act, which 
requires agencies to track the costs and savings of contracting 
out and to conduct public-private competitions. Moreover, the 
TRAC Act abolishes the use of arbitrary personnel ceilings and 
would also require agencies to subject work performed by 
contractors to the same level of public-private competition as 
work performed by Federal employees.
    Mr. Chairman, outsourcing exists because of the theory that 
it saves money and improves efficiency. Unfortunately, for too 
long, we have failed to apply any accountability to whether or 
how often
that theory really works. I want to work with you to make sure 
we have solid data for cost comparisons and then we should 
apply that data in a fair and unbiased way to outsourcing 
decisions.
    Thank you very much.
    [The prepared statement of Hon. Henry A. Waxman follows:]
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    Mr. Tom Davis of Virginia. Thank you Mr. Waxman. Mrs. Mink, 
any opening statement?
    Mrs. Mink. No.
    Mr. Tom Davis of Virginia. I'm not sure if we have anyone 
from Hawaii here today.
    Mrs. Mink. May I ask, Mr. Chairman, if there is anyone here 
in the audience from Hawaii?
    Mr. Tom Davis of Virginia. There you go.
    Mrs. Mink. Aloha.
    Mr. Tom Davis of Virginia. All I can say is that's 
dedication.
    We are going to call our second panel of witnesses at this 
point. We have Barry Holman, from the U.S. General Accounting 
Office. We have Angela Styles who is the Director of the Office 
of Federal Procurement Policy, Office of Management and Budget. 
And we have Ray DuBois who is the U.S. Department of Defense 
Under Secretary of defense for installations and environment.
    I would just say, as you know, it is the policy of this 
committee that all witnesses be sworn before you testify and if 
you'd rise with me and raise your right hands. And Ms. Styles, 
I understand this is your first day back from maternity leave?
    Ms. Styles. Yes, it is.
    Mr. Tom Davis of Virginia. Thank you very much for being 
here.
    [Witnesses sworn.]
    Mr. Tom Davis of Virginia. Please be seated. Just for 
efficient time for questions, we have your testimony in the 
record. All of it will be entered into the record. We'd like 
you to keep your submissions to 5 minutes. There's a light in 
front. You will have green for the first 4 minutes. It will be 
yellow for your 4th minute and at the end of 5 minutes the red 
light will go on, if you could proceed to summarize at that 
point. I'll give you a few seconds. If you don't, I'll tap the 
gavel and ask you to summarize at that point. So Mr. Holman, 
we'll start with you and thank you for being here.

STATEMENTS OF BARRY HOLMAN, DIRECTOR, DEFENSE CAPABILITIES AND 
  MANAGEMENT, U.S. GENERAL ACCOUNTING OFFICE; ANGELA STYLES, 
   DIRECTOR, OFFICE OF FEDERAL PROCUREMENT POLICY, OFFICE OF 
   MANAGEMENT AND BUDGET; AND RAY DUBOIS, UNDER SECRETARY OF 
 DEFENSE FOR INSTALLATIONS AND ENVIRONMENT, U.S. DEPARTMENT OF 
                            DEFENSE

    Mr. Holman. Mr. Chairman, I'm pleased to be here today to 
present our observations on DOD's use of OMB circular A-76 to 
conduct cost comparison studies to determine whether commercial 
activities should be performed by the government or by the 
private sector. DOD refers to A-76 cost comparison studies as 
competitive sourcing.
    My comments today are based on work that we have carried 
out in recent years monitoring DOD's progress in implementing 
its A-76 program with the goal of saving money that may be 
applied to other priority needs. My testimony focuses on the 
evolution of the A-76 program in DOD and addresses the question 
of whether savings are being realized, identifies some key 
issues we've identified that may be useful to other agencies as 
they think about using the A-76 process, and I'll provide a few 
comments on the work of the commercial activities panel which 
you've already referred to.
    First, let me say that DOD has been a leader among Federal 
agencies in the use of the A-76 process in recent years, and at 
one point planned to study over 229,000 positions under that 
process. However, the number of positions planned for study, 
the timeframes for launching and completing those studies, has 
changed over time as the program has evolved. DOD now plans to 
study 160,000 positions under A-76, still a rather ambitious 
goal.
    At the same time, the Department has now augmented its A-76 
program for what it terms strategic sourcing, a broader array 
of reinvention and reengineering options that may not 
necessarily involve A-76 competitions, at least in the short 
term. Strategic sourcing may encompass consolidation, 
restructuring, reengineering activities, privatization, joint 
ventures for the private sector or the termination of obsolete 
services. Strategic sourcing can involve functions or 
activities regardless of whether they're considered inherently 
governmental, military essential or commercial. I should add 
also that these actions are recognized in the introduction to 
the A-76 handbook as being part of a body of options in 
addition to A-76 that agencies must consider as they 
contemplate reinventing government operations.
    The broader emphasis on strategic sourcing today is 
intended to help DOD realize the sizable savings goals that it 
established under its program. DOD has already reprogrammed 
over $11 billion in anticipated savings from A-76 and strategic 
sourcing into its modernization account.
    The second point I would make is that one of the greatest 
topics of interest to observers of the A-76 process is whether 
savings are being realized. My answer to that question is yes, 
and that savings have resulted primarily by reducing the number 
of positions needed to perform activities being studied. This 
is true regardless of whether the government or the private 
sector wins the competitions.
    At the same time, I must add that a variety of factors make 
it difficult to measure the precise amount of net savings from 
A-76. Moreover savings may be limited in the short term because 
the up front investment costs associated with conducting and 
implementing results of these studies. Further reported savings 
from A-76 studies will continue to have some element of 
uncertainty and imprecision and will be difficult to track in 
the outyears because workload requirements change, affect 
program costs, a baseline from which savings are calculated. 
However, considering that DOD has already reduced its operating 
budget on the outyears on the assumption of these savings, it's 
crucial that its estimates be as accurate as possible.
    Third, there are issues which we have raised concerning 
DOD's A-76 program that may serve as a useful lesson for other 
agencies that use the A-76 process. They include the finding 
that studies have generally taken longer than initially 
expected and have generally required greater resources than 
initially projected. Finding and selecting functions to compete 
can be difficult, notwithstanding the existence of the FAIR Act 
inventories, and making premature budget cuts on the assumption 
of projected savings can be risky.
    These issues should not detract from a need to explore 
options for achieving savings but should serve as indicators of 
things to watch for in planning and conducting such studies.
    Finally, increased emphasis on A-76 has served to 
underscore concerns expressed by both government employees and 
industry about the A-76 process. Federal managers and others 
have been concerned about organizational turbulence that 
typically follows the announcement of A-76 studies. Government 
workers have been concerned about the impact of competition on 
their jobs, their opportunity for input to the competitive 
process and the lack of parity with industry offers to appeal 
A-76 decisions. The industry representatives have complained 
about the fairness of the process and the lack of a level 
playing field between the government and the private sector. 
Everyone has been concerned about the time required to complete 
the studies.
    Amid these concerns over the process as you have already 
indicated, the Congress enacted section 832 of this year's 
National Defense Authorization Act. The legislation required 
the Comptroller General to convene a panel of experts to study 
the policies and procedures governing the transfer of 
commercial activities from government personnel to Federal 
contractors. The panel, which includes the Comptroller General 
as the Chair, includes senior officials from DOD, private 
industry, Federal labor organizations and OMB.
    Among the issues the panel will be reviewing are the A-76 
process and implementation of the FAIR Act. The panel had its 
first meeting on May 8th of this year, its first public hearing 
on June 11. At the first hearing, over 40 individuals 
representing many perspectives presented their views. The panel 
currently plans to hold two additional hearings, one on August 
8th in Indianapolis, IN, and the other on August 15 in San 
Antonio, TX. The panel is required to report its findings and 
recommendations to the Congress by May of next year.
    Mr. Chairman, Members, this concludes my summary, and I'd 
be please to answer any questions you might have.
    Mr. Tom Davis of Virginia. Thank you very much and we'll be 
back with you for questions.
    [The prepared statement of Mr. Holman follows:]
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    Mr. Tom Davis of Virginia. Ms. Styles, welcome. Thank you 
for coming.
    Ms. Styles. Thank you. Mr. Chairman and members of the 
subcommittee, I'm pleased to be here today to discuss the 
administration's competitive sourcing initiative and the 
proposed Truthfulness, Responsibility and Accountability in 
Contracting Act [TRAC] Act.
    There are two points I want to clearly communicate today. 
First is the administration's commitment to competition. Second 
is the administration's strong opposition to the TRAC Act. 
Competition is fundamental to our economy and to our system of 
procurement. It drives better value, innovation, performance 
and importantly significant cost savings. A major element of 
our commitment to competition is the administration's 
competitive sourcing initiative. The President has committed to 
opening one half of the Federal commercial workload listed on 
the FAIR Act inventories to competition.
    Implementing this initiative, OMB has taken several steps. 
First, budget was linked to performance planning through the 
President's budget blueprint and through a February 14, 2001 
memorandum from Mitch Daniels, the Director of OMB to the 
departments and agencies.
    Second, this guidance was followed by a March 9, 2001 
memorandum from Shawn O'Keefe, the Deputy Director of OMB to 
the departments and agencies. The memorandum requested agencies 
to develop performance plans to implement the A-76 competitive 
sourcing initiative. For fiscal year 2002, this memo requested 
that the agencies complete competitions or directly convert not 
less than 5 percent of the commercial workload listed on the 
agency's FAIR Act inventories.
    To assist the agencies in meeting this competitive sourcing 
goal, OMB has undertaken a three-part initiative. First, OMB is 
invigorating the use of circular A-76 by introducing positive 
monetary incentives. Agencies get to retain the savings that 
are achieved through A-76 public private competitions.
    Second, OMB will make one or two immediate amendments to 
the circular to expand and improve the process. Importantly, 
tomorrow a proposed change to A-76 will be published in the 
Federal Register for notice and comment. This proposal, if 
promulgated, would remove the current grandfather provision in 
A-76 that exempts inner service support agreements from 
competition. Agencies have long provided commercial support 
services to other agencies on a reimbursable basis. This 
includes a wide variety of commercial support services from 
paycheck services and ADP to facilities operation and 
maintenance.
    The example that I often use is OMB paychecks. Myself and 
all other OMB employees receive their paychecks from DFAS, the 
Defense Finance and Accounting Service within the Department of 
Defense. In other words, the provision of paychecks to OMB 
employees, a clearly commercial service, is provided to OMB by 
the Department of Defense on a reimbursable basis. OMB, or the 
Executive Office of the President, pays DFAS for providing 
these paychecks. The concern is that A-76 exempts this clearly 
commercial service, the provision of paychecks, from 
competition with the private sector. Could these services be 
provided less expensively or more efficiently by the private 
sector? We don't know, because these services don't have to be 
competed right now. The proposed change would require 
competition of these commercial services provided on an 
interagency basis every 3 to 5 years.
    The third part of OMB's initiative is the establishment of 
an A-76 streamlining working group. They will be working with 
the GAO commercial activity panel and taking a hard look at how 
we can improve the A-76 process. As many of you know, the A-76 
process has become difficult to implement. The process takes 
too long, it has generated significant distrust and several GAO 
reports have found weaknesses in the current structure and 
application. What was designed to provide reasonable estimates 
of costs on a level playing field has become so rigid that the 
process itself is an impediment to competition.
    In the long term, OMB anticipates vastly simplifying this 
cumbersome process by replacing the complex and artificial A-76 
cost requirements with a budgeted measure of full agency costs. 
With full cost budgeting the agency's budget cost will 
substitute for the complex A-76 cost comparison requirements. 
The difficulties in implementation of A-76 and our plans to 
make long-term changes do not, however, reflect on our 
commitment to use the current circular to achieve our 
competitive sourcing goals. The circular provides an effective 
and established policy framework that has resulted in 
significant performance improvement and substantial economic 
savings. We are committed to public-private competition, and we 
are committed to using the current A-76 circular to meet the 
fiscal year 2002 competitive sourcing goals.
    I want to make very clear, however, that in supporting 
public-private competition, we support the provision of 
government service by those best able to do so, be that the 
private sector or the government itself. This is not an 
outsourcing initiative. We are subjecting government functions 
to competition. What is the most important is the cost, quality 
and availability of this service, not who provides it. An often 
forgotten fact in this discussion is that more than 50 percent 
of the time the in-house organization wins the public-private 
competition. The simple fact that the commercial function 
undergoes competition creates cost savings, innovation and 
improved performance.
    The second but related issue that I want to address is the 
administration's strong opposition to the TRAC Act. Freezing 
all currently contracted activities to determine if they could 
be performed more effectively by the private sector would put 
at risk the Federal Government's ability to acquire needed 
support services in both the short and the long term. This 
legislation would seriously affect several primary functions of 
government, including the public health and welfare, 
constituting a threat to national security.
    Mr. Tom Davis of Virginia. Ms. Styles, I've given you a 
little bit of time. Could you sum up?
    Ms. Styles. I'm almost done.
    Mr. Tom Davis of Virginia. OK.
    Ms. Styles. Even Medicare would not be able to issue 
payments since this function is performed by contract. We 
estimate the TRAC Act would affect over 230,000 contract 
actions, a simply untenable
outcome.
    Mr. Chairman that concludes my statement and I'll be glad 
to answer questions.
    Mr. Tom Davis of Virginia. Thank you very much.
    [The prepared statement of Ms. Styles follows:]
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    Mr. Tom Davis of Virginia. Mr. DuBois.
    Mr. DuBois. Mr. Chairman, thank you very much for allowing 
me to represent the Secretary of Defense in front of this 
important subcommittee and to address this important issue. I 
have submitted a written statement as you know, but I would 
like to bear particular attention to certain issues that the 
Secretary asked me to bring up this afternoon.
    A-76 competitions, as we all know, attract a lot of 
attention. They generate vital savings results, but they need 
to be put into perspective. Service contracting performed as a 
result of A-76 competitions is estimated to comprise less than 
2 percent of all defense service contracting. While our 
competitive sourcing program may be small in the greater scheme 
of things, it has generated some gratifying results.
    Between fiscal 1995 and 2000, we've completed over 550 A-76 
initiatives that have affected over 25,000 government 
employees. As Ms. Styles said, more than half of those A-76 
competitions, specifically 57 percent in the DOD, were won by 
the government's most efficient organization. The remainder of 
the competitions, 43 percent, were won by the private sector. 
Savings are achieved regardless of whether the work stays in-
house or moves to the private sector. We saw a reduction of 
12,000 government positions involved in the activities studied, 
but relatively few personnel, about 10 percent suffered 
involuntary separation actions. 1,311 were removed from the 
Federal work force through a RIF. We have found that in these 
A-76 initiatives between 1995 and 2000 that we have averaged 34 
percent in savings.
    Now, I know that both Congressman Wynn and Congressman 
Waxman referred to the fact that there were no empirical 
evidence to date underlying these savings. In fact, I believe 
Congressman Wynn also made the comment that GAO has not yet 
provided concrete evidence of those savings. Now, I will defer 
obviously to my colleague to my right from GAO, but we believe 
that both GAO and the Rand Corp. and the Center for Naval 
Analysis examined these savings and their results, their 
analysis unanimously support the fact that realistic savings 
have been achieved.
