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




 
 OVERSIGHT HEARING TO REVIEW THE FINDINGS OF THE COMMERCIAL ACTIVITIES 
                                 PANEL

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

                                HEARING

                               before the

           SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 27, 2002

                               __________

                           Serial No. 107-185

                               __________

       Printed for the use of the Committee on Government Reform


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


                                 ______

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                     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
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
JOHN SULLIVAN, Oklahoma                  (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
          Mark Stephenson, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 27, 2002...............................     1
Statement of:
    Styles, Angela, Director, Office of Federal Procurement 
      Policy, U.S. Office of Management and Budget; Joseph Sikes, 
      Director of Competitive Sourcing and Privatization, U.S. 
      Department of Defense; Stan Soloway, president, 
      Professional Services Council; Colleen Kelley, president, 
      National Treasury Employees Union; Jacqueline Simon, 
      director of public policy, American Federation of 
      Government Employees; and Mark Wagner, on behalf of Mark 
      Filteau, president, Johnson Controls World Services, Inc...    38
    Walker, David M., Comptroller General, U.S. General 
      Accounting Office..........................................     9
Letters, statements, etc., submitted for the record by:
    Davis, Hon. Tom, a Representative in Congress from the State 
      of Virginia, prepared statement of.........................     3
    Filteau, Mark, president, Johnson Controls World Services, 
      Inc., prepared statement of................................   129
    Kelley, Colleen, president, National Treasury Employees 
      Union, prepared statement of...............................    71
    Sikes, Joseph, Director of Competitive Sourcing and 
      Privatization, U.S. Department of Defense, prepared 
      statement of...............................................    50
    Simon, Jacqueline, director of public policy, American 
      Federation of Government Employees, prepared statement of..    81
    Soloway, Stan, president, Professional Services Council, 
      prepared statement of......................................    60
    Styles, Angela, Director, Office of Federal Procurement 
      Policy, U.S. Office of Management and Budget, prepared 
      statement of...............................................    40
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................     7
    Walker, David M., Comptroller General, U.S. General 
      Accounting Office, prepared statement of...................    13


 OVERSIGHT HEARING TO REVIEW THE FINDINGS OF THE COMMERCIAL ACTIVITIES 
                                 PANEL

                              ----------                              


                       FRIDAY, SEPTEMBER 27, 2002

                  House of Representatives,
 Subcommittee on Technology and Procurement Policy,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:36 p.m., in 
room 2154, Rayburn House Office Building, Hon. Thomas M. Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Davis and Turner.
    Staff present: Melissa Wojciak, staff director; George 
Rogers, Uyen Dinh, and John Brosnan, counsels; Victoria Proctor 
and Teddy Kidd, professional staff members; Ryan Voccola, 
intern; Mark Stephenson, minority professional staff member; 
and Jean Gosa, minority assistant clerk.
    Mr. Davis. Good afternoon. I want to welcome everyone to 
the subcommittee's oversight hearing on outsourcing. Today, 
we're going to examine the results and recommendations of the 
Commercial Activities Panel that were published in its final 
report, Improving the Sourcing Decisions of the Government.
    We have rescheduled this hearing numerous times to 
accommodate the schedules of our very important members and 
witnesses, so I'd like to extend my thanks to all the 
participants for being here today and for your patience.
    For almost 50 years, the executive branch has promoted the 
purchase of commercially available goods and service from the 
private sector. This policy was formalized by the Office of 
Management and Budget Circular A-76, which provides agencies 
guidance for conducting public-private cost comparisons. In 
fact, the 1983 revised A-76 handbook states that it has been 
and continues to be the general policy of the government to 
rely on commercial sources to supply the products and services 
the government needs.
    But in recent years A-76 has come under fire from all 
sides. Federal employees are inadequately trained to write 
performance work statements or to perform the necessary cost 
comparisons. Moreover, the A-76 process is lengthy and often 
demoralizes--it's demoralizing to the employees whose jobs are 
being competed. In addition, contractors are concerned that the 
cost comparisons are unfair, since the public and private 
sector's accounting systems are not comparable.
    Congress recognizes that the A-76 process is flawed. 
Therefore, we passed the Floyd D. Spence National Defense 
Authorization Act for 2001, Public Law 106-398, which mandated 
that the General Accounting Office convene a panel of experts 
to study the policies and procedures governing the transfer of 
the Federal Government's commercial activities from government 
to contractor performance. The legislation required that 
members of the panel represent the interests of the Federal 
Government, Federal labor organizations and private industry.
    The Commercial Activities Panel met often over a 12-month 
period and conducted three public field hearings. The Panel 
unanimously adopted 10 sourcing principles intended to guide 
the Federal Government in its sourcing policy. Additionally, 
the Panel made three recommendations that were adopted by a 
supermajority; but two Federal labor union representatives and 
two representatives from academia cast dissenting votes.
    The Panel's recommendation includes the implementation of 
an integrated competition process in which public-private 
competitions would be conducted under the Federal Acquisition 
Regulations with some appropriate cost comparisons provided 
from A-76, limited changes to circular A-76, and the creation 
of high-performing organizations, HPOs, by management and 
employees.
    The HPO would be exempt for a specified period from 
competition for a particular function. It would then enter into 
a binding performance agreement for at least 5 years.
    I've repeatedly stated that the Federal Government's 
ultimate objective in the outsourcing arena would be to pursue 
the best value for taxpayers. This principal is the touchstone 
of the FAR based-process. Therefore, I'm encouraged that the 
Panel's recommendations include the application of a FAR-based 
process.
    The subcommittee requested that witnesses discuss their 
perspectives on the 10 sourcing principles that were 
unanimously approved by the Panel; their perspectives on the 
Panel's recommendations, including reservations they may have 
regarding the program's recommendations; and their views on the 
feasibility of implementing the recommendations.
    The subcommittee will hear testimony from David M. Walker, 
the Comptroller General of the U.S. General Accounting Office 
and soon to be a constituent of mine; Angela Styles, the 
Director of the Office of Federal Procurement Policy, Office of 
Management and Budget; Joe Sikes, the Director for Competing 
Sourcing and Privatization, Department of Defense; Stan 
Soloway, the President of Professional Services Council; 
Colleen Kelley, President, National Treasury Employees Union; 
and Jacqueline Simon, the Director of Public Policy, American 
Federation of Government Employees.
    Mark Filteau, President of Johnson Controls World Services, 
had a family emergency and sent Mark Wagner, who will ably 
represent him.
    I appreciate everybody being here, and let me now yield to 
Mr. Turner for any opening comments he may wish to make.
    [The prepared statement of Hon. Tom Davis follows:]

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    Mr. Turner. Thank you, Mr. Chairman. It's always 
interesting to note that we usually gather a pretty good crowd 
when we talk about A-76, even on a Friday afternoon; and I 
welcome all of our witnesses and participants today.
    As we all know, A-76 is--I'll phrase it, not many people 
even pay much attention to it outside of Washington. I 
certainly would hate to poll my constituents and ask how many 
of them have ever heard of A-76, but it is quite a hot topic 
for those of us who work in this particular area, and it 
would--it seems to me that we need to work very hard to try to 
resolve the difficulties that we have had with A-76, and I look 
forward today to hearing from the witnesses to talk about the 
report issued by the GAO, which will I think provide another 
basis for another round of discussions which I hope will be 
productive in trying to deal with this very contentious area of 
Federal procurement policy.
    Thank you, Mr. Chairman.
    Mr. Davis. Thank you very much.
    [The prepared statement of Hon. Jim Turner follows:]

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    Mr. Davis. Mr. Walker, you're our first panel. You know the 
policy here.
    [Witness sworn.]
    Mr. Davis. Thank you. Thanks again for being with us, and 
we appreciate your flexibility in meeting our different 
schedule needs.