    In the past year, we specifically asked again that the 
issue of long-term savings be examined and again, the CNA, 
Center for Naval Analysis, confirmed the savings garnered are 
persistent.
    Now, there are a number of issues today that we need to 
talk about to include bill 721, the TRAC Act. We believe in the 
Department of Defense that because the reality of those savings 
is so strong, that any form of temporary suspension of 
competitive sourcing activities would, as a practical matter, 
create an expensive, destructive and unprogrammed cost as 
anticipated savings would not be realized. While there are 
legitimate concerns surrounding this program, we believe it 
would be a real mistake to stop it in its tracks until all 
questions are answered.
    Now, A-76 cost comparison studies are subject to intense 
scrutiny by both internal and external parties. It is certainly 
frustrating that problem situations get a disproportionate 
share of attention, but I know that you are well familiar with 
that phenomenon in the various issues that we all struggle 
with. We identify systemic problems. We have been proactive in 
identifying required changes to procedures, and while the 
process is far from perfect and we continue to seek 
improvement, we conversely do not want to overreact to 
anomalous errors made by well-intentioned, hardworking 
employees.
    It is again important to recognize that among these 
hundreds of decisions during fiscal year 1995 to 2000, only six 
tentative cost comparison decisions were reversed through 
appeal or protest. Sixty-nine percent of all decisions resulted 
in no appeal, and 88 percent of all decisions resulted in no 
protest at all. Unfortunately, the problem cases tend to 
overshadow the many decisions that reflect a solid program.
    The Secretary of Defense this morning testified before the 
House Armed Services Committee, and this afternoon as we speak, 
is testifying in front of the Senate Armed Services Committee. 
In his testimony, he refers to the obligation that we, the 
Department of Defense, the entire Federal Government, have to 
taxpayers to spend their money wisely as reflected also in your 
comments, Mr. Chairman.
    The Department of Defense needs greater freedom to manage 
so we can save the taxpayers money in as many areas as we can. 
The Secretary this morning and this afternoon addressed the 
issue that he is going to submit to the Congress for their 
consideration, that is to say, rationalization and 
restructuring of the DOD infrastructure. Ms. Styles, I believe, 
referred to increasing threshholds in the Davis Bacon Act.
    But we also must address the issue of more aggressive 
contracting out, both in terms of housing and in terms of other 
services that are not military core competencies and that can 
be more efficiently performed in the private sector.
    I just want to make one final remark if I might, Mr. 
Chairman. Yesterday I testified before the Military 
Construction Subcommittee of the House Appropriations 
Committee. I was reminded by Chairman Dave Hobson that I had 
returned to government after 24 years. Both Secretary Rumsfeld 
and I left the Federal Government, left the Department of 
Defense in 1977. We went into the private sector. My first 10 
years from 1977 to 1987 were spent focused on productivity 
improvements both in terms of process, systemic and human. I 
have never been involved with an organization, either as an 
consultant or as an employee or an executive in the private or 
the public sector that could not by better management, by 
better systems, including information systems, operate at least 
5 percent, if not more, more efficiently if given the freedom 
to do so.
    Now in the Department of Defense, one last comment, if I 
might, 5 percent of the DOD budget is over $15 billion. Those 
savings could go a long way to satisfying many of the unfunded 
requirements that exist.
    Thank you, Mr. Chairman, and I look forward to your 
questions.
    [The prepared statement of Mr. DuBois follows:]
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    Mr. Tom Davis of Virginia. Thank you very much. Let me 
start the questioning for 5 minutes. Ms. Styles, in your 
testimony, you discussed OMB's recent directive that agencies 
compete 5 percent of Federal jobs designated as not inherently 
governmental and listed on the agency's inventories under the 
FAIR Act, and then OMB, as I understand, has just added a 
directive requiring 10 percent of these jobs be outsourced in 
fiscal year 2003. What analysis is going in to directing a 
percentage--isn't that prejudging the situation and are we 
becoming subject to quotas here that we have to meet in 
prejudging--that gives me some concern.
    Ms. Styles. I think we need to clarify what may be a 
fundamental misunderstanding is that we are asking agencies to 
compete a percentage of their FAIR Act inventories. We are not 
asking them to outsource a percentage of their FAIR Act 
inventories. When these jobs are competed through the A-76 
process or these functions are competed through the A-76 
process, more than 50 percent of them are won in-house. So it's 
not a question--it is simply a measure of competition, not a 
measure of outsourcing the number of jobs that will be going to 
the private sector.
    Mr. Tom Davis of Virginia. Because I think we can agree--I 
hope we can agree that the bottom line is savings to the 
government and to the taxpayer.
    Ms. Styles. Absolutely.
    Mr. Tom Davis of Virginia. And that's what ought to drive 
this. I think we're going to hear testimony later, we've heard 
some earlier, how do you best determine that? There are clearly 
some consequences and some concerns right now about the way 
it's being measured. You have up front costs with your A-76 
that have to be absorbed, and I haven't heard anybody say A-76 
is the greatest thing going, and you all are relying a lot on 
the A-76 not exclusively, but a lot for that to try to meet 
your goals.
    Ms. Styles. Absolutely, and I'd like to add, it's not just 
cost savings. We're seeing improved management, improved 
performance. We're seeing innovation. All of these things are 
just as important as the cost savings.
    Mr. Tom Davis of Virginia. OK. All right. Thank you. Is OMB 
providing agencies with detailed guidance to help them 
implement this policy and choose the positions to compete?
    Ms. Styles. No. It's going to vary on agency-by-agency 
basis on the number of not inherently governmental positions 
they have, their missions and goals. So we're letting the 
agency decide what is best to meet 5 percent competitive 
sourcing goal.
    Mr. Tom Davis of Virginia. OK. One of the interesting 
things in your testimony, you state that part of the 
administration's policy will include allowing agencies to 
retain the savings they achieve through the A-76 process. Do 
you have limitations on how the agency uses that money? I 
mention that because when I was the head of the county 
government in Fairfax, we would go to our agency heads in tough 
budget times and ask them for cuts, and when we allowed them to 
keep it and then gave them discretion as to how to use it, all 
of a sudden the savings were forthcoming.
    So I'm intrigued by allowing them to do that. We find a 
great reluctance on the part of agencies or subagencies to cut 
their budgets just to pay for somebody that overran their 
budget somewhere else. I assume that's the philosophy that 
you're doing that. I guess my questions are No. 1, how will 
agencies be permitted to use the money, could it be used as a 
work force retention tool to give bonuses to employees for 
their cost savings accomplishments? And also, if an agency 
receives the cost savings, will it affect their budget for the 
following year?
    Ms. Styles. Right. In the past, there have been some 
negative monetary incentives that have been implemented to try 
and get agencies to use the A-76 process. We've decided that 
positive monetary incentives are the best way to achieve these 
goals and we are letting the agencies decide how to use the 
savings that they will be achieving and how to best invigorate 
the employees.
    Mr. Tom Davis of Virginia. Is there any prohibition on 
using that, for example, for bonuses?
    Ms. Styles. There is no prohibition on it.
    Mr. Tom Davis of Virginia. OK. I think that's important. 
One of the fundamental problems we have in government right 
now, and one of the things I see with so much of this 
outsourcing going, is it's hard to keep in-house capabilities 
sometimes given the different pay differentials between, and 
particularly in IT areas but in some others, between what you 
can make on the outside and what you make inside, and if we 
don't reform, how we are compensating people within government, 
that outsourcing is inevitable no matter what your past because 
you have to get the job done and you're not being able to get 
and reward and train people that are in government to do the 
job now. How do you see that? And I'll also ask the other 
panelists if they'd like to comment on that, particularly you, 
Mr. DuBois. Is that a problem at Defense?
    Mr. DuBois. I think that the issues of how many we've got 
to address will always provide a certain amount of problems for 
us.
    Mr. Tom Davis of Virginia. Say that again.
    Mr. DuBois. I'm sorry, repeat your question so I better 
understand it.
    Mr. Tom Davis of Virginia. I'm saying in-house training, 
retraining people, recruiting, retaining good people in-house 
is increasingly difficult in some of these areas, given the 
compensation methodologies that you have available to you and 
what competition offers on the outside. Outsourcing is 
inevitable under that panel unless you substantially alter the 
compensation package within agencies. Do you think that's an 
accurate statement?
    Mr. DuBois. That's right, and of course on the military 
side we have a bonus structure that can somehow address those 
issues. We also have a bonus structure with respect to SCS 
employees, although we are constrained to the extent we don't 
have the same flexibility as the private sector does. When it 
feels or when it believes it needs to, a company needs to 
attract computer programmers in a particular language, it can 
immediately adjust the opening salary or the attractiveness of 
that salary to do so. We can't do that in the government.
    Mr. Tom Davis of Virginia. Thank you. My time's up.
    Mr. Turner.
    Mr. Turner. Mr. Holman, I want to ask you, based on your 
experience to address one of the, what I think is one of the 
more difficult issues we face. We know the administration has 
suggested these percentages that we need to look at in terms of 
outsourcing, and Ms. Styles has said well, the intent is to be 
sure there's competition, it's not an automatic, and yet when 
this proposal was initially laid out by the administration, I 
believe it was the Deputy Director of Management, Mr. O'Keefe, 
when he was asked the question about how this would all be 
carried out and whether or not to reach these numbers, the 
agencies would just have to go to direct conversion rather than 
competition, and his response, as I recall from reading that 
interchange was, he said well, let's talk. So that left a lot 
of the Federal employees groups very uncertain about how this 
is all going to work, and obviously if you're going to be 
pushed toward some magic number, it will be a lot easier just 
to go to that conversion, and I understand there are some 
difficulties, there's some time constraints involved in doing a 
true public-private competition.
    The numbers that I have indicated that only about 1 percent 
of the service contracts undertaken by DOD were undertaken with 
public-private competition. In the civilian agencies as a 
whole, that number is about one-tenth of 1 percent, and at the 
heart of this seems to be that we're trying to achieve a fair 
competition, and in many instances, the Federal employees can 
submit a proposal that would be superior to a private 
contractor and yet the way this process seems to be working, we 
really don't see that happening very often. Why is it that we 
have such low percentages of true public-private competition in 
outsourcing?
    Mr. Holman. That's one of those questions that I wish that 
there were more data available that would help us to get a 
handle on that issue. I mean, you're absolutely right. The data 
we've seen suggests between 1 and 2 percent of contracts that 
are awarded; service contracts are done under A-76. As we've 
seen data that looks at where are the increases in service 
contracting that's occurring, we see it's occurring for 
information technology; or we see it's occurring for studies 
and so forth. I can't give you a precise answer as to why we 
don't see more in that area, other than perhaps it's for work 
that's not already being done in house. It's additional work 
that's required, new work or so forth.
    But in terms of your earlier question, in terms of the 
direct conversion, one of the things we're still looking 
forward to see is to see what the impact of OMB's new directive 
in terms of DOD's ongoing program. I mean, DOD is the only 
agency that's got an extremely robust A-76 program already. So 
we're looking ourselves to see how OMB's new direction would 
impact that program, whether it would add to it to the existing 
plans for competitive sourcing studies.
    Certainly, DOD has done its share of direct conversions, 
and those are authorized. When you have fewer than 10 employees 
that are affected by the action, you can do that. Or if you are 
converting military positions. So a good share of DOD's actions 
under A-76 have been direct conversions. How many of them will 
be in the future, I'm not sure. But it does have a fairly 
robust program of public-private competitions.
    Mr. Turner. Well, obviously you've done 10 times better 
than the rest of the Federal agencies. But it does seem it's 
going to require a commitment, Ms. Stiles, from the 
administration to insure that there's a vigorous effort made to 
have a true competition. I also have some concerns about a 
problem that I always have suspicioned exists, that once we out 
source, then it also becomes sort of an out-of-sight and out-
of-mind decision.
    You know, it's often easy to criticize the Federal 
Government for not being aggressive about promoting competition 
and continuing to maintain a large Federal work force. And yet 
the other side of the coin can also be true, once out sourced, 
if it becomes an out-of-sight, out-of-mind decision, then that 
activity becomes a captive to the private contractor; and when, 
in fact, upon renewal of the contract, often times the price 
continues to rise at a rate that it would not or should not 
were there again, true competition.
    And I'm interested in the DOD's experience, the degree to 
which you conduct, if at all, postcontract reviews of outsource 
activities to assess whether or not there are cost savings that 
are achieved over time. As you know, the GAO reported, as well 
as the administration recently, that there's been very little 
savings as a total in terms of the cumulative activities of 
outsourcing, very little savings, if any, even though there 
were examples of savings in certain activities. But overall it 
seems the A-76 program has not resulted in significant savings, 
if any at all, based on the administration's reports, as well 
as the GAO reports. So what do we do to insure there is an 
accurate and adequate postcontract review, see if there's 
really savings there?
    Mr. Holman. Well, Mr. Turner, we in GAO we've looked at a 
number of case studies of A-76 competitions. We've tried to 
address that issue; and certainly one of the things we see, 
that it becomes difficult to track what happens to these 
examinations--results of these actions over time, if 
contracting action is the result of an A-76 competition. You 
certainly can tell it at the point of the competition because 
you have the comparison between the public and the private 
sector. As that contracting action ages, you have changes in 
the work requirements; new work may be added. And we'd look to 
see what extent there may have been limitations to how the 
original performance work statement was written that would 
cause changes to occur. You have changes in the mandated wage 
rates under the service-contracting act. Those things happen 
over time.
    It sort of gives you a distorted picture or an inability to 
make a direct comparison to where things were at the original 
point of competition. But to the extent we've been able to do 
some case studies within 1 or 2, 3 years of competitions, we've 
seen that those savings are still there. We've seen some of the 
things I've talked about in terms of wage-rate changes. We've 
seen changes in performance work statements. We've seen 
limitations and how the original savings were calculated; 
limitations in the baseline, to use to compare savings. But 
when we take all those things into consideration, based on the 
case studies we've been able to do, the majority of them, we 
found savings continue. I think over time the issue becomes one 
of if you want to assure continued savings, it becomes an issue 
of recompetitions after so many years, again, to--I think the 
issue is competition as the driver to force, encourage the 
savings. I think that is probably the answer.
    Mr. DuBois. Mr. Turner, may I add a comment?
    Mr. Turner. Yes, Mr. Secretary.
    Mr. DuBois. As I indicated in my opening statement, the 
Center for Naval Analysis has done and continues to study these 
issues. In fact, they examined in detail 16 cost-comparison 
studies, and the study found that real savings were generated, 
were persistent, and that in more than 80 percent of the cases, 
performance levels were sustained or improved as reflected in 
satisfaction levels of users and observers of performance. 
There are two in particular that I think are worthy of note: 
one in your home State of Texas, Goodfellow Air Force base, 
where in the MOU the Government in-house officer was the 
winning offer. Back in October 1994, there were 311 total 
government positions in competition. And this was for base 
operating support, things such as facility maintenance and 
repair, motor vehicle operations, supply operations, base 
telephone, switchboard, etc. The in-house offer which won 
reduced from 311 the number of government positions to 176 
civilians. A 37 percent expected savings was predicted, $22 
million. The observed savings was also achieved at that level, 
and the effective savings, that is, to say the difference 
between the baseline costs and the real costs to providing the 
same set of functions as defined in the performance work 
statement was $27 million.
    There was one other issue, one other specific that I 
thought was worth mentioning, wherein the private sector won, 
Peterson Air Force base in Colorado. The functions competed 
were vehicle operations and maintenance. The original number of 
government positions in competition were 99. The private sector 
bid won, resulting in 73 positions, a $7.3 million expected 
savings; in terms of observed savings, slightly less, $6.6 
million. In both cases, the performance level results were 
satisfied or very satisfied by the user.
    There were a couple of other points that you made that 
perhaps I could clear up just a bit. And one is that A-76 
procedures only apply to work currently done in house. My 
comment that 2 percent, only 2 percent of the services 
outsourced were done under the A-76. It doesn't include new 
work or, as an example, the Navy-Marine Corps intranet 
procurement. It's essentially a service contract, but it's also 
$13 billion, the largest in the history of the Department, and 
was not done under A-76. The issue about competition or the 
sustainment of a competitive environment and atmosphere, of 
course, the contract is not forever. It is not in perpetuity. 
Most contracts are recompeted every 5 years, and every contract 
is reviewed every year. And some contracts have been 
discontinued, as was mentioned earlier today. Thank you.
    Ms. Stiles. Mr. Turner, if I could make a statement there. 
I'd like to clarify A-76, the circular itself, does apply to 
new work. In-house organizations can submit a bid for new work 
under the circular. And I'd also like to say that for our 
fiscal year 2002 goals, only direct conversion, under 10 people 
applies. And only A-76 private--public-private competitions 
apply. So those are the only two things that the agency can use 
to meet our goals.
    Mr. Turner. Thank you. Thank you, Mr. Chairman.
    Mr. Tom Davis of Virginia. Thank you. Ms. Davis.
    Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Chairman; and 
thank you all for being here to testify today. Mr. Holman, one 
of the most important elements of the competitive outsourcing 
is the ability of the Government to access the latest in 
technologies provided by our private industries. It's 
especially true with our Armed Forces. Do you believe that, if 
implemented, the TRAC Act will hinder the military as it moves 
into the 21st century?
    Mr. Holman. Ms. Davis, that's--I like that question. It's a 
tough one to answer, but I like it. I'm in sympathy with much 
of what's being tried to be accomplished with the TRAC bill in 
terms of trying to get more information. Certainly, there's a 
frustration there at times of not being able to know more of 
what's taking place. One of the issues as I look at the TRAC 
bill is just that one, what would happen in the area, say, of 
information technology if the TRAC bill is intended to cover 
all contracting actions and, as I indicated just a few minutes 
ago, we see so much of the contracting actions taking place 
today, a large increase related to information technology. We 
know there's difficulty in attracting and retaining personnel 
with that capability. So it does raise a question of how it 
would affect that area.
    Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Holman. 
You'll find that the Armed Forces, or Armed Services, is very 
important to me for my district. And in the same light, you 
know, we just had a problem with one of our small bases where 
the A-76 study was being conducted; and I had a lot of 
constituents, quite a few actually, who only had a year left 
until they retired. So you know, it's a double-edged sword for 
me. I don't want to see, you know, my constituents lose their 
jobs; but yet our national security interest is of utmost 
importance for me.
    Which brings me to a question for you, Mr. DuBois. The TRAC 
bill, according to Mr. Wynn's testimony, would make exceptions 
in the case of the national security interest. Who would 
determine the national security interest? Under the TRAC act, 
could the DOD remove itself or would the GAO make that 
decision? Do you know?
    Mr. DuBois. I'm not sure, Ms. Davis. I'll have to look into 
that and report back to you.
    Mrs. Jo Ann Davis of Virginia. If you could let me know 
that, I would really appreciate it.
    Ms. Stiles. I believe it would be OMB that makes the 
determination.
    Mrs. Jo Ann Davis of Virginia. OK. Thank you very much, Mr. 
Chairman.
    Mr. Tom Davis of Virginia. Thank you very much. Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman. Ms. Stiles, as you 
know, a panel of experts chaired by GAO Controller General 
David Walker has been established to examine the OMB circular 
A-76, and they're due to report to Congress on reforms next 
year. We've heard those in support of the TRAC action we should 
wait until next year before pushing for its passage so that we 
may have the benefit of the panel's report. On the other hand, 
the Bush administration certainly didn't take this approach.
    As you mentioned in your testimony, in a March 9 
memorandum, OMB's Deputy Secretary Sean O'Keefe expressed the 
President's commitment to review at least one-half of the 
Federal positions listed on the FAIR Act inventory of 
commercial functions for possible contracting out. That 
translates to a cut in the Federal work force of as many as 
425,000 people. Reducing the Federal work force by 425,000 jobs 
certainly appears to be a broad change. I'm curious to know why 
the Bush administration didn't wait for the panel's report 
before choosing to aggressively promote contracting out.
    And before I ask you to comment on that, I want to point 
out that from the beginning of its tenure, the Bush 
administration has taken a series of antiworker actions. First, 
President Bush issued a number of Executive orders, including 
one that eliminated the National Partnership Counsel, which was 
created to improve labor management relations throughout the 
Federal Government. Second, the administration repealed their 
ergonomics rule and is working to permanently delay 
implementation of the contractor-responsibility rule. Now the 
Bush administration is pushing for more outsourcing. You've 
suggested you're just opening the work to competition, not 
automatically outsourcing; yet the March 9 memorandum states 
that direct conversion is possible as an alternative to public-
private competition.
    The Bush administration, in my view, should rescind this 
latest policy of aggressive outsourcing and follow its own 
rhetoric. It should wait until it has heard from the panel of 
experts about how the Federal Government can improve, but 
certainly not abolish the private-public competition process.
    What's your response?
    Ms. Stiles. Direct conversions are part of the A-76 
circular, and only direct conversions of less than 10 employees 
will apply. So if you look at the competitive-sourcing goal, 
it's a competitive sourcing initiative. Competition is the key. 
It is not outsourcing. The only two items that will apply are 
direct conversions of less than 10 people, this is for fiscal 
year 2002, and A-76 public-private competitions.
    Mr. Waxman. There's been repeated talk and pressure to 
reduce the Federal work force; and those who call for a 
reduction in the Federal Government, they said the Government 
will get smaller if we have a smaller work force and taxpayers 
save money. But the facts show that shrinking the Federal work-
force does not shrink the Federal Government because 
contractors are hired in place of the Federal workers. Paul 
Light of the Brookings Institution estimates a contractor work 
force is 5.6 million people strong and the Federal work force 
is less than a third of that, at about 1.8 million people. He 
further explains that except for DOD and DOE reductions due to 
the end of the cold war, the size of the contractor work force 
is increasing rapidly, and the trend is to continue expansion.
    With a contractor work force more than triple that the size 
of the Federal Government, I find it troubling that some 
suggest we're decreasing the size of government. Now President 
Bush wants to reduce the Federal work force by as many as 
425,000 more people. Do you have any guarantees that this 
further reduction will result in a smaller Federal Government 
and save taxpayers dollars?
    And before you answer that question, I want to add that I 
think we're heading in the wrong direction. The existence of 
5.6 million contractors is stunning. Sometimes agencies have to 
hire contractors to be the overseers of other contractors. OMB 
should be reviewing its policies to decrease its reliance on 
contractors. Also OMB should ensure that Federal workers are 
available as contract managers. In addition, OMB should be 
measuring the Federal Government's performance by quality, not 
by reductions in quantity. And even if the goal is to reduce 
the Federal work force, which I think is a misguided goal, we 
cannot suggest that we have made such a reduction if we've 
added contractors to replace Federal employees.
    What do you have to say to that?
    Ms. Stiles. I'm sorry. What is the question?
    Mr. Waxman. Well, my question is, how do you respond to the 
comment by Mr. Light at Brookings that we're not reducing 
government? And then do we have any guarantees that this 
further reduction in the work force will result in a smaller 
Federal Government and save taxpayers dollars?
    Ms. Stiles. The A-76 Competitive Sourcing Initiative is 
part of a much larger goal of the administration to link budget 
to performance. This isn't an outsourcing initiative. We want 
to be able to reflect the true cost of contracting to the 
taxpayer. What A-76 does is when you have the public-private 
competition, you get to see what the true cost is, which you 
don't get to see in the current budget process. So it's part of 
a much larger initiative that we're looking at right here. I 
think several people from OMB have spoken earlier this week on 
our move for full cost budgeting.
    Mr. Waxman. Well, let me ask you to respond to that first 
question I asked you and that's, why isn't the Bush 
administration waiting for the GAO report on this whole subject 
before moving aggressively in the area of reducing the work 
force of the Federal Government?
    Ms. Stiles. We're not aggressively moving to reduce the 
work force. We're moving for competition for the goals of 
savings, innovation and improved performance, as well as 
improved management.
    Mr. Waxman. I know, but GAO will tell us whether we're 
really get savings and efficiency and all of those good goals. 
We ought to find out their evaluation of what we've done to 
this point first.
    Ms. Stiles. We are actively participating in the GAO review 
panel, but we're not going to wait for the benefits of 
competition.
    Mr. Waxman. Well, my time is up. I think you're not waiting 
until you get the benefits of the information that I think 
would give you a better basis for making a decision as to what 
direction to pursue. Thank you, Mr. Chairman.
    Mr. Tom Davis of Virginia. Just to go on with what Mr. 
Waxman was saying, if I could continue. One of the major 
concerns--and I think I expressed this in my early concerns--I 
think I was allayed with what you said, but let me make sure I 
understand. Cutting Federal employees doesn't mean you save a 
nickel. You agree with that. Correct?
    Ms. Stiles. Absolutely.
    Mr. Tom Davis of Virginia. I mean, the real question we 
ought to ask is not how many Federal employees you have or 
don't have, but how much money are we saving the taxpayers. And 
I think I've heard at least from this panel a unanimous 
agreement that just by competing out, even if it's kept in-
house, it gets more efficient by having to go through the 
competition. Is that, at least on this panel, is that how it's 
felt?
    Ms. Stiles. Absolutely.
    Mr. Tom Davis of Virginia. But ultimately I think the 
previous administration set some arbitrary numbers. We had some 
problems in our district where a number of people were going to 
be cut from the Federal work force as if this somehow 
accomplished something good. And at the end of the day, we've 
got to ask did you save any money by it. And it's something 
this subcommittee's got to watch because we're interested in 
savings, absolutely. But I am not sure that you can always 
equate getting rid of Federal positions as savings.
    And you have to make that case, and I think how we measure 
that is, as I read the study from GAO, we're not always 
accurate in terms of how we determine that. We need to look for 
better ways to do that. Certainly, from the Federal employee 
community, there's a concern that some of these go out; and you 
track it 3, 4 years later as the work orders change, it's very 
difficult to measure if you've got real savings or not. And I 
think you can understand that.
    Ms. Stiles. I think a large part of the problem was, as I 
was trying to describe, is that we don't have full cost 
budgeting right now. A program manager in the Federal 
Government can't make a rational decision based on the true 
cost to the taxpayer because of the current budget process, and 
we are trying to change that. We are trying to reflect the true 
cost so they will know and be able to make a rational decision 
on what should be performed, and by whom.
    Mr. Tom Davis of Virginia. OK. The FAIR Act by publishing 
yearly inventories of commercial functions by positions has 
made commercial activities within the Federal Government 
transparent. What efforts does OMB plan to provide the same 
transparency with the contractor work force? Do you understand 
what I'm saying?
    Ms. Stiles. No. Can you repeat that?
    Mr. Tom Davis of Virginia. Yeah. We publish yearly 
inventories of commercial functions by positions within the 
Federal Government. OK? And you do that under the FAIR Act. On 
stuff that's already outsourced, are we reviewing that to make 
sure that this meets the same criteria in looking at bringing 
some of that in-house or not?
    Ms. Stiles. There has been initiative within the Army, 
which----
    Mr. Tom Davis of Virginia. All right. Maybe Mr. Dubois, are 
you familiar with that?
    Ms. Stiles. But I can also say----
    Mr. DuBois. I'm not familiar with the specifics of the 
Army.
    Mr. Tom Davis of Virginia. Well, could you look at that and 
get back with us.
    Mr. DuBois. I certainly will.
    Mr. Tom Davis of Virginia. I think everybody needs to 
understand all the rules. This is very complicated. I've been 
doing it for years, and there's still things I don't 
understand.
    Ms. Stiles. I mean, as a general proposition, we know the 
service dollars that are being contracted. I think the cost of 
determining the contract employees far out weights the benefits 
of knowing that number. I mean, the cost to determine that is 
rather substantial, and ultimately it comes back to the 
taxpayer because contractors, if they're going to have to tell 
us those numbers, are simply going to charge us more for the 
goods and services they're providing.
    Mr. Tom Davis of Virginia. Let me ask you this: in recent 
years there's been a significant emphasis on reducing the size 
of government. To what extent are FTE ceilings, full-time 
equivalent employee ceilings, on the Federal Government or 
civilian work force, either implicitly or explicitly forcing 
agencies to contract for services? Have you seen any of that?
    Ms. Stiles. No, and that is not certainly any part of our 
initiative.
    Mr. Tom Davis of Virginia. It's not in here. It has been, 
though. It was previous to this that there were FTE goals that 
were sent out, both by Congress and the administration.
    Ms. Stiles. We do not believe the agency--Department should 
be managing based on FTE ceilings.
    Mr. Tom Davis of Virginia. OK. Mr. Holman, you agree with 
that?
    Mr. Holman. I think in the past we've seen concerns on the 
part of government workers the perception that there were 
artificial ceilings that were forcing work to go out of house. 
It's one of those things that's difficult to gauge. But to the 
extent there are, you know, arbitrary ceilings or artificial 
cuts mandated in the Federal work force that aren't necessarily 
tied to specific reductions in work, I think it fosters that 
perception.
    Mr. DuBois. Mr. Chairman, if I might, both in the public 
and in the private sector, I've seen these so-called head-count 
exercises. In fact, as a practical matter, the Congress 
requires the Department of Defense to submit every year a 
management report on how many folks are in their so-called 
headquarter units and components beginning with, obviously, the 
Office of the Secretary of Defense. My view, and I think the 
view of the Secretary, is that to utilize only that metric--the 
metric of head-count and not the metric of how much we're 
spending to get what level of service doesn't make much sense.
    Mr. Tom Davis of Virginia. Last question for the GAO here. 
Could you report to the subcommittee, not today, all of the 
reporting and the auditing requirements that contractors have 
to comply with today when they're contracting with the 
Department of Defense. That would be helpful for us. And if you 
could then say also with the civilian agencies and just look at 
what we are asking them to do in terms of getting information 
back to us on these, that would be helpful to us. As you know, 
we end up getting charged for this.
    Mr. Holman. Dealing with the A-76 process?
    Mr. Tom Davis of Virginia. Contract-wide.
    Mr. Holman. OK. We can work with you on that.
    Mr. Tom Davis of Virginia. And in general there are going 
to be obviously specific contracts where you're asking for 
other items and stuff. But we'd like to understand what burden 
we're putting on contractors in terms of reporting back; what 
information we're getting; is it the right information; should 
we be getting additional information, or is there some 
information here that's maybe not useful.