STATEMENT OF DAVID M. WALKER, COMPTROLLER GENERAL, U.S. GENERAL 
                       ACCOUNTING OFFICE

    Mr. Walker. I'm happy to do it, Mr. Chairman, Mr. Turner. 
It's a pleasure to be here. I think this is a very important 
topic. I know that you've tried and all of us have tried on 
several occasions to make this happen, and I'm pleased that it 
is happening.
    I'm pleased to be here today to participate in this 
subcommittee's hearing on the report of the congressionally 
mandated Commercial Activities Panel. And, again, it is the 
Panel's report. It is not a GAO report. And I think that is 
very important. I'm acting in my capacity as the chairman of 
the Commercial Activities Panel, but obviously I'm also the 
Comptroller General of the United States.
    In just the few months since the Panel issued its report in 
April, we've begun to see real progress in implementing the 
Panel's recommendations, at least as it relates from an 
administrative standpoint; and I know that Angela Styles will 
then be talking about that.
    As you know, the Panel's work was the result of a provision 
contained in the fiscal year 2001 Defense Authorization Act, 
which called for me, in my capacity as Comptroller General of 
the United States, to convene a panel of experts to study and 
make recommendations for improving the policies and procedures 
governing the transfer of commercial activities for the Federal 
Government from government to contractor personnel. The impetus 
of the legislation was the growing controversy surrounding 
competitions conducted under OMB Circular A-76 to determine 
whether the government should obtain commercially available 
goods and services from the public or private sectors.
    Importantly here, Mr. Chairman and Mr. Turner, I use the 
term ``sourcing,'' not outsourcing, because, under our 
principles, it could go either way. While there's likely to be 
more activity going outside the Federal Government, there are 
possibilities that they could come back, and obviously I'll be 
happy to answer questions on that.
    Controversy surrounding the use of A-76 also occurred at 
the time of increasing questions over the role of government 
and who was in the best position to provide the needed 
services. As I have testified on a number of occasions, given 
recent trends and our long-range fiscal challenges, the Federal 
Government needs to engage in a fundamental review, 
reassessment and reprioritization of what the Federal 
Government should do, how the Federal Government should do 
business and who should do the Federal Government's business.
    Because of the importance of the issues to be addressed, I 
chose to chair the Panel rather than to delegate it, which I 
was allowed to do under the statute. My view was, unless you 
had top-level people from the different groups involved, that 
the hope of being able to achieve a consensus on anything was 
next to zero, given the nature and the controversy and 
complexity associated with this topic.
    In establishing the Panel, a number of steps were taken to 
ensure representation from all major stakeholders as well as to 
ensure a fair and balanced process. To ensure a broad array of 
views on the Panel, we used the Federal Register notice to seek 
suggestions on the Panel's composition.
    Let me note for the record, contrary to assertions by some, 
I received no complaints from any Panel member during the 
process about the composition of the Panel, no complaints from 
any Panel member about the composition of the Panel until after 
our report was issued. My view is, if you can't attack the 
result, you attack the process, and that's what is happening. 
It's the oldest game in town.
    Once convened, the Panel as a group took a number of steps 
at the outset to guide its deliberations and ensure a full and 
balanced consideration of the issues. The first step was the 
adoption of a mission statement. The Panel also agreed that all 
of its findings and recommendations would require agreement of 
at least two-thirds supermajority of the Panel in order to be 
adopted. This meant that everything was in play, and you 
couldn't end up having factions form that would automatically 
result in a stalemate of the process.
    The Panel further decided that each member of the Panel 
would have an option of having a brief statement included in 
the report explaining that member's position on the matters 
considered by the Panel. Every member did so, and we also had a 
Federal Register notice soliciting input on the issues.
    The Panel held 11 meetings over a period of May 2001, to 
March 2002, including several field hearings during that period 
of time.
    As the program began its work, it recognized the need for a 
set of principles that would provide a framework for sourcing 
decisions. Those principles, as they were debated and fleshed 
out, provided an important vehicle for assessing what does or 
does not work under the current A-76 process and provided a 
framework for identifying needed changes in the process.
    The principles, which are outlined on page 7 of my 
testimony, 10 in total, were unanimously adopted by the Panel 
and included as an integral part of the program's 
recommendations. While each principle is important, no single 
principle stands alone, and several are interrelated. 
Therefore, the Panel adopted the principles and their 
accompanying narrative comments as a pack and then used these 
principles to assess the government's existing sourcing system 
and to develop additional Panel recommendations.
    In addition to the principles, the Panel adopted a package 
of additional recommendations that it believed would improve 
significantly the government's policies and procedures for 
making sourcing decisions. As you noted, Mr. Chairman, this was 
adopted by a supermajority of the Panel by an 8 to 4 vote.
    It is important to emphasize that the Panel decided to 
consider and adopt these vital recommendations as a package, 
just as we did with the principles, recognizing the diverse 
needs represented on the Panel and the give and take required 
to reach agreement among a supermajority of the panelists.
    As a result, the supermajority of the Panel members 
recommended the adoption of three basic items: Conduct public-
private competitions under the framework of an integrated FAR-
based process, make limited changes to the existing A-76 
process, and encourage the development of high-performing 
organizations.
    Many of the panel's recommendations can be accomplished 
administratively under current law, and OMB is taking steps to 
try to accomplish that. The Panel recommended that our 
recommendations be adopted as soon as practicable, some of 
which, however, may require legislation, and obviously that is 
one of the reasons why we are having this hearing.
    Like the guiding principles, the other recommendations that 
we made were a result of much discussion and debate and, 
frankly, compromise. I was getting input from every Panel 
member, including individuals who I knew would vote no in a 
good-faith attempt to try to come up with a fair, balanced, 
reasoned and reasonable proposal, even if it wasn't going to 
make a difference on what the ultimate vote would be. All we 
had to have was one of the eight members vote no, and we would 
not have these additional recommendations.
    In conclusion, I supported the adoption of the set of 
principles as well as the package of additional recommendations 
contained in the Panel's report. Overall, I believe the 
findings and recommendations contained in the Panel's report 
represent a reasoned, reasonable, fair and balanced approach to 
addressing the important, complex and controversial area of 
sourcing policy.
    I hope that the Congress and the administration will 
continue to consider and act on this report and its 
recommendations. I particularly want to encourage the Congress 
and the administration to consider the importance of the high-
performing organizations concept. Agencies should not wait 
until faced with the challenge of public-private competitions 
to seek efficiencies to retain work in-house. It is in the 
taxpayers' interest that we try to maximize the performance and 
ensure the accountability of all enterprises within government, 
whether or not they will ever be subject to sourcing.
    The fact of the matter is, is that most government jobs 
will never be subject to competitions. As a result, I believe 
that the Panel's recommendation pertaining to high-performing 
organizations could be an important vehicle for fostering much-
needed attention to how we can enhance the economy, efficiency 
and effectiveness of government and improve government's 
accountability in way as a complement to, not a substitute for, 
always, a competition.
    Finally, and most importantly, in considering the Panel's 
package of recommendations or any other changes that may be 
considered by Congress and the administration, in my view, the 
guiding principles which were developed and unanimously agreed 
to by the Panel should be the foundation for any further 
action.
    Let me also add that I appreciate the hard work of my 
fellow panelists and their staff who worked in a good-faith 
effort over a considerable amount of time in order to deliver 
this report.
    Mr. Chairman, that--and Mr. Turner, that concludes my 
opening statement. I would be happy to answer any questions 
that you may have.
    Mr. Davis. Thank you, Mr. Walker. I understand you're 
willing
to sit here while the others testify, and we can do the 
questions all at once.
    Mr. Walker. I would be happy to do that, Mr. Chairman.
    Mr. Davis. That would be great.
    [The prepared statement of Mr. Walker follows:]

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    Mr. Davis. If I could have the other witnesses come up, and 
before you sit down, just raise your right hand.
    Ms. Kelley is not here, right? We'll get her when she gets 
in.
    [Witnesses sworn.]
    Mr. Davis. Thank you very much.
    Why don't we start with Ms. Styles and move straight on 
down.
    Angela, thanks for being with us.