    Mr. Holman. OK. Yes, sir.
    Mr. Tom Davis of Virginia. I thank you. I'm sorry. Mr. 
Kanjorski.
    Mr. Kanjorski. Thank you very much, Mr. Chairman. The 
testimony I've heard so far sort of concentrates on cost and 
quantity, the cost to the Government and the quantity of 
employees, or the private sector contractor employees. I'm more 
interested, have you done any followup, Mr. Holman, on the 
effect of quality? Let me give you an example. If we wanted to 
save in congressional offices, we'd just adopt a policy that we 
fire an entire staff every 2 years and rehire them, because 
they'd never have to be paid an incrementally higher amount. 
But then we'd be trading off some experience and some quality 
that we assume employees gain over a number of years of 
performing a certain task. Are you examining the loss of 
quality in the Federal work force that occurs by this shifting 
to the private sector?
    Mr. Holman. Well, Mr. Kanjorski, we've done some case 
studies ostensibly to try to get information on what happens to 
costs. We've also been sensitive to that issue of quality of 
service being provided; and certainly, you know, we've seen 
cases here or there where there have been contractor problems, 
contractor default. But they've been the minority of cases that 
we've looked at. I mean, one of the benefits of the A-76 
process is that agencies are required to put in place a 
management plan to oversee these contracts. And again--and it's 
been a limited number we've been able to look at; but where we 
looked at them, the quality has pretty much been there.
    Mr. Kanjorski. OK. Well, I'm curious. I could give you a 
suggestion to the Defense Department. A number of years ago, I 
went through your educational program and it's probably 9,000 
teachers in the Defense Department. Many of them have 20, 30 
years of experience. They're exceptional. You could fire them 
all and hire recent college graduates and save an enormous 
amount of money, probably 50 percent. Now, I don't know what 
the tradeoff is there.
    But let me talk about something that does disturb me and 
that is recently we sent helicopters to Kosovo, and I think 
they were on the ground for at least 60 or 90 days and never 
took off. And as I understand, the reason is that they were not 
maintained and ready for combat service, because all of the 
maintenance and service for most type of facilities and most 
aircraft in the Defense Department are provided by contractor 
employees not government employees. Now, I was astounded to 
find out that we're sending combat forces into combat zones, 
and we have to bring contract employees to service them. I 
can't believe that's a moving Army. And if you can justify that 
in the name of savings, I've got a good deal. China Inc. has 
offered to maintain the entire Air Force of the United States 
at a much cheaper price. They'll even build the planes for you 
cheaper. But is that where we want to go?
    Mr. DuBois. No, I don't think that's where we want to go, 
Congressman. I would suggest that particular situation, which 
is in another component other than mine, the helicopters and 
the maintenance contracts----
    Mr. Kanjorski. Well, is that correct or not?
    Mr. DuBois [continuing]. Were not the Department of 
Defense. They were another agency.
    Mr. Kanjorski. They were what?
    Mr. DuBois. They were not Department of Defense contracts, 
as far as I understand. They were another agency's contracts.
    Mr. Kanjorski. They weren't the Air Force?
    Mr. DuBois. Not to my knowledge.
    Mr. Kanjorski. Do we have a helicopter service or 
something?
    Mr. DuBois. No. You might address your question to the Drug 
Enforcement Agency.
    Mr. Kanjorski. I'm sorry.
    Mr. DuBois. You might address your question to the Drug 
Enforcement Agency as opposed to----
    Mr. Kanjorski. In Kosovo it was the Drug Enforcement 
Agency?
    Mr. DuBois. No. I'm sorry. I thought you were talking about 
South America.
    Mr. Kanjorski. No, I was talking about Kosovo. We put in 90 
Black helicopters, or whatever they call them.
    Mr. DuBois. Blackhawks.
    Mr. Kanjorski. None of them flew in combat because they 
were not ready for combat and because we did not have the 
maintenance force in place to service them. That's what my 
understanding was.
    Mr. DuBois. I think it's a legitimate question. I'll get 
you an answer on that. It's an area outside my component.
    Mr. Kanjorski. OK. Am I correct that all these military 
bases across the country, the military does not provide the 
maintenance work force; but, in fact, those are all private 
contracts out there?
    Mr. DuBois. To my knowledge that is not correct, sir.
    Mr. Kanjorski. OK. Do you know what number is privately 
contracted out?
    Mr. DuBois. No, I don't. I'll get that answer for you.
    Mr. Kanjorski. OK. I would suggest there is a military base 
outside of Boston, MA, that has 1,500 aircraft maintenance 
people. They're all private contractors. They're not government 
employees. Now, I haven't checked the others; but I'd like you 
to look into that because I think it goes right down to the 
level of what I'm talking about, quality, and providing the 
needed operation. I've got a facility in my district that's a 
depot and it's an electronic depot. And now they're allowing 
contractors to provide throwaway items that do not meet 
military specifications. And a lot of this equipment's going to 
get into the field and not work. And what are we going to do 
about this? We have billions of dollars and a strong Army to 
move; but all because of this cost, and I don't not want to 
save costs.
    But carried to its ultimate result, we should hire the 
Chinese Army. It'd be a lot cheaper in defense. And I'm afraid 
in government we're getting carried away. Ms. Stiles, I'm not 
picking on you. But a couple of years ago, one of the 
administrations wanted to replace the IRS accounting with 
private contracting firms. And it makes eminent sense. You 
could make a great argument about it. But I can tell you, I'm 
one of the taxpayers that doesn't want a private contractor 
person knowing what my income tax statement is. And there's 
confidential information in government all the time that is 
given to government because they can lose their jobs; they can 
be prosecuted. They have to perform a standard to keep their 
job. But you're looking at it from a dollar sense. Your 
paycheck, you know, do you want a private contractor to provide 
that paycheck and know everything about you? It's up to you. I 
don't particularly think that's always the best quality of 
service.
    Mr. Tom Davis of Virginia. Thank you. The gentleman's time 
has expired.
    Ms. Stiles. If I can address that?
    Mr. Tom Davis of Virginia. Sure.
    Ms. Stiles. I think even if there were not any cost savings 
associated with our competitive sourcing initiative, there is 
so much improvement in management and performance and 
innovation it would probably be worthwhile if there weren't the 
savings there.
    Mr. Kanjorski. Why don't you start on the management side, 
as Mr. Waxman said, and wait for the review board to come back 
before we start putting in these new Executive orders and 
change the system?
    Ms. Stiles. We don't have any new Executive orders, and we 
were working with the GAO review panel; and we intend to 
continue to do so.
    Mr. Tom Davis of Virginia. The gentleman's time has 
expired. Ms. Davis.
    Mrs. Jo Ann Davis of Virginia. Yes, I just have one quick 
question, Mr. Chairman. Ms. Stiles, you stated when I asked the 
question earlier on the TRAC legislation that OMB will 
determine the national security interest. Currently with the 
outsourcing, who determines whether something is national 
security interest when they hire, you know, when they outsource 
it?
    Ms. Stiles. If it's an inherent governmental function, it 
is not subject to A-76.
    Mrs. Jo Ann Davis of Virginia. Would maintenance of 
aircraft be considered national security interest?
    Ms. Stiles. I'm assuming the determination is probably made 
by the Department of Defense.
    Mr. DuBois. Right. And certain aircraft are maintained by 
the original equipment manufacturer. Other aircraft are 
maintained in our depot systems, and that is determined by the 
service chief in each individual service.
    Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Chairman.
    Mr. Tom Davis of Virginia. Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman. Ms. 
Stiles, and all of you, I thank you for being here. And Ms. 
Stiles, I want to pick up where you left off question before 
last. You said even if there wasn't cost savings--could you 
repeat that for me?
    Ms. Stiles. This initiative would be worthwhile even if 
there weren't savings associated with it because what we see 
through public-private competitions is significantly improved 
management, be that on the private sector side or in in-house 
organizations. We see innovations, and the benefits are 
significant. It's not just cost savings.
    Mr. Cummings. And I'm sure that you could refer us to the 
reports that you're talking about so we have a basis for what 
you just said?
    Ms. Stiles. Well, I think Mr. Holman, a few minutes ago, 
was talking about the quality; and I think they have said that 
the quality is good. But I would certainly submit for the 
record.
    Mr. Cummings. Yeah, I'd like to know what you base your 
opinion on. OK?
    Ms. Stiles. OK.
    Mr. Cummings. One of the things I guess that has always 
concerned me--and as I walked up the hall to see all the people 
in the hallway and I have a lot of Federal employees in my 
district, it seems like so often what happens is Federal 
employees get a bad rap. And I think that--and these are hard-
working Americans who give so much to their country. They are 
the glue to keep our country together. And sometimes I really 
begin to wonder about whether we are true to them as they are 
to us.
    And then I look at a situation where just yesterday it was 
reported by the General Accounting Office that there were some 
health care contractors who were taking seminars given by 
consultants on how to take advantage of Medicare and Medicaid 
through questionable billing techniques. And then a matter that 
I'm very close to since I'm the ranking member on our Criminal 
Justice Subcommittee, Ogilvie and Mather, who was contracted by 
the Federal Government to produce some--we contracted with 
them, this advertising agency, to do some work for us with 
regard to our antidrug messages. And they have been referred to 
the Justice Department by this administration.
    Can you tell me what guidance your office has given 
agencies to insure that the proper contract--the managers are 
in place to avoid this kind of abuse? Because we should be just 
as upset about people, private contractors who allegedly, in 
this case, abuse the system, misuse our tax dollars that we've 
worked hard to give to the Government. We should be just as 
concerned about them as we are about the things that you're 
talking about today. And since these are folks--and we spent 
millions, millions upon millions of dollars for an ad agency to 
put out ads to help our children, to save their lives, to keep 
them off of drugs. And now we've got a referral by the Bush 
administration to the Justice Department. So help me with that.
    Ms. Stiles. I think there are always going to be problems, 
but hopefully they're ones that we can solve through our 
current Federal acquisition system. I think your first 
reference was to the Medicare contractor; is that correct?
    Mr. Cummings. Yes.
    Ms. Stiles. Medicare contracts are not governed by the same 
rules that other contracts are governed by the Federal 
acquisition regulation. Hopefully, though, those regulations do 
work. And the system does work most of the time. And to the 
extent it doesn't, I think we need to try and fix it.
    Mr. Cummings. I mean, are you doing anything to--again, my 
question was, what guidance are you giving OMB as to how to 
deal with these agencies to ensure that these kinds of things 
don't happen?
    Ms. Stiles. Well, I mean, we have a whole set of 
regulations that we work with all of the civilian agencies to 
implement to make sure that we have a procurement system that 
works. And the entire Federal acquisition regulation is there 
to ensure that we provide--that the contracts that we have are 
good contracts and run efficiently and effectively and that we 
avoid these problems. But I think they are going to happen 
sometimes.
    Mr. Cummings. Now, going back to my first statement, when 
you've got people who have worked hard for the Government for 
many years, who have tennis shoes to buy this September, who 
have to feed their families, and who have done a good job over 
and over again, I mean, I'm just wondering what's the Bush 
administration's feeling about them, like the people who are 
sitting behind you, all of whom represent families----
    Ms. Stiles. Absolutely. I don't think----
    Mr. Cummings [continuing]. Just like you do.
    Ms. Stiles. Actually, I don't think our feelings are any 
different than yours.
    Mr. Cummings. I'm sorry. I didn't hear you.
    Ms. Stiles. We fully support the Federal work force. My 
experience has been with the acquisition work force before 
coming to this job, and it's been an excellent experience. We 
have good workers out there.
    Mr. Tom Davis of Virginia. OK. Thank you very much. The 
gentleman's time has expired. Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chair. I want to 
thank the Chair for his indulgence in allowing me to ask a few 
questions, and I want to thank the panelists for their 
participation. Mr. Chairman, I just want to start out by 
explaining that I have a situation back in my home district in 
Cleveland, OH, where the Defense Financial and Accounting 
Service [DFAS], employs about 450 people in Cleveland who 
perform retiree and annuitant pay functions for the military. 
This operation was recently contracted out through an A-76 
review to a company called ACS Government Solutions Group. And 
apparently, this firm has said that it's going to provide 
savings to the Government over the next 10 years. So this 
conclusion is certainly subject to close consideration.
    I would like to ask a question to Ms. Stiles. Do agencies 
monitor the type of wage-and-benefits package contractors offer 
their employees once work is outsourced?
    Ms. Stiles. As a general proposition, no. There has been an 
initiative----
    Mr. Kucinich. Could you speak closer to the mic?
    Ms. Stiles. Certainly. As a general proposition, there has 
been a general initiative----
    Mr. Kucinich. There has been an initiative?
    Ms. Stiles. Yeah, to take a look at the contractor work 
force. So we're going to have to get back to you.
    Mr. Kucinich. So what's your answer, that you really 
haven't monitored it, but you're going to?
    Ms. Stiles. No. There's been an initiative that was 
recently suspended within the Army to take a look at the 
contractor work force, the number of contractor employees that 
are working, as well as some more of the specifics. I mean, 
there was an initiative to collect some of the data, but aside 
from that, no.
    Mr. Kucinich. So I'll just go over the question again 
because this question is phrased, as you know, quite 
deliberately; and I just want to make sure I have your right 
response. Do agencies monitor the type of wage-and-benefits 
packages contractors offer their employees once the work is 
outsourced?
    Ms. Stiles. As a general proposition, no.
    Mr. Kucinich. No. OK. Isn't it possible that companies like 
ACS Government Solutions out-bid Federal workers by providing 
less compensation to employees over the life of the contract?
    Ms. Stiles. I believe that's possible, yes.
    Mr. Kucinich. OK. The Economic Policy Institute reports 
that more than 1 in 10 Federal workers earn less than a living 
wage. Now, isn't it possible that contractors realize savings 
by fighting unionization and otherwise violating the spirit of 
labor laws?
    Ms. Stiles. I'm sure that they are paying the wage based on 
the competitive pressures that they face.
    Mr. Kucinich. OK. And do you think this puts the Government 
in this difficult position of being in the business of saving 
money on the backs of workers who are also U.S. taxpayers, who 
are loyal, who are well trained, who are honest and who are, 
you know, being supervised under government laws and 
regulations. I mean, does that--how do you respond to that?
    Ms. Stiles. I think the dynamic of competition benefits 
everyone, particularly when we're looking at this A-76 
initiative. We're looking at cost-savings improved-performance 
innovation. It's a benefit to everyone involved.
    Mr. Kucinich. OK. Thank you. Do any of the agencies monitor 
how contractors treat their employees once they receive work?
    Ms. Stiles. No, not that I know of.
    Mr. Kucinich. And Mr. Holman, has GAO conducted any such 
study?
    Mr. Holman. Congressman, we've done some work to try to 
evaluate what happens to the pay and benefits of Federal 
employees that are affected by A-76 studies. It's more on a 
case-study approach. And I have to say that as a result of it 
we have to say we can't draw universal conclusions what 
happens, because it varies with so many factors. A lot of it 
has to do with the locality where the action takes place, the 
technical nature of the work. A lot of it has to do with the 
age of the Federal employees.
    Mr. Kucinich. Well, I'd like to--I can appreciate there are 
variables. Now, according to the numbers I have from the DOD, 
of the 286 A-76 reviews it conducted over the last 5 years, 
only 8 of them were on work performed by contractors. Would GAO 
be receptive to a request from, perhaps, the ranking member, 
with his indulgence or from any member of the Government Reform 
Committee to do such a study which deals with the type of wage-
and-benefit packages that are offered employees once they're 
outsourced and also to look at some of these issues that are 
raised here with respect to how contractors treat their 
employees once they receive work?
    Mr. Holman. We're certainly receptive to doing more work in 
that area as needed. But let me say that, you know, we have 
looked at that issue and we've seen instances where employees, 
as a result of the contracting action, the work is outsourced 
they may make less. They may make more. One of the 
difficulties, again, is with the age of the Federal work force, 
so many nearing retirement age. When a contract, an A-76 
action, happens, an award goes to the private sector, the 
contractor is anxious to have those workers. That's how they're 
going to build their work force, a skilled work force, if they 
can.
    Mr. Kucinich. I know my time's expired.
    Mr. Tom Davis of Virginia. It is.
    Mr. Kucinich. I want to thank the Chair, and I just want to 
say that my concern would be that it's easier to pay younger 
workers less and get rid of dedicated older workers. I'll send 
a followup letter to GAO. I want to thank the Chair for his 
kindness.
    Mr. Tom Davis of Virginia. Let me just say from my 
perspective I think one of the problems is that we have too 
much oversight of some of these contractors in terms of what 
they're paying, how much they can pay benefits. In my 
experience back before I came here, I saw just a lot of 
overregulation, sometimes from auditors and stuff looking at 
things that had no bearing at all on what level of service the 
Government was getting or how much they were paying and trying 
to tell companies how they had to run their business. So Mr. 
Kucinich thinks we don't have enough regulation. One of the 
questions I asked before is maybe we have too much in that 
area. So we have divergent opinions on that. But you're going 
to hear that because we have a lot of different opinions up 
here today. I appreciate your indulgence. Anything anybody 
wants to add before I dismiss this panel and move on to the 
next?
    Mr. DuBois. I think there is one issue that has now been 
raised both by Mr. Cummings and Mr. Kucinich, and that is a 
concern that I have about the fabulous quality that we have in 
the Federal work force today, which is very close over the next 
5 years, a large percentage of that Federal work force, that 
quality work force is eligible for retirement. And one of the 
ironies here may very well be that the only way to access that 
quality work force is after they voluntarily retire is contract 
for them.
    Mr. Tom Davis of Virginia. One of the other parties--I 
think we talked before about some of the incentives we have 
within the existing Civil Service structure to retain good 
employees in their early career and given the career path. The 
current Civil Service system doesn't really allow what we need 
to do in those areas. But you're right, the next 5 years are a 
huge test for us; and because of some of the revolving-door 
arguments that have been put in by preceding Congresses, the 
only way we can access some of these people is to move them out 
into the private sector. Mr. Turner has a couple of questions, 
and then we'll let you go.
    Mr. Turner. Ms. Stiles, you mentioned earlier in your 
remarks and testimony that there is a new change in the A-76 
procedure that will permit interagency servicing agreements to 
be open to competition and it would be published tomorrow in 
the Federal Register. Is that an invitation for comment, or is 
that a directive that this change will occur?
    Ms. Stiles. Invitation for notice and comment.
    Mr. Turner. And Mr. Holman, from your perspective--
obviously we've talked about DFAS, the Defense Finance and 
Accounting Service--and Mr. Kucinich referred to it having lost 
a contract to the private sector. That agency, as we mentioned 
earlier, does a lot of interservice, or interagency servicing, 
of the checks and those kind of things for other agencies. Do 
you happen to know why interagency servicing agreements were 
exempt initially from A-76?
    Mr. Holman. I'm not sure why they were exempted other than 
perhaps there was probably an interest at a point in time to 
encourage interservicing as a way to take advantage of 
capabilities that existed across agencies to achieve 
efficiencies that way. That would be just speculation on my 
part, though.
    Mr. Turner. I know you may not have been familiar with the 
news just announced, but it seems to me that this is going to 
be a--quite a difficult area to move into. I'm sure DFAS has 
made a significant investment in equipment and personnel to 
handle the interagency servicing agreements that it does 
currently manage; and obviously, we want those kinds of 
interagency agreements to work as efficiently as possible. But 
in truth and fact, whatever payments are being made by other 
agencies for that service is going back into the Treasury as a 
result of the interagency agreement.
    So it seems to create quite a much more difficult area to 
analyze; and, in fact, if some of our agencies begin to lose 
interagency contracts, the investments in equipment and 
personnel and training that have been made may create losses to 
us that will be difficult to evaluate, as well as we may lose 
economies of scale that exist perhaps in DFAS that performs 
those services for a large number of Federal agencies.
    So I would be interested if you have any concerns about 
moving into that area of interagency servicing agreements.
    Ms. Stiles. Can I clarify the scale that we're looking at 
here? These are only interagency service support agreements 
that were entered into prior to 1997, so the universe is 
smaller than you might think. Ones after that point in time are 
subject to competition. So this is just removing a 
grandfathering provision.
    Mr. Turner. And would that affect DFAS?
    Ms. Stiles. Yes.
    Mr. Turner. OK.
    Ms. Stiles. To the extent that the agreement was entered 
into before 1997.
    Mr. Holman. Right. Again, I think the driving factor behind 
the A-76 process is--the forcing action is competition as a way 
to achieve greater savings, whether the existing government--
obviously, the current activity is competing for that, 
continuing that work. Again, that's why so many of the 
competitions are won by the in-house organizations. Where they 
lose--again, many of the contractors are very anxious to try to 
recruit the former government employees because they do see 
that as an experienced base of workers.
    Sometimes it's difficult to attract those workers, though, 
because many of them are in that age group of that it's just a 
few years of retirement and they don't--they're wanting to seek 
that retirement under the Civil Service Retirement System or 
the FERS system. So that does make it difficult to track those 
workers at times. But on the other hand, our work has shown 
that many workers do retire and many of them do go work for 
these contractors and can fare rather well. I'm sure you know 
it's a mixed bag. Again, it's very difficult to draw universal 
conclusions, but you do see a range of actions that many times 
are very positive.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Tom Davis of Virginia. Thank you very much. Let me 
thank this panel very much. Ms. Stiles, thank you very much for 
being here, your first day back. I think you did a great job. I 
hope the administration ought to be proud of what you've done.
    Ms. Stiles. Thank you.
    Mr. Tom Davis of Virginia. We look forward to working with 
you, and I think you can hear the array of views we have up 
here in the Congress on these issues that we can synthesize and 
work with over the next 2 years. So we thank all of you very 
much.
    Mr. Tom Davis of Virginia. Let's take a 2-minute break as 
we move the next panel up. Anybody who will be on the next 
panel need to refresh themselves or anything here before we get 
on because I know you've been sitting here a long time, we'll 
be happy to accommodate you. All right. It's customary to swear 
in our witnesses. If you would just rise and raise your right 
hands.
    [Witnesses sworn.]
    Mr. Tom Davis of Virginia. We have your full statements, 
and they will all be made part of the record. What I would ask 
is try to limit your comments to 5 minutes, and then we'll have 
plenty of time for some questions and some give and take. I'm 
sorry it's been so late getting to you, but this is really the 
heart of the panels right here. We're going to get some 
different ideas on these issues and go back and forth. And let 
me just say in advance we really appreciate everybody taking 
the time to be here.
    Mr. Harnage, we'll start with you, and we'll work straight 
on down. Thank you for being with us.

   STATEMENTS OF BOBBY HARNAGE, NATIONAL PRESIDENT, AMERICAN 
 FEDERATION OF GOVERNMENT EMPLOYEES; COLLEEN KELLEY, NATIONAL 
    PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION; PATRICIA 
ARMSTRONG, MEMBER, FEDERAL MANAGERS ASSOCIATION; PAUL LOMBARDI, 
 PRESIDENT AND CHIEF EXECUTIVE OFFICER, DYNCORP, PROFESSIONAL 
 SERVICES COUNCIL; TIMOTHY PSOMAS, PRESIDENT, PSOMAS, AMERICAN 
 CONSULTING ENGINEERS COUNCIL; AND COLONEL AARON FLOYD (RET.), 
  PRESIDENT AFB ENTERPRISES, INC., RETIRED MILITARY OFFICERS 
                          ASSOCIATION

    Mr. Harnage. Mr. Chairman and members of the subcommittee, 
the AFG represents over 600,000 Federal and D.C. Government 
employees across the Nation and around the world. And, Mr. 
Chairman, last year you promised us that we would have a 
hearing on our TRAC Act, and I want to thank you and let you 
know I appreciate this opportunity to appear before this 
committee. My written testimony includes a detailed discussion 
on the need for prompt passage of the TRAC Act, a comprehensive 
Federal service contract and reform legislation that has been 
cosponsored by 185 lawmakers, and it's supported by 103 
organizations that represent over 15 million Americans.
    Mr. Chairman, it is clear to us that OMB is working hand in 
hand with contractors to sell off the Government. Over the next 
4 years, the jobs of 425,000 Federal employees will be tossed 
up for grabs, either directly converted to contractor 
performance without public-private competition or be subjected 
to public-private competition. No one knows what the mix will 
be, but it's fairly obvious the intent of the message.
    The failure of agencies to carefully track the more than 
$100 billion already spent on service contracts is well 
documented. Nevertheless, OMB is directing agencies to 
undertake massive increases in service contracting-out without 
first establishing systems to readily track the cost of this 
scheme. Although OMB officials say they favor public-private 
competition, their policies tell the real story. They're 
encouraging agencies to use direct conversions to fulfill their 
arbitrary quotas of reviewing under A-76 the jobs of 42,000 
Federal employees in fiscal year 2002 and another 85,000 in 
fiscal year 2003, a process that deprives Federal employees of 
the opportunity to compete in defense of their jobs.
    If the savings are in the competition, as OMB officials 
contend, and not in contract amount, why eliminate the 
competition, especially given that we win approximately 60 
percent of those petitions? Or is that the reason for direct 
conversions? OMB officials are also very selective about how 
they use public-private competitions. Not a single job in the 
massive service contractor work force will be reviewed for 
public-private competition or direct conversion over the next 4 
years.
    And there is no sign that OMB will allow Federal employees 
opportunities to compete for new work. OMB insists that whether 
or not Federal employees should be allowed to compete for new 
work or work currently performed by a contractor is a decision 
that must be left to agency discretion. However, it does not 
leave that same discretion to the agencies when it comes to 
Federal employee work.
    Let's look at the facts. For years contractors have 
acquired almost all of their work without public-private 
competition. And for years, contractors' work is almost never 
subject to the scrutiny of the A-76 process. The evidence that 
its agencies have abused their discretion to not allow Federal 
employees opportunity to complete is simply undisputable. 
Federal employees have paid a steep price for these failures, 
and the interests of every single American who relied on 
Federal Government services have not been well served either.
    That's why AFG is a strong supporter of the TRAC Act 
because it would require the agencies to establish systems to 
track the cost of service contracting. And it will ensure that 
Federal employees have opportunity to compete for our work and 
new work as well as contracted work to the extent that they 
compete for ours. By ensuring that agencies can run themselves 
like businesses, and always at least considering the 
possibility of in-house performance before giving work to 
contractors, the Federal Government can improve contract 
administration and begin recovering from the human capital 
crisis, the natural results of years of mindless downsizing and 
indiscriminate service contracting, the self-inflicted crisis 
we face today.
    I also ask the subcommittee to support two additional 
pieces of legislation, the legislation referred to by 
Congressman Gutierrez of the Federal Living Wage Act, and I 
also urge the subcommittee to include in this year's defense 
authorization bill Representative Charlie Gonzales's bill to 
establish fairness and equity by providing standing to DOD 
employees to contest bad A-76 decisions before the Federal 
claims court or the General Accounting Office.
    As you know, the TRAC Act has won the allegiance of Federal 
employees across the Nation and around the world because it is 
our best hope of finally making Federal service contracting 
fair to Federal employees and accountable to the taxpayers. 
Today, in this hearing room and out in the hall, we have 
employees from Maine to Georgia, from Virginia to Wisconsin, 
from Kentucky to Oregon. They do not want to work for an 
employer driven by the bottom line. They want to work for their 
country and provide the best service to the American public.
    Although there will be a comparison bill introduced in the 
very near future, possibly today or tomorrow in the Senate, Mr. 
Chairman, I look forward to working with you and to move this 
important piece of legislation. Thank you for this opportunity 
to appear before the subcommittee, and I'll be glad to answer 
any of your questions.
    Mr. Tom Davis of Virginia. Mr. Harnage, thank you very much 
for being here.
    [The prepared statement of Mr. Harnage follows:]
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    Mr. Tom Davis of Virginia. Ms. Kelley.
    Ms. Kelley. Thank you, Chairman Davis, ranking member 
Turner, the subcommittee. As the national president of the 
National Treasury Employees Union, I want to thank you for the 
opportunity to testify today on behalf of NTEU members across 
the country, Federal employees, 150,000 strong who do the work 
of our Federal Government every day. We are here to debate who 
should deliver government services and what the process should 
be for making that determination.
    I'm sure we can agree on a couple of things. We can agree 
that government services should be delivered to the American 
taxpayers in the most reliable, most efficient, and most cost-
effective manner. We can agree that steps need to be taken to 
resolve the Government's human capital crisis to ensure that 
there are Federal employees to deliver the work of the Federal 
Government in the years ahead. And we can agree that taxpayers 
rightly demand and expect that there is accountability for how 
their tax dollars are spent on delivering services.
    When it comes to accountability and oversight of the 
Federal work force there is crystal clear transparency. There 
is very little we do not know about the quality and the costs 
of the government services that are delivered by Federal 
employees.
    However, we know virtually nothing about the contractor 
work force and the work being done by contractors. What we do 
know is often based on reports from the media, sometimes 
successes of course but more often problems. One was referenced 
earlier by Mr. Cummings concerning the Washington Post article 
on the advertising agency that's producing anti-drug messages 
for the Government.
    We also learned earlier this year that a contractor hired 
by the IRS mistakenly mailed out forms that contained 
confidential taxpayer information to the wrong taxpayers, and 
just this week the Boston Globe reported that a contractor 
hired by the IRS has lost checks from 1,800 taxpayers.
    Now, there should be the same level of transparency and 
accountability for the work performed by contractors as there 
is for -7e work performed by Federal employees. Before Congress 
even considers methods to change Federal accounting procedures 
or Federal contracting procedures, the taxpayers deserve to 
know exactly how their tax dollars are being spent on current 
contracts.
    Even though more dollars are doled out every year for 
contractor work than is spent on the Federal work force, there 
is little or no oversight of the Federal contracts once they 
have been awarded. We need to get a better handle on the 
current contracts under a new system, and NTE believes the way 
to do that would be for Congress to support and approve the 
TRAC Act, which of course would require agencies to implement 
systems to track whether current contracting efforts are saving 
money, whether the contractors are delivering services on time 
and efficiently and that when a contractor is not living up to 
his or her end of the deal that the government work is then 
brought back in-house.