   STATEMENTS OF ANGELA STYLES, DIRECTOR, OFFICE OF FEDERAL 
   PROCUREMENT POLICY, U.S. OFFICE OF MANAGEMENT AND BUDGET; 
      JOSEPH SIKES, DIRECTOR OF COMPETITIVE SOURCING AND 
   PRIVATIZATION, U.S. DEPARTMENT OF DEFENSE; STAN SOLOWAY, 
   PRESIDENT, PROFESSIONAL SERVICES COUNCIL; COLLEEN KELLEY, 
PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION; JACQUELINE SIMON, 
 DIRECTOR OF PUBLIC POLICY, AMERICAN FEDERATION OF GOVERNMENT 
    EMPLOYEES; AND MARK WAGNER, ON BEHALF OF MARK FILTEAU, 
        PRESIDENT, JOHNSON CONTROLS WORLD SERVICES, INC.

    Ms. Styles. Thank you very much. I really appreciate the 
opportunity to be here today to discuss the administration's 
competitive sourcing initiative, the final report of the 
Commercial Activities Panel and the administration's pending 
changes to OMB Circular A-76. In particular, Mr. Chairman, I 
want to thank you for your continued interest in these 
difficult but very important issues.
    First, I think I have to start off by thanking General 
Walker and his staff at the GAO. They devoted a tremendous 
amount of personal time and effort to this panel into creating 
a fair report. We had a healthy and I think productive exchange 
of ideas, and I think ultimately, through Mr. Walker's efforts, 
we were able to achieve consensus on the 10 principles. I think 
that's a truly astounding feat, given the diversity of the 
Panel. And while we were not able to achieve consensus on the 
ultimate recommendations, I think Mr. Walker went above and 
beyond what would normally be expected in these circumstances 
to ensure that the views of all Panel members were represented 
to the maximum extent possible.
    I must also commend Mr. Walker for providing an avenue for 
the administration to work and develop lasting relationships 
with key players in both industry and the Federal employee 
unions. The Panel gave us and the administration a firm 
foundation to ensure that there was an open, full and fair 
dialog and continue to have one as we move forward with 
addressing these many difficult issues.
    The issues related to this report, public-private 
competition and to the administration's competitive sourcing 
initiative are complex, challenging, intellectual and, in many 
respects, highly politicized.
    Competitive sourcing asks people to make very hard 
management choices, choices that affect very real jobs held by 
real, dedicated and loyal career civil servants. In many 
respects, it comes down, I think, to one simple reality. Very 
few people, whether you're working in the private sector or the 
public sector, like to work under the pressure of knowing that 
their job is on the line if they don't figure out how to do it 
more efficiently and effectively. But the fact that public-
private competition and our initiative require hard choices and 
a lot of hard work makes it one that can affect fundamental, 
real and lasting changes in the way we manage the Federal 
Government. And the clincher here from our perspective is that 
it's a taxpayer--this initiative strives to focus the Federal 
Government on its mission, delivering high-quality services to 
our citizens at the lowest possible cost.
    We have civilian agencies for what I submit is the first 
time taking a very hard look at how they fulfill their mission. 
What are their employees doing that is inherently governmental? 
What are they doing that's commercial? Is this the right mix 
for mission success? They're also asking what private 
contractors are doing and whether the agency is managing its 
private contractors well, whether public employees could do it 
better and cheaper or whether a different private sector 
company could do it better. These are fundamental questions but 
ones that must be asked if we're going to have any chance of 
doing a better job of managing the Federal Government.
    Competitive sourcing is about a commitment to better 
management. It's a commitment to ensuring that our citizens are 
receiving the highest quality service from their government 
without regard to whether that job is being done by dedicated 
Federal employees or the private sector.
    What we care about is competition and the provision of 
government service by those best able to do so, be that the 
private sector or the government itself. We care about costs, 
quality and the availability of service, not who provides it.
    The Panel's report is a significant step forward and in 
many regards an important guide as this administration moves 
forward with overhauling the current process for public-private 
competition.
    I look forward to continuing to work with this committee 
and assessing and making changes to the process.
    This concludes my prepared statement, but I look forward to 
answering any questions.
    Mr. Davis. Thank you, Ms. Styles.
    [The prepared statement of Ms. Styles follows:]

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    Mr. Davis. Mr. Sikes.
    Mr. Sikes. Chairman Davis, Mr. Turner, I'm pleased to be 
here today to discuss the results of the Panel, Commercial 
Activities Panel, with this subcommittee.
    I attended all the Panel meetings as a second chair to 
Under Secretary Pete Aldridge and also represented the 
Department in the field hearing in San Antonio. I found the 
Panel discussions to be open and constructive, with all sides 
of a difficult issue being heard.
    Frankly, at the beginning of it, I was skeptical that we 
would reach meaningful consensus. I believe it is a testament 
to Comptroller General Walker that the Panel reached the 
conclusions and recommendations that you have before you today.
    The Department of Defense fully supports the objectives of 
the Panel's recommendations, especially the set of fundamental 
principles that were adopted as a framework. Let me emphasize 
that these principles were adopted as a framework and not 
intended to be applied independently. I've been at a number of 
conferences since the Panel's report was issued and find that 
the individual principles are often focused on--to support a 
specific point of view.
    As the report clearly states, the principles are intricate 
and extricably linked with one another, and no individual 
principle is meant to stand alone.
    The current A-76 process is lengthy, complex and 
frustrating for everyone. That frustration is an outgrowth of 
attempts over time to address legitimate concerns of all 
participants, while establishing a level playing field.
    The Panel's integrated competition process is a promising 
method to improve fairness and reduce the lengthy time 
required, and it is clearly consistent with the framework 
provided by the principles adopted by the Panel.
    The Department is working closely with OMB to help develop 
this new process. I think it is important to keep in mind that 
the new process will still be a public-private competition and 
many of the difficulties inherent in such a competition will 
remain. Drafting an accurate work statement, costing the 
government proposal will still be challenging, and the 
Department is working hard to continue to improve our ability 
to do these tasks.
    As the Panel report notes, the Department of Defense has by 
far the most Federal experience in public-private competitions 
and, as recommended, we are working already with other Federal 
agencies to show the methodologies that we've developed over a 
number of years.
    As we work toward this new integrated process, we are also 
continuing to review our ongoing competitions and apply lessons 
learned from those to improve the ongoing processes. While the 
current A-76 competition process is far from perfect, it does 
provide a standardized process to determine whether commercial 
functions are better performed by DOD employees or by the 
private sector. And as difficult as the process can be, the 
history of the competitive sourcing program shows that it 
consistently generates savings and efficiencies. That is the 
power of competition.
    My own personal hope for the new process, in addition to 
the improvements we expect to see, is that it will at least get 
us out of the negative attitude everybody has toward the old 
process; and that as much as anything should help speed up 
figuring out what the right way to source things in the 
Department of Defense are.
    I support and look forward to improved public-private 
competitive processes as a result of the Panel's findings, and 
I stand ready to answer any questions you may have. Thank you, 
sir.
    Mr. Davis. Thank you very much.
    [The prepared statement of Mr. Sikes follows:]