    Unfortunately, even though no new accountability procedures 
have been adopted, the administration has taken the extreme 
actions that will undoubtedly exacerbate this problem with 
contracting out and the lack of oversight. For example, OMB 
recently directed agencies to include inherently governmental 
jobs on the fair inventory lists to be submitted this month. 
Inherently governmental work was deliberately excluded from the 
scope of the FAIR Act because there was a bipartisan consensus 
that inherently governmental work should be performed by 
Federal employees. If it is listed, it will just be a matter of 
time before contractors are performing inherently governmental 
jobs.
    It is very, very difficult to assign cost values to the 
protection of the privacy of America's taxpayers, to the 
security of our Nation internally and externally, or responding 
to the economic or unknown crisis in the future. But the 
question is, is it worth the long-term risks to our Nation to 
shut the Government out of the government service business. I 
think the answer is no.
    NTE agrees with your concerns, Mr. Chairman, on the recent 
OMB directive to agencies that at least 5 percent of the jobs 
on the FAIR Act inventories must be either put up for 
competition or directly converted to the private sector without 
competition during fiscal year 2002, and the administration 
will then direct agencies to open up 10 percent of the jobs in 
2003 as part of a larger effort toward the 425,000 Federal jobs 
that have been targeted. But how can the administration set 
these arbitrary quotas without first evaluating their impact on 
an agency's ability to deliver the services? Quotas are not the 
answer.
    Furthermore, since many agencies have very little 
experience in administering public private competitions, they 
are turning to contractors to run the competitions. For 
example, at the Farm Service Agency in order to meet the 5 
percent directive from OMB, the agency is hiring a contractor 
to develop the agency's most efficient organization, to develop 
the agency's statement of work, and then the official 
government cost estimate for performing the work will be 
delivered by a contractor, and the agency is using additional 
contractors to train the agency's contracting personnel. 
Something is inherently wrong when private contractors are 
being hired to put the Government's bid together and to train 
the government employees on how to administer the competitions.
    Our fear, as you noted, Mr. Turner, is that the agencies 
will opt instead to direct conversions of these jobs in order 
to meet the OMB targets. What incentives do agencies have to go 
through the expense of hiring contractors to run a competition 
when they can just as easily directly convert the work. As my 
friend National President Bobby Harnage and I stated recently 
in a letter to OMB Director Mitch Daniels, absent a compelling 
rationale arising out of an extraordinary set of circumstances 
there can be no justification for a direct conversion to 
private contractors, no matter how many or how few jobs are at 
stake.
    We're also concerned about the number of contractor 
oversight employees available in the services today, in the 
agencies that can oversee these contracts. As you know, I am a 
member of the Commercial Activities Panel, which was 
established last year by Congress to look at the subject we are 
discussing today. I am hopeful that this subcommittee will wait 
for the panel to complete its work before legislating any 
changes at all to government contracting pro-
cedures. However, I do believe there should be more 
accountability controls put in place, and I am hopeful that 
this subcommittee will work with us to address those.
    Thank you.
    [The prepared statement of Ms. Kelley follows:]
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    Mr. Tom Davis of Virginia. Thank you very much. Ms. 
Armstrong, thank you for being here.
    Ms. Armstrong. Chairman Davis, Ranking Member Turner and 
members of the subcommittee, my name is Patricia Armstrong. On 
behalf of the 200,000 executives, managers and supervisors in 
the Federal Government whose interests are represented by FMA, 
I would like to thank you for allowing us to present our views 
before this distinguished subcommittee.
    I am currently a program analyst, Industrial Management 
Branch, Naval Air Systems Command, at Patuxent River, MD. 
Previously I spent 20 years at the Naval Air Depot at Cherry 
Point. My statements are my own in my capacity as an FMA member 
and do not represent the views of the Department of Defense or 
the Navy.
    When balancing interests, government needs, employee rights 
and contractor concerns, there are fundamental value 
differences in costs, accountability and control between 
performing work in the private and public sectors. The 
Government is ultimately responsible for the work and must 
abide by legal and ethical rules that do not apply in the 
private sector, such as the Freedom of Information Act. Civil 
servants also face challenges in managing third party 
contractors who are outside their hierarchical authority. The 
private sector, whether performing more efficiently or not, 
differs in that it is guided by profit motive.
    FMA is encouraged by the direction taken by the 
administration to ask agencies to submit reports this week on 
work force planning and restructuring before moving forward 
with any government right-sizing. Arbitrary figures without 
reasoned justification do not have a place in the right-sizing 
arena. OMB announced this week, however, the requirement for 
agencies to compete at least 10 percent of all government 
positions considered commercial in nature in fiscal year 2003. 
FMA has concerns about the use of arbitrary targets when 
attempting to achieve the most efficient organization across 
government.
    The FAIR Act reporting process is flawed in that it assumes 
the job title is always a commercial activity across 
government, even though this assessment is best made by the 
agency based on responsibilities of the person in that 
particular position. The term ``inherently governmental'' as 
defined under the FAIR Act has never been clear. Perhaps a 
checklist of questions should be created to determine whether 
or not work is inherently governmental before contracting out 
work. For FAIR Act reporting, lack of clear definitive guidance 
and revisions of guidance as well as misinterpretation of 
intended requirements all result in confusion as to what is and 
what is not inherently governmental.
    Caution should be exercised if commercial activity studies 
are thought to be a panacea for efficiency savings. Conducting 
a cost comparison generally consumes 2 to 3 years and is paid 
for by the agency using contractors and government employees. 
Implementing the results of cost comparison, either the 
Government MEO or contractor MEO, generally consumes another 
year. Since most activities are dynamic in nature, the CA study 
costs generally outweigh the planned benefits.
    Furthermore, there are many issues that impact the 
activities aside from just cost, such as morale, downgrading of 
employees, loss of experienced workers and the training cost of 
new employees. In many cases the work force has achieved its 
right size by normal attrition, and the A-76 cost comparison 
which results in an MEO is at the required staffing level or in 
some cases must hire up to fulfill the MEO staffing 
requirements. Cost savings are calculated and reported on all 
completed studies. However, whether the MEO results in a 
smaller work force or just a lesser paid work force, the cost 
savings are just not there when the cost of the studies are 
considered.
    An alternative A-76 that I know, Mr. Chairman, you have 
taken an interest in is the bid-to-goal process, which gives 
Federal employees the chance to streamline their operations. 
Similar to an A-76 competition, bid-to-goal begins with the 
creation of a performance work statement. Contractors and the 
in-house group then submit bids to fulfill the performance 
requirements at the lowest cost. The in-house team is afforded 
the first opportunity to meet the performance standards at the 
lowest cost bid. If the in-house team is unable to meet this 
performance threshold, the work is then outsourced to the 
private sector.
    Another idea is the use of transitional benefit 
corporations [TBCs]. Unlike A-76 procedures, however, the TBC 
model would also allow outsource workers to retain their 
Federal health and pension benefits. With respect to TBCs and 
the bid-to-goal, however, we at FMA would want to be assured 
that the initial outsourcing of the activity is warranted in 
the first place.
    President Bush directed the Secretary of Defense to provide 
an assessment of our future defense needs. The President's 2002 
defense budget has increased $33 billion over fiscal year 
2001's budget in an attempt to improve readiness. But if we 
don't match that plan with an assessment of what the Government 
should maintain as an in-house capability, we may find that we 
are at the mercy of nongovernment forces when it comes to 
contingency response. We do not want to create monopolies or 
limit ourselves to foreign suppliers of our defense needs. We 
must ensure competition by maintaining an ongoing strike-free, 
in-house depot capability that can quickly gear up for any 
contingency.
    I have got one more paragraph.
    Forty-three percent of depots have already been closed. The 
20 remaining depots account for only 4.4 percent of the 
domestic bases. For military readiness, any future BRAC should 
exclude depot bases.
    Mr. Chairman, FMA applauds Congress for establishing the 
GAO Commercial Activities Panel to hold public hearings and 
look for a better approach to the problems. As I testified 
before this panel 2 weeks ago, it is our hope that the A-76 
process will be changed to empower Federal managers to 
determine what is a commercial activity and what is inherently 
governmental and implement their own MEOs, MEOs that measure 
the entire work force both public and private, and report their 
cost and performance. FMA urges support for legislation, the 
TRAC Act, to correct several longstanding inequities in the 
contracting out process.
    Thank you, Congressmen Kanjorski, Waxman, Cummings, 
Kucinich, Congresswoman Mink for cosponsorship.
    I want to thank you again, Mr. Chairman, for having FMA to 
serve as a sounding board in an effort to ensure that policy 
decisions are made rationally and provide the greatest return 
for the taxpayer. I hope these experiences are helpful.
    This concludes my statement. I'll be happy to answer your 
questions, including those on best value and actual studies.
    [The prepared statement of Ms. Armstrong follows:]
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    Mr. Tom Davis of Virginia. Thank you very much. Mr. 
Lombardi, thank you for being here.
    Mr. Lombardi. Mr. Chairman, members of the subcommittee, my 
name is Paul Lombardi. I am the president and CEO of DynCorp, a 
technical and professional services firm. I'm also the chairman 
of the Professional Services Council, which is the principal 
trade association representing technical and professional 
service providers. It is in that capacity I appear before you 
today. I have also supplied the subcommittee with my written 
testimony and now wish to focus my remarks in three areas, 
outsourcing, TRAC bill and public and private competition under 
A-76. I will keep my comments very short.
    Outsourcing is not a new concept. In fact, many high 
performance companies like IBM, Microsoft, British Aerospace 
and others outsource noncore functions to service providers as 
well as focusing on their true mission and product lines. More 
and more State governments and local governments are 
outsourcing, like the city of Indianapolis, who has saved an 
enormous amount of their budget while getting good citizen 
satisfaction.
    In the Federal Government outsourcing should be about 
quality and performance of service. It's about having 
government employees focus on inherently governmental and core 
capabilities. It's about a constructive partnership with the 
private sector to serve the taxpayer in a more efficient and 
productive manner. It's about doing more with less. It's about 
smart, strategic management.
    There are a number of recent reports that have been quoted 
already to the subcommittee from GAO and CNA, the Center for 
Naval Analysis, that positively talks to these very issues. 
That brings me to the TRAC Act, which I believe is an ill-
conceived piece of legislation for the following reason, and 
all the benefits of innovation that it would bring. It would 
stop outsourcing. It would also severely slow down all service 
contracts, including options. It would have a severe impact on 
a large number of government contractors that we represent.
    It is hard to argue against truthfulness responsibility and 
accountability, but this bill does nothing to improve any of 
that. If it is accountability you want in the bill, the bill 
completely ignores that, that the Government already has a 
complete insight into all contractor activities, yet really has 
no insight into the governmental control of its internal 
activities. Furthermore, Congress has already addressed 
truthfulness responsibility and accountability by passing the 
Federal Acquisition Streamlining Act in 1984, Clinger-Cohen in 
1996 and the Government Performance and Results Act. We do not 
need this new proposed legislation.
    Simply put, TRAC is not about accountability at all. It is 
about killing competition and outsourcing.
    Finally, although the PSE does not truly endorse public-
private competition, if it must occur a better process must be 
put in place. The A-76 process is severely flawed and must be 
rewired to meet the government needs of today. A new model must 
be followed. It must clearly eliminate the built in conflict of 
interest in source selection. It must require the Government to 
utilize full activity-based cost accounting systems internally 
so real costs can be accurately accrued. It must eliminate the 
practice of technical leveling. It must require that all 
offers, public and private, be subjected to similar best value 
evaluations and it must seek innovative solutions.
    Mr. Chairman, PSE's position on this matter is aligned with 
recent goals announced by the Office of Management and Budget 
and the Bush administration. We believe that government 
industry outsourcing is good government. We believe that H.R. 
721 is a redundant piece of legislation and could be 
devastating to the Government. We believe that A-76 reform is a 
must.
    Although my comments before you today are short and to the 
point, they are further elaborated in my written testimony.
    Thank you for your time this afternoon. I'll be happy to 
take any questions.
    [The prepared statement of Mr. Lombardi follows:]
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    Mr. Tom Davis of Virginia. Thank you very much. Mr. Psomas.
    Mr. Psomas. Thank you, Mr. Chairman. Mr. Chairman and 
members of the subcommittee, thank you for the opportunity to 
appear before you this afternoon and to share my views on the 
outsourcing of government commercial activities. My name is Tim 
Psomas. I'm president of Psomas Engineering, a California-based 
company that provides professional engineering services to both 
the public and private sector. We provide civil and 
environmental engineering, surveying and geographic information 
systems services to the Federal Government.
    My firm is an active member of the American Council of 
Engineering Companies [ACEC], which is the primary business 
association of the engineering industry, representing over 
5,800 engineering companies in the United States and totaling 
over 500,000 employees. These firms range from large multi-
disciplined architectural and engineering firms to small 
business and minority-owned firms. Regardless of size, ACEC 
members deliver vital infrastructure services to the American 
people, including the design and construction of roads, 
airports, power plants and waste water treatment facilities, 
the safe disposal of unexploded ordnance, the cleanup of 
Superfund sides and brownfield redevelopment. The quality and 
innovation that ACEC's members bring to the environment ensures 
the safety of those who ultimately pay for these services, the 
U.S. taxpayers.
    Today's topic, outsourcing of government commercial 
activities, is the No. 1 issue of ACEC this year. We applaud 
the Bush administration for campaigning on the importance of 
outsourcing in smart government, and we appreciate the efforts 
of Mitch Daniels, Director of OMB, and his Secretary Angela 
Styles for advancing the concept of best value procurement.
    The debate that is currently taking place regarding the 
outsourcing of government commercial activities occurs at a 
critical time for the U.S. Government. As Federal agencies face 
tight budgets and a looming capital crisis, a human capital 
crisis, the need to efficiently allocate scarce resources has 
become increasingly important. Outsourcing is a proven 
management tool that directly contributes to enhanced 
performance through improved quality, reduced standby costs, 
increased innovation and access to technical expertise not 
available in-house.
    Regarding improved quality, outsourcing provides a direct 
source of accountability and responsibility by tying contractor 
compensation to the successful implementation of contracts.
    Regarding reduced standby costs, most public agencies have 
found that it is not cost efficient to retain highly 
specialized individuals for work that is infrequent and use 
outsourcing as a means to easily draw upon a reliable pool of 
expertise.
    Regarding increased innovation, when private firms are 
required to compete for the government contracts, a climate is 
created that spurs new ideas and innovative thinking.
    And regarding access to expertise, as private engineers are 
exposed to a wide variety of clients with challenging projects, 
they often bring unparalleled experience to their assignments.
    I am particularly interested in commenting on anti-
outsourcing legislation that was introduced in February, as I 
am a veteran of a similar battle that occurred in the State of 
California, and let me tell you my story.
    In 1998, the professional engineers and California 
government introduced Proposition 224, which aimed at severely 
limiting outsourcing. The reasons were similar to the reasons 
articulated by representatives of the Federal Employees Union. 
Chief among them was the supposed high cost of contractors. The 
union argued that a cost comparison is the only fair way to 
choose the design team. What they didn't say is that their 
proposed method of comparing costs was anything but fair, as it 
would take into account only the marginal cost of State work 
and compare them with the total cost for private work, and the 
competitions that were proposed would require a long process of 
solicitation with various government agencies and locations 
throughout the State, an untenable situation.
    Despite the attempt of the union, 62 percent of California 
voters rejected the idea that the use of private design 
consultants by State and local public agencies should be 
severely limited. A huge coalition, including private sector 
unions, local governments, broad based business groups, 
taxpayer groups, contractors, transportation groups and ANE 
firms vocally opposed Proposition 224. Following defeat of that 
proposition, the engineering industry led a coalition that 
sponsored a ballot measure to change the California State 
constitution to allow State and local governments to outsource 
architectural engineering services.
    Along with Federal contractors, the engineering industry 
was disappointed that the TRAC bill was reintroduced this year. 
The legislation is not only out of step with current trends in 
Federal procurement, but it's also out of step with the advice 
that the multilateral development banks give to former Soviet 
bloc countries as it would dramatically increase the size and 
scope of government. As with the PEG initiative in California, 
this legislation is based on a flawed assumption that 
government contractors are not held accountable for cost 
performance. Performance of outsourced measures is routinely 
measured and monitored in the Federal system.
    Mr. Chairman, thank you for allowing me to share my 
thoughts on this important public policy issue.
    [The prepared statement of Mr. Psomas follows:]
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    Mr. Tom Davis of Virginia. Thank you very much. Colonel, 
thank you for being here. You're last, but not least. Save the 
best for last.
    Mr. Floyd. Absolutely. I thank you, Mr. Chairman and 
members of the committee, for allowing me to testify this 
afternoon on these issues. Like the gentlemen, before me I've 
already submitted my information for testimony. I want to 
summarize a couple of things here that are important to my 
group.
    My name is Aaron B. Floyd. I'm a Colonel, retired from the 
Air Force, and I own a company, a small business, and I 
represent 110 other small business persons, all colonels or 
majors or lieutenant colonels from the Army, Air Force and 
Navy. We have, last year we, combined, our income was like $400 
million. We provide jobs for thousands of people around the 
Beltway, thousands of folks, and we are Federal Government 
employees before when we're on active duty. Now we're on the 
other side of the street, and we think that outsourcing is the 
way to go. We actually believe that because we can see it as it 
works out, because if you don't outsource then where are we 
going to go, what are we going to have for ourselves in terms 
of work? We've earned it, we're veterans, we fought in the 
wars, and now we own companies and want an opportunity to 
participate, and outsourcing gives us that opportunity.
    We believe that the TRAC legislation goes the wrong way. We 
believe if it goes the way it's purported to go it will stop 
competition and stifle it, and it will create a lot of folks on 
payrolls that don't need to be there. We believe a fair and 
equitable way to do that is the A-76 and the way it is going. I 
want to make that clear from my group.
    There's one other thing that my group is concerned with, 
however, that is not on the agenda, and that's the effect of 
bundling. We believe as small business persons that the way 
bundling is now done is not fair for us. Right now the 
Government takes the large--the contracts and gives them to a 
bunch of large guys and then the little guys only get what's 
left, and we can't compete with Lockheed Martin and the other 
large companies involved, and the only way you can grow a small 
company is to have one prime contract. You don't get one when 
you bundle. When you bundle the only contract you get is a 
subcontract. With a subcontract all you get is a technical 
person and you don't get any money for overhead or for finance 
or all the things that requires a company to be a company.
    So I have survived in this business for 13 years. I have 
one great contract that is not bundled. I won it fair and 
square in competition and--but it was a small contract when I 
got it, about $7 million. Now it's worth about $28 million. I 
am the readiness contractor for the Pentagon. I run the 
readiness data base that tells the chairman, when he wants to 
send people to Kosovo it tells him what forces can go and their 
readiness status. I am surviving because I'm the prime on that 
contract, and I have been able to grow it that way. If I was 
not the prime, I wouldn't be here talking to you today. So 
bundling is anti-that. It keeps us from being private; it's the 
antithesis of allowing small businesses to grow.
    Those are basically my comments. I think basically again 
the A-76 is a good practice and it just needs to be fine-tuned. 
The FAIR Act is basically fair, and TRAC is a bad bill.
    Thank you.
    [The prepared statement of Mr. Floyd follows:]
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    Mr. Tom Davis of Virginia. Thank you very much. Well, let 
me start the questioning. OK. First, let me ask Ms. Kelley, let 
me ask you and Mr. Lombardi and Mrs. Armstrong, when is it 
appropriate to outsource? Can you describe in your opinion when 
is it appropriate to go outside government for contracts? Can 
you give us some idea where you think this might be 
appropriate?
    Ms. Kelley. I think it's always fair to ask the question of 
if it's appropriate to contract out, and on that point when the 
question is asked, the processes have to be in place to ensure 
that the right questions are being asked, and if the answer is 
yes, then the question is what are the procedures that should 
be used, and all of these things are things that are being 
looked at and under the purview of the Commercial Activities 
Panel. These are exactly the questions that this panel is 
wrestling with and that will be part of the report in May 2002.
    Mr. Tom Davis of Virginia. Are you comfortable that you're 
having adequate input into that panel and having a dialog with 
people on both sides of this issue?
    Ms. Kelley. Yes, there is a lot of dialog, a lot of input 
and I actually believe everyone on the panel has come there 
with a very open mind and a very good listening mode. We've 
been sharing incredible amounts of information even though we 
have different opinions perhaps on what the solution is, but 
I'm hopeful that as we work through the process, by the time 
it's time for our report we will have been able to learn and 
absorb all of this and come up with the best answers for the 
Government in this recommendation.
    Mr. Tom Davis of Virginia. I think this committee is 
eagerly watching what happens there. That doesn't mean we won't 
act before or after or will even act on it, but we think it is 
a good format for exchanging views, and as you can see, even 
among Members from both sides there's a lot of different views 
on this. So I think the dialog is important. So everyone 
understands everyone's position because I'm not sure anybody's 
wrong here but there are different perspectives as we get into 
it, and I think we need to be guided at the end of the day by 
the best value for the American taxpayer. That's my own view on 
this. I appreciate the comment.
    Mr. Harnage, do you have any comment?
    Mr. Harnage. Yes. And you know we haven't implied an end to 
A-76 and we haven't implied an end to outsourcing. We've 
noticed today and before today there's a lot of people like 
hollering fire in a theater. What amazes me so far is that 
everybody wants to throw away the solution rather than develop 
the solution. If there's some problems with TRAC let's talk 
about the problem with TRAC and make it a better piece of 
legislation rather than just say we don't want any 
transparency, we don't want any accountability of the contract.
    Certainly there are times that outsourcing makes sense. The 
construction industry, for example, would be the first one that 
would pop to my mind, something that we only have a temporary 
need, whether it be a 3-month construction project or a 2-month 
construction job, probably too expensive for the Government to 
maintain that capability in-house, but it makes sense to keep 
the maintenance of that construction once it's done in-house. 
The same with we don't want to build aircraft, but it makes 
sense that once the aircraft is turned over to the Government 
the Federal employees, the military people maintain that 
aircraft, because it's really not cost efficient for that 
contractor to maintain that inventory. They want to move on to 
bigger, newer and better aircraft.
    So there are areas that surely it makes sense to outsource, 
and our position has not been to end the outsources as some 
people might want to imply.
    What we're asking for is competition and the opportunity to 
compete for the jobs, and what we're asking for is that it not 
always be our job that's competed. OMB says competition saves 
money, but why does OMB say but we are only going to look at 
the Federal employee? We're saying let's look at new work. If 
it makes sense to bring it in-house, if we can do it better and 
less expensive, why not do it, why is it a foregone conclusion 
that it is going to go out-house, and that's a pun intended.
    Mr. Tom Davis of Virginia. OK. Ms. Armstrong.
    Mr. Armstrong. I think there are cases where outsourcing is 
useful. It's certainly been used successfully since BRAC and 
the defense depots, mainly out of necessity more than the 
choice. For example, at the depots they always carry a 
quadrille of contractors that work on the aircraft itself and 
that's beneficial. When you have a certain workload, you can 
hire contractors, and when the workload goes down, you can let 
them go. But as far as where it's best used, I think that 
partnering with industry to bring in new technology to help 
train Federal workers in those areas, those core skill areas, 
is helpful. You don't exactly want to turn over your core 
functions to contractors, but have them come in and partner. I 
think that's beneficial, and that's the Federal manager can 
make that decision.
    Mr. Tom Davis of Virginia. That's helpful. Mr. Lombardi, 
let me ask and you and the panel on the other side. We always 
get in this fight of price versus value. This has been, ever 
since I have been involved in government contracting, the 
question is should price drive it, should value drive it. Do 
you have a general philosophy of where you think price ought to 
drive it? Clearly, if you are cutting grass or something, price 
ought to be the determinative, but when you get into some of 
these complex IT areas, building a spaceship, you need to look 
at overall value. Do you have a criteria on what ought to be 
price and value driven or do you think they're intertwined?
    Mr. Lombardi. Yeah. I would say, Mr. Chairman, they're 
somewhat intertwined. It's difficult in every case to 
generalize that price is the only issue. The Government has 
gone a long way, I believe, in terms of bringing best value 
back into the procurement process. Price is an issue, that's 
part of the best value, but certainly quality performance, 
innovation, technology, bringing technology to bear where it 
hasn't been before. That's what the private sector is here to 
support.
    Mr. Tom Davis of Virginia. So basically you're saying you 
get more innovation at the private level and that's what you 
get by bringing that into the processes?
    Mr. Lombardi. I think what the Government has always 
depended upon is to bring technology and innovation to the 
table.
    Mr. Tom Davis of Virginia. OK. I appreciate it. Any 
comments on it?
    Mr. Psomas. Mr. Chairman, thank you. In that regard the AE 
and design-related services industry has been somewhat 
fortunate to have the advantage of the Brooks Act procurement 
process, which is really a two-step best value procurement 
whereby the competition is really for qualifications and the 
availability of the best qualified, the individual who can 
deliver that service to the Government, and so on that basis a 
selection is made. And then the second step is the negotiation 
of scope, fee, budget, schedule with the contractor that's 
selected to do that work. So again the AE industry perhaps has 
a good deal of experience with a competition that is really a 
two-step, best value competition.
    Mr. Tom Davis of Virginia. Thank you very much. Colonel 
Floyd, you want to add anything to that?
    Mr. Floyd. Just finally, I think the two watchwords ought 
to be fairness and equity on any legislation we're talking 
about, and that's what I think that my constituents would like 
me to ensure, that in it all, whether it be TRAC or whether it 
be A-76, that it's fair and equitable and there's an 
opportunity for all of us to participate.
    Mr. Tom Davis of Virginia. Thank you. Mr. Turner.
    Mr. Turner. Thank you, Mr. Chairman. One of the issues that 
I'd be interested in your comments on is this initial decision 
as to whether or not to allow a public-private competition, and 
I noticed Mr. Lombardi in the suggestion that you had made of 
the Professional Services Council model for public-private 
competition, it addresses a number of the deficiencies that you 
see in the current A-76 process, but your model assumes, as I 
read the presentation of it, that the agency would first make 
the determination as to whether or not they should conduct a 
private-public competition based on what you referred to in 
your statement as some obvious factors. I want a little help on 
this because there clearly are some activities that you might 
look at on their face obviously wouldn't be appropriate to 
contract out if it's an activity that is currently being 
carried out by government employees. If those government 
employees want to submit a proposal or try to be competitive, 
what's wrong with always allowing that as an option, because 
many times obviously that option would not be exercised, 
depending on these obvious circumstances that you're referring 
to. So what would be wrong with allowing that in the mix?
    Mr. Lombardi. Mr. Turner, I think the A-76 process is again 
what my comments were focused in on. The public-private 
competition, it's not a level playing field from the private 
sector's point of view. It is just not a way in the public 
sector to get accountability for costs. I have a wing full of 
auditors that are defense auditors who basically audit 
everything my company does and so do all defense contractors. 
So in DOD I think there are certain things that public-private 
competition is important and, in fact, competition over and 
over again every 3 to 5 years doesn't disallow the public 
sector from coming back into play. I think there's a lot of 
misconceptions associated with A-76. We think it's the process 
that has to be fixed, not whether or not there should be 
public-private competition.
    Now having said that, in the civil sector, where there's 
new work coming out, not work that has been done previously by 
the Government, Federal employees and I might also say, I'm a 
Federal employee from 17 years so I have access to both sides 
of that equation. When innovation and technology is required in 
an agency, mostly in the civil agencies, we believe that it 
should just be a competition between the private sector 
involved. That is the motivation. It's not a profit motivation 
per se. It is winning that private competition that motivates 
us. That's what our society allows us to do.
    Mr. Turner. Any of the other panelists have a comment on 
the issue of the initial decision about a public-private 
competition? I mean, I'm asking that question basically in 
light of the fact that we have very few of them and it could be 
that in many cases there they are not appropriate, but I'm 
wondering if we're missing an opportunity here not to allow a 
little more flexibility with regard to the initial decision as 
to whether or not there should be a public-private competition.
    Ms. Kelley. Mr. Turner, I believe there always should be 
that option. I agree, as you say, that many times the option 
may not be exercised, but the fact that the work is not done 
today in the Government and now someone has determined it needs 
to be done for the Government, that the Government and the 
employee should surely have the opportunity to be a part of the 
process to determine who can do it best for America's 
taxpayers, and I think the, you know, words that many of us 
have used over and over again that would oversee that process 
would be one of fairness, one of oversight, a level playing 
field has been mentioned often, and the issue of transparency.
    So I believe the opportunity should be there and then to be 
exercised in each case as the situation dictates.
    Mr. Armstrong. Mr. Turner, I have a comment. Yes, I agree 
that we should be offered the opportunity to have a 
competition. In most cases we have not been able to. It has 
always been decisions to outsource with no competition. As far 
as the cost is concerned, I think that the Federal Government 
is making great strides in activity-based costing, ERP and 
other initiatives to have a better accounting system for their 
costs. And it's in the TRAC bill we are asking for the cost of 
contractors to be reported, if it's true. As my colleague Mr. 
Lombardi says, that companies have a team of auditors to have 
audit information on their costs, why would it be such a burden 
to report that so that we can have true competition. I think we 
need to get better at doing that and share more information.
    Mr. Harnage. Mr. Turner, if I might I'd like to add, I 
think you have hit on a very important point of the TRAC Act. I 
refer to this often as a magician, a magician tries to divert 
your attention to somewhere else other than what he's doing his 
deed. We've heard testimony today that 2 percent at best, maybe 
a little over, of all the privatization service contracting is 
done by A-76. That means that between 97 and 98 percent of the 
service contract done in the Federal Government is done without 
public-private competition, and if we look at OMB and this 
administration's proposal to increase the amount of 
competitions under the FAIR Act, we're only going to raise that 
a few percentage points. You know, maybe we'll get to 5 percent 
or 8 percent, let's say 10 percent, but nobody wants to focus 
on that other 9 percent and what's happening to it. We want to 
continue focusing on that small percentage of what's happening, 
that small A-76 process where it all ought to be under 
competition and not just a Federal employee job or not just 
every now and then.