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    Mr. Davis. Mr. Soloway.
    Mr. Soloway. Thank you, Mr. Chairman, Mr. Turner. I 
appreciate the opportunity to testify today.
    Let me start by joining the chorus of gratitude for the 
Comptroller General. It's true that, without his efforts, the 
Panel would not have made as much progress as it did, and he's 
to be both congratulated and thanked for his work and his fair 
and balanced leadership.
    Much has been written and said about the CAP report. In too 
many cases, people have drawn the conclusion that the Panel was 
hopelessly divided in its views, but such is not the case. As 
the Comptroller General has correctly stated, the Panel reached 
unanimous agreement on 10 overarching principles that are 
balanced and that actually address the major concerns of each 
of the stakeholder communities involved.
    The logic, common sense and fundamental fairness of these 
principles is, I believe, clear to any objective observer. The 
principles recognize that competition is the principle driver 
of improved efficiency and performance. They recognize the 
critical importance of both cost and noncost factors in a SMART 
source selection. They recognize that all offerers must be 
subject to the same evaluation criteria, the same post-award 
performance measurement and the same appeal and protest rights. 
They recognize that sourcing is a strategic process that must 
take into account a variety of factors including mission 
requirements, human capital, budget realities and more.
    The principles explicitly state that a public-private 
competition must not be mandated merely because both public and 
private sectors are able to perform their work, but, rather, 
that such decisions must be based on a broader set of criteria.
    These principles also represent a stinging rebuke to the 
so-called TRAC Act; and, taken as a whole, the message of the 
principles is, to paraphrase a slogan of the Federal employee 
unions, let them compete in a fair, transparent and strategic 
process.
    Today, the A-76 process fails to align in almost any way 
with these principles, but the Federal Acquisition Regulations, 
which are built on the tentative equal rights and equal 
responsibility, match up quite well. Thus, the recommendation 
of the Panel to eliminate the fatally flawed A-76 and replace 
it with an integrated FAR-based process was a logical extension 
of the principles to which all panelists agreed.
    Unfortunately, since the issuance of the report, too much 
of the discussion has been dominated by hyperbole and 
uninformed rhetoric. We hear repeatedly the best value, for 
instance, is a--the best value accounting is akin to some kind 
of unconstrained bazaar. In truth, it is nothing of the sort 
but is, rather, a process that affords great flexibility within 
the construct of clearly defined and accountable boundaries. It 
may not be perfect, after all. Nothing is, but I would suggest 
that it is a far sight preferable to the bad old days of low-
balling and cost shootouts and that it is a process available 
to virtually all Federal procurements except those conducted 
under A-76.
    We also hear repeatedly that the FAR-based process is so 
new it must be rolled out at a snail's pace. But, as the report 
states, the FAR already is the common language of Federal 
procurement and already is better understood and more 
effectively implemented than A-76. Thus, we start the 
implementation of the new process several steps ahead of where 
we are today.
    We eagerly await OMB's proposed changes to the current 
process and hope they will align with the 10 principles agreed 
to by the Panel. Time and quality are of the essence, and I 
know OMB has been working hard on those changes. It has been 5 
months since the Panel's report was delivered, and during those 
months we have seen a clear trend in which some government 
activities, particularly at DOD, have canceled or significantly 
slowed their competition activities. This is partially due to 
understandable antipathy toward A-76 and a concurrent hope that 
OMB's proposed revisions will create a far more effective means 
of conducting these competitions.
    There are six basic questions I think regarding the 
administration's implementation that need to be considered.
    One, does the policy clearly define the government entity 
that is submitting a bid? This is a critical and often 
overlooked element, but it's essential, since it is the bidder 
that must submit a proposal and, if successful, enter into a 
binding performance agreement or contract. It is that bidder 
who is responsible for performance, and it is that bidder and 
only that bidder that can be afforded appeal and protest 
rights.
    Second, are all bidders, public and private, responding to 
the same solicitation and being evaluated on the same criteria?
    Third, since GAO and others have made clear that the 
government does not know the cost of its own internal 
activities, what steps are being taken to ensure that the 
government is being held to cost realism standards equal to 
those required of the private sector which today is subject to 
a much wider array of cost accounting principles, audits and 
more?
    Does the policy establish clear and appropriate conflict of 
interest rules? The GAO has recommended in its most recent 
ruling on A-76 cases that the same rules that apply to general 
procurements be applied to public-private competitions, and we 
would agree.
    Five, does the policy create a construct for public 
entities to enter into binding performance agreements that, to 
the maximum extent possible, mirror a contract?
    And, finally, does the policy create a clear and equitable 
protest process? Does it define a process of checks and 
balances, for instance, for public entities similar to those 
faced by companies so as to avoid a universe bogged down by 
frivilous protests on every aspect of every procurement?
    Only by being able to answer in the affirmative these basic 
questions will any implementation achieve the outcomes 
envisioned by the Panel's unanimously agreed-to principles. The 
bottom line is that the government is the stakeholder that 
matters the most, and we have to cut through all of the 
parochial rhetoric on all sides and focus only on the 
government's best interest.
    The Commercial Activities Panel and, indeed, most objective 
observers agree that we are at a moment in time when real 
change is both possible and essential. The degree to which the 
recommendations of the Panel are implemented will have an 
enormous impact on the government's interests which are best 
served by a competition process that is strategically sound, 
fair and transparent. In so doing, the government will be 
taking a major step toward optimizing performance and 
efficiency on behalf of the American people. The time to act is 
now.
    Thank you, Mr. Chairman. I'll be happy to answer any 
questions.
    Mr. Davis. Thank you very much.
    [The prepared statement of Mr. Soloway follows:]

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    Mr. Davis. Ms. Kelley, thank you for being here.
    I'm going to need to swear you in. I've sworn everybody 
else in. If you'd just rise with me.
    [Witness sworn.]
    Mr. Davis. Thank you. Thanks for being with us today. 
You're here on time. It's no problem. Just glad to have you 
here.
    Ms. Kelley. Chairman Davis, Ranking Member Turner, I really 
appreciate the opportunity to testify before you today.
    Unfortunately, I am here to urge you to reject the package 
of changes by the Commercial Activities Panel, as they fail to 
improve sourcing policy for Federal employees or for the 
taxpayers. The Panel's recommendations should not even begin to 
be evaluated until the administration puts the brakes on their 
quota-driven outsourcing initiative.
    On that subject, I want to thank both you, Chairman Davis, 
and you, Congressman Turner, for voting for the Moran-Wolf-
Morella amendment that rejected the administration's approach 
to contracting out.
    A consistent theme echoed at the Panel hearings was the 
need for reliability systems to track the work of government 
contractors. The importance of better contractor oversight was 
reinforced last summer when the Panel learned that Mellon Bank, 
a contractor hired by the IRS, had lost, shredded and removed 
70,000 taxpayer checks worth $1.2 billion. Unfortunately, none 
of the CAP recommendations would prevent a Mellon-Bank-like 
contracting fiasco from happening again.
    Despite the lack of oversight of contractors, OMB continues 
to force agencies to comply with their arbitrary outsourcing 
quotas to open up 425,000 Federal jobs to contractors. OMB 
continues to enforce these reckless quotas, even though the 
Panel voted unanimously that sourcing policies should, ``avoid 
arbitrary FTE or other arbitrary numerical goals.''
    To date, the administration still has not articulated its 
justification for either the 5 percent, the 10 percent or the 
50 percent quotas that they have imposed on agencies. Where is 
the data that shows that any quota, that any number for 
contracting out Federal employee jobs, with or without 
competition, are the right numbers and will lead to savings and 
to improved agency performance? Agencies should have the 
discretion to determine how best to balance their workloads 
with their budgets.
    I opposed the final CAP report because of my concerns about 
what was missing from the report and because of my concerns 
about the risks and the dangers posed by actually implementing 
the report's package of recommendations.
    For example, in addition to failing to recommend the 
implementation of contractor oversight systems, the report does 
not ensure Federal employees will be given an opportunity to 
prove they can do their jobs more efficiently and at a lower 
cost than contractors. Nor does the OMB outsourcing directive. 
And the report, again consistent with the OMB outsourcing 
quota's directive, ignores the benefits that would be gained by 
the taxpayers if Federal employees and their union 
representatives had legal standing to protest faulty contract 
decisions.
    The recommendations to combine a modified FAR part 15 cost 
technical tradeoff process, which sounds very complicated, with 
a modified A-76 public-private competition process into a new 
integrated process while simultaneously forcing agencies to 
meet their outsourcing quotas is very, very risky. It's more 
complicated than A-76, and it will likely leave taxpayers 
picking up the tab to pay contractors for costly services that 
they do not need.
    Any new government sourcing program or process ought to be 
tested on a limited basis, independently reviewed and modified 
based on lessons learned. Then if Congress sees the alternative 
as superior to A-76, Congress should determine whether or not 
it should be authorized governmentwide.
    The risks involved in this untested A-76 plus FAR 
recommendation are particularly high in light of the 
administration's contracting out quotas. The quotas are driving 
many agencies to contract out the work to contractors without 
first conducting public-private competitions, and some agencies 
have hired outside contractors to administer the A-76 
competitions since they have this experience.
    The only thing OMB has made clear to agencies about 
competitive sourcing is that they have to get to 15 percent by 
the end of fiscal year 2003 and ultimately get to 50 percent.
    Now that OMB is moving ahead to implement one of the CAP's 
recommendations, agencies are even more confused on how to meet 
the outsourcing quotas. On the one hand, the administration has 
told agencies to meet their quotas, either through 
privatization without competition or through A-76 competitions. 
On the other hand, OMB is saying that A-76 does not work, it 
should be put through a shredder, and agencies should now use a 
new, untested process. Which one is it?
    With or without competitive sourcing, I believe that the 
most important action that Congress can take to put some teeth 
in the unanimously adopted principles of the Commercial 
Activities Panel would be to approve H.R. 721, the TRAC Act. 
This would give the taxpayers the accountability that they need 
and they expect.
    Most importantly, before contracting out any more work, 
Congress and the administration should make the necessary 
investments in increased agency staffing, resources and better 
training. Because when supported with the tools and the 
resources that they need to do their jobs, there is no one, 
absolutely no one, who can do the work of the Federal 
Government better than Federal employees.
    Thank you.
    Mr. Davis. Thank you very much.
    [The prepared statement of Ms. Kelley follows:]

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    Mr. Davis. Ms. Simon, thanks for being with us.
    Ms. Simon. Thank you.
    My name is Jacqueline Simon, and I'm the Public Policy 
Director of the----
    Mr. Davis. Push the button there. There we go.
    Ms. Simon. My name is Jackie Simon, and I'm the Public 
Policy Director of the American Federation of Government 
Employees. On behalf of the 600,000 Federal employees 
represented by AFGE, I thank you, Chairman Davis, for the 
opportunity to discuss our concerns about the serious and long-
standing problems in Federal service contracting.
    Before I get started, I want to thank both you and 
Representative Turner for supporting the Moran-Wolf-Morella 
amendment that frees agencies from OMB's privatization quotas. 
AFGE National President Harnage asked me to thank you in 
particular, Chairman Davis, for your outspoken leadership and 
support.
    Given that our written statement provides a detailed 
critique of the Commercial Activities Panel's report, please 
allow me to briefly summarize our views.
    The Panel allowed contractors disproportionate 
representation. So, naturally, it served up recommendations to 
further contractor's interests. The procontractor faction was 
unable to make a case for doing away with OMB Circular A-76, 
and it failed to make any case at all for replacing it with a 
controversial, unproven and subjective FAR-based best value 
public-private competition process, which even its advocates 
acknowledge may be slower than A-76 and which by all estimates 
will result in contracts that are more costly for taxpayers 
but, of course, more profitable for contractors.
    The Panel's procontractor faction has overplayed the fact 
that one part of the CAP report received unanimous support from 
the Panel, the principles. But there's much less to this 
unanimity than meets the eye. On the one hand, many of the 
principles are so bland that they are almost meaningless. On 
the other hand, the Panel felt free to either ignore or 
contradict the Panel's--its principles and recommendations. But 
the Panel is over; and in the real world, the facts are that 
the Bush administration has already shown that it will continue 
to defy the principles that its representatives on the Panel 
endorsed.
    For example, Pentagon officials have told the Congress in 
no uncertain terms that their objective is to, ``divest,'' all 
work they classify as noncore, involving hundreds of thousands 
of jobs. Divestiture was defined earlier this year by a DOD 
official to mean the, ``transfer of assets to the private 
sector and the employees as well.''
    At the readiness hearing on the CAP report, the DOD witness 
explicitly repudiated the unanimously agreed principle that 
ensures Federal employees should have the opportunity to 
compete for new work and work that has already been contracted 
out.
    Another example is high-performing organizations investing 
in work force training and encouraging labor management 
cooperation in order to improve an agency's delivery of 
services. Although the panelists from the Bush administration 
voted in favor of the recommendation that included a call for 
the establishment of HPOs, don't expect them to see them at any 
agency near you any time soon.
    OMB's privatization of quotas are another stark example. 
Rather than repudiate them per the Panel's principles, OMB 
officials are attempting to rationalize them, claiming they're 
revising their criteria for success. And of course contractors 
assailed Representative Moran for leading the fight to free 
agencies from the OMB privatization quotas.
    Whatever it might have been, whatever we might want it to 
be, the CAP report has become irrelevant. While some clearly 
have a stake in burnishing its legacy, it cannot be denied that 
the CAP report has not aged very well. OMB is doing what it 
wants to do, irrespective of the Panel's principles and 
recommendations; DOD is doing what it wants to do, irrespective 
of the Panel's principles and recommendations; and contractors 
are doing what they want to do, irrespective of the Panel's 
principles and recommendations.
    And AFGE is going to do what we think is best, continue to 
work to ensure that agencies start to track contractor costs, 
require public-private competition before work is contracted 
out and ensure that Federal employees have chances to compete 
for new work and contracted work.
    We're pleased, actually, that the focus of our grassroots 
efforts on the Senate side have paid off so well. Since they 
released the CAP report, we've significantly increased TRAC 
cosponsorships and come within one vote of adding a TRAC-like 
amendment to the defense authorization bill.
    What is relevant, of course, is the OMB rewrite of the 
public-private competition process. Although they disagree on 
most issues, President Harnage appreciates the willingness of 
Administrator Styles to maintain a frank and open dialog, and 
we look forward to offering a detailed and well-reasoned 
critique whenever OMB's rewrite is made available.
    What's also relevant and even more timely are the now 
infamous OMB privatization quotas. OMB officials sometimes 
insist that the quotas are merely goals, with the implication 
that they're not in force, that they just reflect the 
administration's wishes. Recently, however, it was brought to 
our attention that the OMB privatization quotas are, in fact, 
mandatory quotas, not goals.
    According to a Coast Guard memo, ``during a governmentwide 
conference on competitive sourcing held recently in Washington, 
DC, OMB representatives noted that two agencies received force 
reductions in FTE during the latest round of budget 
submissions. These reductions were directly linked to agency 
noncompliance with the President's competitive sourcing 
goals.''
    If the congressional effort to free agencies from 
privatization quotas is successful, OMB officials have 
threatened to retaliate by forcing agencies to review for 
privatization their entire FAIR Act commercial inventories. As 
President Harnage responded, ``those comments are nothing more 
than blackmail, a desperate attempt to stave off a bipartisan 
effort in Congress to abolish the quotas by threatening to 
privatize almost a million Federal employee jobs.''
    I would add that the OMB threat shows exactly why the Moran 
amendment and the TRAC Act need to be enacted into law as soon 
as possible.
    Thank you for the opportunity to represent AFGE before your 
subcommittee, Chairman Davis. I look forward to attempting to 
answer any questions you may have.
    Mr. Davis. Jackie, thank you very much.
    [The prepared statement of Ms. Simon follows:]