    So I think you've hit on a very important point, and that's 
what the TRAC Act says; let there be competition. Everybody 
agrees that competition saves the taxpayers dollars, whether it 
stays in-house or whether it goes outside. So let's have, if 
that's true then let's compete all of it. Let's just not be 
selective in what we compete, and it shouldn't always be the 
Federal employee's job that's competed. If competition is good 
for us, it's good for them.
    Mr. Lombardi. Mr. Turner, I would also--I support that it's 
only been 2 percent of service contracting which is under A-76 
competition. So what about the other 98 percent? By far the 
largest growth area in service contracting has been in the ADP 
or IT arena. In the civilian agencies the growth over 10 years 
has been more than 300 percent. At DOD the growth has been 100 
percent, but it's all in the ADP area. We are not displacing 
Federal employees in those areas. The private sector is 
introducing the technology that's being purchased and it is 
being competed, severely competed in the private sector.
    Mr. Turner. And I would assume those types of contracts 
would be contracts that Federal employees would have no 
interest in competing in, probably do not have the ability or 
the capability to compete for those types of contracts. Would 
that be accurate?
    Mr. Lombardi. I wouldn't judge that. All I would say to you 
is that if the governmental agencies are going out-house, so to 
speak, to get new technology, that technology isn't being 
developed by the public sector. It's being developed--enabling 
technology being developed and introduced by the private 
sector.
    Mr. Turner. I notice in your presentation you mentioned a 
number of deficiencies that exist in the current A-76 process. 
I'm looking here at the new model for public-private 
competition. Would you mind discussing those six areas that you 
have identified as being problem areas for the A-76 process. 
Some of them I'm not sure I understand exactly the nature of 
the problem you're describing is the reason I was asking you to 
refer to them.
    Mr. Lombardi. OK. In my written testimony, Mr. Turner, I 
have included a PSE document which gives you some further 
explanation of that. Just to talk to these points though, 
conflict of interest is one, in our opinion, on the private 
sector, the people whose jobs could be displaced as a result of 
the A-76 competition, judge the whole procurement, including 
the private sector's proposal. To me that's an inherent 
conflict of interest. Activity-based cost accounting, we have 
that. My cost of my office, my salary, my fringe is included in 
every bid that goes out. I doubt very seriously whether the GNA 
costs associated with the Government overhead employees, not 
the people who actually perform the job are going to be layered 
into those bids. That's why we need activity-based accounting 
in the Federal Government.
    Technical leveling is a way whereby there's constant 
discussion between the contracting official on the government 
side and the competitors on the private sector side. Now 
remember in A-76 the public sector picks a private sector 
winner and the private sector then competes against the public 
sector. So we have a tendency to be leveled in that particular 
area before we even compete with the public sector bid.
    And innovative solutions, if we introduce ways of including 
technology to displace people, we're saving the Government 
money, we are also helping our bid in terms of its 
discrimination against our competition, and that is usually 
taken out because we're competing against an MEO in many cases. 
So these are the kinds of things I think would be further 
elaborated in our point paper, which is included in my 
testimony.
    Mr. Turner. What does ``transfusion'' refer to? You 
mentioned that in relationship, you say the ``syndrome of 
technical leveling and transfusion.'' What does ``transfusion'' 
refer to? That's in that same list of deficiencies in the 
current process that you were, I think, looking at the same 
list that I'm looking at, which is on page 2 of the new model 
for public-private competition.
    Mr. Lombardi. OK. Well, I don't have that in front of me.
    Mr. Turner. I'm looking at a different document. Another 
item that you mention on here is a distorted application of 
best value procurement to only the private sector bidders and 
not to the Government bidder. What does that refer to?
    Mr. Lombardi. When we introduce our proposals on the 
private sector side, again we're introducing new ideas, new 
technologies. We spend an inordinate amount of time and money 
in the development of these proposals. When we then go up 
against the public sector's bid, we are only going against 
what's called the MEO, which is the Mean Effective 
Organization. Our value proposition, as it were, is not 
compared against anything on the public sector side. That is 
what I had in mind there.
    Mr. Turner. And the model that you recommend to remedy 
these deficiencies that you have outlined involves, as I 
understand it, an advisory committee that would actually make 
the decision separate and apart from the agency itself is that 
at kind of the heart of your structure of your revised model.
    Mr. Lombardi. What I had in mind, there is in the 
evaluation of the public sector bid and the private sector bid 
that the agency procuring--I mean the actual people who are 
involved in the MEO creation should be taken out of the process 
of source selection, and in fact that has happened in many 
cases and the most recent being the A-76 out of Andrews Air 
Force Base on the 89th Wing.
    Mr. Turner. And one of the factors that you say should be a 
part of this process is a generic, you say generic standard 
soft landing procedures for displaced Federal employees be 
incorporated in every solicitation to assure consistency and 
avoid any gaming in this most sensitive area. Speak to that 
issue.
    Mr. Lombardi. Yes. I think the--there's no question that 
when the private sector wins an A-76 competition, the first 
place they look for the work force, especially in regions that 
don't have vast work forces available, is to the work force 
that has been displaced as a result of that particular 
decision. So soft landing issues would be to have a process 
built into the A-76 process to take right of first refusal on 
the part of the displaced employees to have a soft landing in 
terms of the development of the new work force under the 
private sector tutelage, and in fact that happens in many 
places, if not in all places. I don't have the exact 
statistics, but somewhere around 80 percent of the Federal 
employees who are displaced as a result of a private competitor 
win are asked back into the private sector, many at higher pay 
grades.
    Mr. Turner. But you're suggesting that information be 
included as a part of the initial proposal rather than being an 
after the fact offer to those employees?
    Mr. Lombardi. It can be and it could also be one of the 
issues, one of the process changes that goes into the A-76 
review process. In other words, if we--if the committee were to 
use the authorization bill that's already been passed to 
restudy A-76 our proposition would be that would be fertile 
ground to be included in the new process.
    Mr. Turner. Now, Ms. Kelley, would that be an improvement, 
the suggestion Mr. Lombardi just made?
    Ms. Kelley. It would surely address issues that have been 
issues for some employees, but I think it's a much bigger 
question. It is a start and would it be well received by some. 
Depending on where they are in their Federal career and what 
the salary and growth opportunities were, sure, I definitely 
think it would be seen as a step forward. I don't think it 
solves the whole problem, but I see it as a step forward.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Tom Davis of Virginia. Thank you very much. One of the 
concerns that I have with the TRAC Act as it's currently 
drafted in particularly some of these very complex, high level 
IT procurements is the inability of the current Federal work 
force, given the training and capital management issues, to 
handle those in-house. We have not done a good job in the 
Federal Government of being able to train and retrain people 
with the latest technologies and bring people in with a skill 
level and retain them in that. We just have not done the job. 
Part of it is our competition. And part of it is the training 
is one of the first things that get cut when budgets get cut.
    We aren't utilizing some of our most skilled and valuable 
people in the best way possible, and OMB has come up now with a 
restructuring initiative to assess human capital management, 
what they call a crisis in the Government, but I think that is 
part of it, and that is part of my concern, is that we are just 
not ready yet to step up to the plate on at least one level of 
procurement. That's not to say we're not in some other areas, 
but in many of the areas that Mr. Lombardi's group, the 
engineering groups that they represent in these levels, we 
don't have the in-house skills at this point or the in-house 
compensation packages to try to compete at the Federal level, 
given current Civil Service regulations, and I think it would 
take a change of those to bring us up to a competitive level, 
and I understand your frustration, Ms. Kelley, when you talk 
about how some of these procurements are managed by outsiders. 
We outsource procurements. We have people in the frustration 
level. That certainly isn't the fault of your workers. It's not 
a fault of your members, but it is a failing of the Government, 
appropriately, I think, to utilize what they have and to look 
for it, and until we get that solved I think in these 
procurements that it would be in my judgment very difficult to 
implement at least in these sectors, some of the things that 
the TRAC Act calls for.
    That's my concern. I'd like anybody to address that over on 
the left side of the table if you have any, you want to rebut 
me or share a concern or add to what I'm saying.
    Mr. Harnage. Well, we have the same, some of the same 
concerns that you do. You know, this did not happen by 
accident. I have had a lot of frustrations in trying to deal 
with the Department of Defense over the last few years. And for 
20 years now we've--it's not a matter of whether we should have 
been training our people to keep up with the high-tech 
industry. The decision was made not to do that. Who made that 
decision I'm not sure, but some of it was through budget cuts 
and some of it's through the agencies not using the funds 
available to them for training and using them somewhere else. I 
had high hopes of working with Senator Voinovich on that 
because every one of his subjects that we had several meetings 
over is how do we get more training into the Federal Government 
so that we would have that capability, and I think the question 
that you have to ask when it comes to high-tech, and I think 
you're absolutely right on the current situation, but should we 
have that capability in-house in order not only to be 
competitive but to serve as an oversight of those contracts 
that we do have to have.
    Mr. Tom Davis of Virginia. If I could add to that, I don't 
think Mr. Lombardi would disagree for a second that you ought 
to have more in-house capability. It's frustrating for them on 
some of these procurements, too, to have officers who aren't 
trained to oversee them. Is that correct, Mr. Lombardi? And I'm 
not trying to put words in your mouth. I don't think there's 
any disagreement on these things, but we are dealing with a 
structure that has evolved before we were on the scene, and it 
just has gotten worse and worse and worse.
    Mr. Harnage. You're that young, I'm not.
    Mr. Tom Davis of Virginia. I don't mean to interrupt, but 
thank you.
    Mr. Lombardi. At the fear of adding a little levity to the 
hearings, I'd have to give you an analogy. My son is an 
engineer, mechanical engineer. He's 4 years out of Virginia 
Tech. He happens to be an Oracle finance expert, if you want to 
say that, 4 years out of Virginia Tech. He happens to make more 
than the Secretary of Defense.
    Mr. Tom Davis of Virginia. Probably worth more than the 
Secretary of Defense we could argue on some days. It just 
depends on how you look at it. At least that's what the 
marketplace judges.
    Mr. Psomas. Mr. Chairman, I'd like to add to that if I 
might. ACEC really looks to a very strong Federal work force, 
well paid, well trained. That's really where we want to work. 
We see this as really a partnership. However, even in my firm 
there are activities that are not really activities that we're 
going to train employees in. They're not things that we do 
regularly and for this special expertise we go outside and we 
outsource. So there is--I think there are situations that it's 
really not prudent to provide staffing on a full-time, 
permanent basis for activities or technologies that change, for 
things that are not going to be reusable by any organization, 
whether it's governmental or private.
    Mr. Tom Davis of Virginia. OK.
    Ms. Kelley. Mr. Chairman, if I could just add, I do think 
this borders on another issue that has garnered a lot of 
activity over the past year, and unfortunately what I continue 
to see is that we talk about it but don't do a lot about it, 
and that is the Government stepping up to the need for funding 
to provide recruiting and retention incentives for the on-board 
work force so that expertise can be retained and can be 
increased, and we don't do that. We talk about it a lot but 
nothing happens, and as a result we are facing this critical 
loss of expertise that will only raise the question even higher 
as to whether outsourcing is the appropriate answer, because 
there's just no one left.
    Mr. Tom Davis of Virginia. Well, and just to take it a step 
further on this, I mean one of the arguments that was made in 
the previous panel and I would say we've all seen it happen, is 
people leave government service, they walk across the street 
after retirement or whatever, they go to work maybe for one of 
the companies Mr. Lombardi represents and they make more money 
doing something that's outsourced either because we don't have 
the in-house capability to do the work or sometimes it is 
managed better and they take people and can pay them more. How 
does that work, Mr. Lombardi, where you can walk and pay people 
more on the outside and at the same time save the Government 
money?
    Mr. Lombardi. Well, it works, I would say.
    Mr. Tom Davis of Virginia. Yeah. I want to know how.
    Mr. Lombardi. I don't have an exact number for you, Mr. 
Chairman, but a fair amount of our work force is previous 
government employees, maybe 70 percent, and not only do they 
bring the expertise with them, they bring the culture with 
them, and they bring the understanding of the various agencies.
    Mr. Tom Davis of Virginia. You have a more flexible 
management style, don't you, than you do in government?
    Mr. Lombardi. And we can also train them because we have 
within our own--we have to train them or we lose them. So the 
work force has to be continuously upgraded in that regard, and 
I think, I don't want to confuse TRAC with the compensation 
issue for Federal employees. I don't think those are the same 
issues here at all.
    Mr. Tom Davis of Virginia. No, they're not.
    Mr. Lombardi. I left government service because of 
compensation issues.
    Mr. Tom Davis of Virginia. I understand. Let me ask Mr. 
Floyd, you have people who have worked for the Government, they 
come over and work for you, they seem to be doing pretty well, 
and yet I think you would say you manage these better than you 
could do some of these in-house. Is it just because we have so 
many rules in government that don't allow this and this isn't 
the fault of the employees; this is just because we have rules 
and regulations and things that inhibit management from being 
as efficient as it might be?
    Mr. Floyd. First thing, you're right, that in my company, 
for instance, I have 60 people. I would think 40 to 60 percent 
are ex-government employees and some of them because the 
Government didn't, in the computer area, some of the Government 
services decided not to promote those people at all and those 
are the very people I wanted and the Government had a job for 
those people but they wouldn't promote them so they got out and 
came to work for me. I was able to pay them and my company 
offers all the services. We offer health care and benefits and 
all those kinds of things, but because we have to maintain a 
certain--when we bid we have to maintain our bid rate. We know 
what we have to pay and we know what we can do. We can pay them 
more but we don't have 10 people doing the job where two people 
can do it. We put two people on it and get it done that way.
    Mr. Tom Davis of Virginia. So it's management flexibility 
basically?
    Mr. Floyd. Absolutely, and someone mentioned that 
contractors don't get oversight. We in fact do get a lot of 
oversight and that my contracts are normally 5-year contracts, 
1 base year and 4 option years, and every quarter they look to 
see how I'm doing and if I don't do well I won't get those 
option years. So I am just kept, you know, on an even keel by 
the Government oversight. There is oversight.
    Mr. Tom Davis of Virginia. Let me just say this to all of 
you. We have a series of votes now, so I'm going to recess. I 
think you all have been very articulate for your particular 
points of views, and on some of these issues there is no 
difference. We understand the basic problems and we need to 
address them at a different level than this committee has, but 
we need to--I think there is unanimity on that. I think we are 
going to keep talking with some of the committees that we have 
organized, and we will revisit this as well and try to meet 
with everybody individually as well to look at this, but I just 
appreciate everybody coming out here today.
    I particularly want to thank the employees who have taken 
probably a day off to come here, sit through these hearings. We 
understand the concerns that you have. We want to try to 
address them. It's more complex. I hope you get an appreciation 
for some of the complexity of this as well, but we hear you and 
we understand it.
    And before we close, I want to just again thank everybody 
and I want to thank our staff for organizing this. We're going 
to keep the record open for 10 days if you would like to submit 
anything as a followup, something occurs to you, you just want 
to enter into the record and make sure it's part of the public 
record. I'm going now to enter into the record a briefing memo 
that was distributed to the subcommittee members.
    Again, I guess we're going to hold the record open for 2 
weeks instead of 10 days from this date for those who may want 
to move forward with submissions for possible inclusion, and 
again thank all of you very much and these proceedings are 
closed.
    [Whereupon, at 5:32 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
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