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    Mr. Davis. Mr. Wagner, thanks for being with us.
    Mr. Wagner. Thank you, Mr. Chairman, Mr. Turner.
    Mr. Filteau sends his regrets, and I appreciate the 
opportunity to represent him.
    The Commercial Activities Panel started with the premise 
that, whatever was ultimately recommended, it must support 
Federal agency mission objectives, while being fair to all 
stakeholders, including government employees, contractors and 
the taxpayers.
    With this foundation, we unanimously adopted its 10 
principles, which embody the concept of fairness by calling for 
a clear, transparent process that is consistently applied to 
all parties. Fairness is crucial to public-private 
competitions. If the process isn't being fair, then the private 
sector won't participate. Fairness is also vital when it comes 
to the treatment of the government work force, no matter who 
wins the competition.
    If my company or any other responsible company wins a 
public-private competition for a base operations support 
contract, we want to hire as many of the existing work force as 
possible. There are good workers with a lot to contribute, but 
if the public sector employees are dragged through a long 
process filled with misinformation and uncertainty, many 
workers will find jobs well before the competition is even 
decided. It's not in anyone's interest to abuse loyal 
government workers.
    Similarly, we need a process that encourages the private 
sector to compete. Currently, many good government contractors 
don't want to spend their scarce bidding proposal resources on 
A-76, because, as you mentioned, the process is long, unfair, 
uncertain and costly. In my own company, we pass up on many 
more A-76 opportunities than we bid, and it's unlikely that 
we'll bid more in the future unless the process is changed.
    To appreciate how unfair the current A-76 process is, 
imagine a nonA-76 procurement in which one special bidder, the 
incumbent, gets as many chances as it needs to submit a 
technically acceptable proposal. Next, that special bidder 
always gets to compete against the best proposal chosen from 
among the other bidders, and if the performance level of the 
special bidder doesn't match that of the best chosen, then he 
gets that proposal change to be brought up to the higher 
performance level before any costs are even considered.
    Finally, during the cost comparison, the special bidder 
gets a 10 percent price advantage. While this may sound 
unreasonable, these are the advantages provided to the in-house 
team under A-76. It's no wonder that MIOs win half of the 
competitions, over half of the competitions.
    But back to the guiding principles that were adopted by the 
Panel. They led to a logical recommendation which was to shift 
it rapidly to a FAR-type process under which all parties 
compete under the same set of rules. The FAR embodies a fair 
process with clear rules. It has the confidence of government 
and industry. And this high level of confidence, combined with 
a fair, time-tested process, is the key to encouraging quality 
competitive proposals from the private sector.
    Shifting to a FAR-based process also addresses several 
other key issues. It provides flexibility. You can award based 
on best value or on low cost as the need dictates. The FAR 
embodies a high degree of accountability for all parties, 
public and private alike, with provisions for third-party 
audits by agencies like the Defense Contract Audit Agency to 
track costs and performance.
    A FAR process would allow the public sector to participate 
in competitions for work currently performed by contractors as 
well as work performed in-house; and since the public sector 
would be competing under the same process and would be treated 
as a true bidder, they would have the right to protest, just 
like a contractor.
    Moving to a FAR-based process is neither a radical idea nor 
one in which the government lacks experience. The FAR is used 
successfully every day by the government to make thousands of 
purchase decisions between competitors. We can and should make 
it work fairly for competitions involving public sector bids.
    In conclusion, the contractor community is not afraid of 
competition or accountability. We are subject to intense 
competition on FAR-type procurements every day, and we are 
subject to routine audits on performance and costs. The 
program's recommendation to switch to a FAR-based process 
embodies a concept of fairness, accountability, competition, an 
approach under which all parties compete under the same set of 
time-tested rules.
    Thank you, Mr. Chairman and Mr. Turner.
    Mr. Davis. Thank you very much.
    [The prepared statement of Mr. Filteau follows:]

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    Mr. Davis. Let me start with Ms. Kelley and Ms. Simon, just 
ask a few questions here. Clearly, a great frustration among 
Federal workers is that some of these competitions are just 
going outside almost automatically without giving them an 
appropriate opportunity.
    Those are legitimate concerns that we try to address. My 
concern is that we are just not--at the Federal level--and part 
of this can be addressed through the civil service system, 
making sure that we are recruiting and retaining people 
adequately to stay in the Federal work force to keep a work 
force that can compete with the private sector, particularly in 
the IT area.
    This wasn't the case in government 30 years ago. I was a 
page up here 30 years ago, you know, when President Kennedy 
said, ``Ask not what your country can do for you; ask what you 
can do for your country.'' There was a real spirit of coming 
into government, working for the government, being a part of 
something. I don't detect that same spirit today when I walk 
through the halls of some of our agencies, when I talk to kids 
that are getting out of college, asking what they are going to 
do, that government can effectuate change in the same way and 
particularly in the IT section.
    You still get that in some of the government regulatory 
agencies and some of the legal departments at Justice where 
it's still pretty tough to get jobs.
    But in some of these IT areas, it seems to me there are 
some difficulties in retaining people and even recruiting 
people. No. 1 is that the pay differential between the private 
sector is very pronounced; and changing that would, in my 
opinion, mean revisiting some of the civil service regulations 
in terms of how we pay people, what we pay them and not just 
raising everybody's pay but maybe making it a little more 
select.
    Second is training. Who wants to go to a job where you're 
not getting trained in being up to date on things that are 
going forward? You know, sometimes you'll stay with government, 
you'll give it a shot, you'll try to be a part of something 
important, but when you're trained for yesterday's jobs and 
yesterday's technology and you're not being kept up--and yet, 
that is one of the first things that gets cut in government.
    This is something we need to work on together. We have 
tried honestly through our CERA legislation, through our Tech 
Corps, through some of these things to try to get at this, and 
maybe we're just getting around it and not working with you 
close enough so that we can have an honest discussion over the 
best ways we can bring more people into the government. Because 
ultimately you can revamp A-76, but if you don't have the in-
house capability and the in-house training, which isn't the 
fault of the workers, it's just not going to be competitive, 
and for the taxpayers, there's no choice but to send it out.
    Frankly, to give taxpayers their best value, it seems to 
me, you need to keep a good in-house cadre there, because that 
keeps the contractors competitive.
    So I think we need to get to that to make this whole 
equation work. Otherwise, we can make it FAR-based, we can do 
anything we want, and it seems to me you're going to lose 
inevitably.
    Those are my thoughts going into this, that this is a more 
complicated process than just working through A-76, that we 
need to look internally at civil service rules, pay rules, 
training rules and the like. We've tried to get at it. There's 
not a bottomless pit of money that we can put into these, but 
there is some additional expenditure of funds that I think can 
ultimately save the taxpayers money.
    So with that in mind, I'd like to get your reaction to what 
I've said from both of you.
    Jackie, if you don't feel you want to comment today, we'd 
be happy to have you come in and submit something later, but 
we're pleased to have you here. You are, as Mr. Walker said, an 
important part of this equation. We can't simply outsource 
everything and stay competitive and get the government what it 
wants, and we want to give you and your workers the tools they 
need to be able to compete. Then I think it works for 
everybody.
    Ultimately, remember this: Our job, my job, is not to help 
contractors or unions--it's to get the best value for the 
taxpayer dollar and the services we're buying, and we can only 
do that if we can have a robust public sector that is trained, 
up to date, recruiting the best and brightest, and that's where 
we seem to be losing it.
    I've talked enough. Let me try to get a reaction from each 
of you on that.
    Ms. Kelley. Actually, I very much appreciate, Chairman 
Davis, your recognizing that this is about so much more than 
just a process. All of the things you've said I have written 
down because I was going to respond back to you, but you've 
covered so many of them----
    Because this whole issue of recruiting and retaining the 
Federal work force is one--and I know David is sitting next to 
me nodding his head, because we've had these conversations many 
times.
    For me, the issues run a very wide range, many of which 
you've touched on. The issues of pay--and I would say that this 
competitive sourcing issue and the quotas imposed by OMB are 
also a factor that is now out there for those who are looking 
to come to the Federal sector and those who are deciding 
whether or not to stay, because they are asking themselves the 
question if theirs will be one of the 425,000 jobs that the 
administration is interested in competitively sourcing outside 
of the Federal Government.
    On the technology issue, which is I think an area we can 
probably all agree on that we see exactly the problems that you 
identify. And it is about resources. First of all, the 
resources so that the government has the cutting-edge 
technology to do its work on, which would then provide the work 
force with the cutting-edge technology to maintain those skills 
and to be able to stay in competition with the private sector 
and the need, I believe, for the government to maintain those 
skills. I think it is very risky for the government in any 
arena, in any occupation, in any skill, to rely solely on 
outside services, rather than maintaining it within the 
government to some degree.
    I guess the last thing that I would say is NTEU's interest 
is in working with you, with Congress on anything that we could 
do to help to address this problem. At the moment, the way it 
always seems to come down is on the issue of the ability to 
pay, whether there are recruiting or retention bonuses or 
annual salaries that keep the workers able to stay with the 
Federal sector, and that usually comes down to a discussion 
around flexibilities that agencies need or have in order to be 
able to provide additional compensation to employees.
    Over and over again what I see happening is Congress 
authorizes flexibilities, whether it's special pay rates or the 
ability to pay recruiting, retention, relocation bonuses, 
student loan repayments, a lot of really good things are 
authorized. What never comes along with that is the 
appropriation to give the agencies the resources to do it. Then 
the question for them is, if they want to implement it, even 
though they agree this is a top priority, they have to take the 
resources from somewhere else, and that is--becomes the reason 
why very few of these are ever implemented.
    So NTEU would welcome the opportunity to figure out how to 
not only provide the authorization but the funding to help make 
that happen in a way that begins to address the problem that 
you so accurately defined.
    Mr. Davis. Let me just respond to that in a minute. First 
of all, I have opposed the quotas and the goals. I not only 
supported the amendment you had offered, I spoke for it. I just 
think that's the wrong way to go currently. Now I understand 
where the administration comes from. I understand the need to 
do that and that's the way to get things moving and the like, 
but I think at this point it is so weighted when you go outside 
with these. You go to A-76 or whatever, and you lose almost 
every time given what we've talked about, not every time, but 
it's just very weighted until we make some of these other 
changes.
    Second, I used to work for a government contractor and I 
will tell you this: I was general counsel, I was a Senior Vice 
President and we were $1 billion a year company and our most 
important asset in that company was our employees who walked 
out the door every night. And we did everything we could to 
make sure our employees came back the next day because that was 
our asset. It wasn't our building. It wasn't our computers. It 
was our people. And if our people left the company it went 
under. Everybody in the private sector understands that, but 
government doesn't seem to appreciate it. And until we can 
change the culture where we recognize that our employees are 
the way that we can become efficient on behalf of our taxpayers 
in an investment, and their training and their recruitment and 
their retention is really dollars saved, something the private 
sector--we always talk about copying what the private sector is 
doing--we're in the same boat. So a lot of your concerns I 
understand and I empathize with. Unfortunately, for the short-
term, in terms of, for example, with homeland security and 
other areas trying to get things done quickly, we're not up to 
snuff. We need to work on doing that. And I think as we do that 
some of these other areas that you expressed concern I think 
are going to be easier to resolve. But I understand it is kind 
of weighted against you as you look at it. At least that's my 
opinion.
    I appreciate your comments, Jackie, and I didn't mean to 
interrupt you.
    Ms. Simon. I wanted to take this opportunity to join in the 
congratulations to Mr. Walker because AFGE has certainly 
appreciated the attention what he calls the human capital 
crises has gotten ever since GAO began talking about this 
problem. AFGE considers this human capital crisis, however, to 
be self inflicted in the Federal Government. It's not something 
that we didn't all understand when it was happening. It's the 
result of downsizing and contracting out. And as Colleen Kelley 
just mentioned, the single most important thing we believe that 
the Federal Government could do would be to get rid of the 
privatization quotas. At best it sends a mixed message to the 
employees the Federal Government would like to recruit or 
retain by telling them that they have a 50-50 chance of losing 
their job and even less 50-50 chance of having the opportunity 
to compete to defend that job.
    A couple of things have recently occurred, and I won't even 
talk about the homeland security debate. That's certainly been 
rather demoralizing for many Federal employees to have their 
loyalty and fitness questioned and it's really been 
unfortunate. But one step that the Office of Personnel 
Management has recently taken to try to make the Federal 
Government a more attractive employer is to establish flexible 
spending accounts to help Federal employees pay for their 
health insurance costs. And while this is a positive 
development and a good thing and will probably save some 
Federal employees some money, we have recently read in the 
press that OPM has already decided that it will contract out 
all that work, the work in administering, setting up and 
keeping track of those flexible spending accounts. Now the 
employees at OPM have the skills and ability. OPM is certainly 
set up to do that kind of work. They do that kind of work in 
other areas of Federal employee compensation. And the decision 
has been made apparently unilaterally not to give the employees 
the opportunity to compete for new work, and we hear that all 
the time, and in particular, as you mentioned, in the area of 
IT, interesting, exciting, challenging new work that would keep 
them on the cutting edge of new technology. When new work is 
taken on by an agency it's automatically contracted out and the 
existing work force is virtually never given an opportunity to 
compete to do it or to do it automatically like the contractors 
are. And I think that and the quotas are the two biggest 
problems facing the Federal work force when it comes to 
motivating and making them feel as though they are valued 
assets.
    Mr. Davis. Again, beefed up Federal work force, a better 
trained, prepared, recruited Federal work force may or may not 
win the competition but it just sharpens the level of 
competition.
    Ms. Simon. What is most demoralizing, to be honest, is the 
knowledge and repeated experience of being precluded from the 
opportunity either to compete in defense of their jobs or to 
compete ever for new work.
    Mr. Davis. You are talking about the jobs that go out that 
don't go through the A-76 in some cases?
    Ms. Simon. That's the other thing I was going to hand you 
here. We hear a lot of denials that the President's competitive 
sourcing agenda is really--is about something other than 
competition. I have just as an example the U.S. Department of 
Agriculture's plan that it submitted to OMB for how it expects 
to comply with those quotas. And it's, you know, page after 
page after page of work unit after work unit after work unit, 5 
and 10 and 15, 20, 7 and 6 and 4, perfectly innocent Federal 
employees doing their jobs. No one is alleging that they aren't 
doing their jobs well or efficiently, that they aren't the low 
cost, high quality provider, but merely to comply with these 
quotas they are going to lose their jobs. And here it is page 
after page of a virtual firing squad.
    Mr. Davis. For the record, Mr. Turner and I have some 
concerns about the quotas. On the other hand, I think we have 
to find the right balance. Mr. Walker.
    Mr. Walker. If I can, to comment on several----
    Mr. Davis. I am off script here.
    Mr. Walker. It is free flowing anyway. First, I believe the 
administration's current quotas, targets, call it whatever you 
want, violates the principles, because they are arbitrary. I 
understand that the administration came up with it during the 
campaign and I am sure the President and his team feel some 
obligation to try to deliver on campaign promises, but it's 
fairly clear that there was not a considered, thoughtful 
process that resulted in the determination of those 
percentages. And I think the key word is arbitrary. At the same 
point time it is possible and I would argue appropriate for 
this administration and any administration to undertake a 
considered review and analysis of functions and activities that 
based upon, you know, past practice in the government or based 
upon prevailing practice for large enterprises, whether they be 
public sector, private sector, not-for-profit sector or based 
upon past experience, it makes sense to consider competitive 
sourcing.
    The one example on FSA, if I can give it, I have got a lot 
of experience in the benefits area both in the government as 
well as the private sector, and the simple fact of the matter 
is this FSA is a plus. I think it will help employees. It will 
help them save some money by being able to pay for some things 
with pretax dollars rather than after tax dollars. That's a 
plus. But I think you'll find if you did an analysis that most 
major employers out source this work and it's not something 
that's currently being done within the public sector. And it is 
not just a matter of whether or not the people have the skill 
and the abilities to do it. I don't think there's any doubt 
about that. We have a lot of great people in the government, 
but it's also the systems. There are many entities out there 
that already have systems. They're already running. They've got 
many, many different people that they are providing these 
services to. And part of the question is do you want to stand 
up those kinds of systems and do you have the excess capacity 
there that would be available to do that type of work.
    So I mean I do think there are clearly circumstances in 
which Federal employees have the ability and should have the 
opportunity to compete for new work and potentially bring work 
back in, but I think it's facts and circumstances. It's not 
across the board.
    Mr. Soloway. Since we are having a free flow discussion, 
just a couple thoughts on what Mr. Walker just said on a very 
critical point and I think it's worthy of expanding a little 
bit, and that is maybe separating out some of the differences 
between a private sector company, whether it's a government 
contractor or not, and the way the government views these 
issues when we talk about human capital roles and missions, if 
you will, in a company. In the private sector, high performing 
company--and I think this is what Mr. Walker was referring to, 
there is a big separation, an understanding of the separation 
between a core competency and a core requirement. A core 
requirement is to provide benefits to my employees. It may not 
be the competency of my company. That is one of the reasons 
that the government does not compete as well for people.
    For instance, when information technology workers go to 
work for an IT company they are part of the core competency of 
that company. They are the fundamental mission of that company. 
Therefore, they are likelier to get greater support and 
professional development, greater benefits, the kinds of things 
that make work quality so important, whereas in the government 
by and large information technology positions are support 
functions and they never compete well in a resource constrained 
environment, be it in the public or private sector, for the 
kind of investment dollars you're talking about.
    Mr. Davis. But you would admit that the government can do a 
better job, particularly in the procurement side, of getting a 
little bit more competency within it. I don't disagree with 
what you're saying, but we can do a better job.
    Mr. Soloway. Absolutely, and I would agree that the 
government needs to always retain a residual capability to 
understand the supply base, manage and apply the solutions and 
so forth. But my point would be that pay and all of those kinds 
of benefits level issues are critical and certainly the Federal 
work force deserves that support, but that in and of itself 
will not solve the recruiting and retention problem.
    The last two points I'll make very quickly. We have to be 
very careful not to assign the human capital crises to 
outsourcing and contracting out because frankly the data 
doesn't support that at all relative to employment reductions 
in the civilian agencies as compared to contracting out. And I 
think the human capital crises is a crises faced not only in 
government but in many industry sectors where we simply have an 
aging work force.
    And the final thing is on the quotas. I would like to be 
very clear about this--the so-called quotas. This is one of the 
few areas where I disagree with Mr. Walker and it's an area 
that many members of the panel are in disagreement on. It was 
never specifically discussed or debated on the panel. And there 
are those of us who believe that the principle that speaks to 
arbitrary quotas and numerical goals actually does not speak to 
the administration's plan because I think there is a big 
difference between an arbitrary plan that presumes the outcome; 
in other words, it presumes you are going to out source, it 
presumes you're going to in source by a goal for performance. 
And we set performance goals all the time.
    So I think it's for the record important to note that the 
panel was not unanimous at all in its view that particular 
principle was intended as or was in fact a direct criticism of 
the administration's goals. That is a matter that has been of 
some discussion.
    Mr. Walker. If I can, Mr. Chairman, it is fair and accurate 
to say that the panel did not explicitly address the 
administration's goals, quotas, target, whatever, but I believe 
in substance over form and I think substance speaks for itself.
    Ms. Styles. I would like to take an opportunity to clarify 
what is a tremendous amount of confusion and misrepresentation 
about our goals. First, it's an aggregate 15 percent 
governmentwide goal. It's not 15 percent at each agency. There 
is not a single one of the 26 departments and agencies that 
have come in to me with a plan, a reasonable and rational plan 
that is something other than 15 percent that represents good 
management and a good thing for the agency that I've said, no, 
sorry, you are going to have to compete 15 percent. We have 
applied our goals for competitive sourcing in a manner to build 
infrastructure at the departments and agencies for public-
private competition. I have agencies that over the next couple 
of years have said I am going to look at public-private 
competition for 7.5 percent for what I have in House and 7.5 
percent of what I have contracted out. I have departments and 
agencies that are at 10 percent over 3 years. Each and every 
plan is tailored specifically for the needs of each and every 
agency and their specific circumstances.
    On the direct conversion, there have been representations 
here that there are agencies out there that are going to 
directly convert everything to meet these goals. Not a single 
one. Not a single one that I know of. The Department of 
Agriculture plan that was represented here, they came in with 
that plan and we said absolutely not. That's not what we are 
about. We are about competition and we are not about meeting 
these goals through direct conversions.
    Mr. Davis. Let me make one other comment and just address 
this to Ms. Kelley and Ms. Simon. We had a conversation on what 
we agree on. But let me just tell you what I've tried to do to 
help along, just marginally, the issues we've talked about. We 
have our Services Acquisition bill, our digital Tech Corps, our 
Acquisition Work Force Exchange Program. Our recruiting and 
retention efforts in our CERA bill in particular, I think, will 
be very, very helpful to employees and we haven't been able to 
get support from you on that. I know there's a lot of 
suspicion. I know there are other issues on that. But I think 
we need to try to work together and where you don't agree 
figure how we can make this go. This is complicated. There's a 
lot of mistrust on all sides of the table. I recognize that. 
I'm a big boy. I have been here awhile and probably will be 
here a little longer. These are issues that we have to have a 
serious, dispassionate discussion about. And I think, Mr. 
Walker, you made a good start with this panel that you put 
together where you got everybody around the table and so on. If 
we could sit here and quit gaming it and just sit down--we have 
a number of areas we do agree on. That's a great starting 
point. We need to focus on some of the areas that you didn't 
discuss here that, if we could add pieces to that on work force 
training and recruiting and retention issues we've talked 
about, they might feel a little bit better about some of the 
other issues that you and Ms. Styles have addressed. And also, 
the staff reminds me of this, that 60 percent of the A-76 stay 
in government. 60 percent of the competition. So it's not 
completely weighted but I still think we need work on the items 
we've discussed. And I appreciate the union representatives 
articulating that eloquently.
    I'm way over my time. I am going to yield to Mr. Turner, 
but I will get back to my script on the next round.
    Mr. Turner. Thank you, Mr. Chairman. Mr. Walker, I want to 
inquire of you and perhaps other panel members would comment on 
one of the recommendations which as I understand was not 
universally accepted by the panel but was a part of the panel's 
recommendations; that is, to encourage development of high 
performing organizations. Tell me a little bit about what that 
concept was and perhaps those who had concerns about it could 
share with me their concerns.
    Mr. Walker. It's a concept that quite frankly I and, you 
know, Bobby Harnage really talked about early on in the process 
and that is that while the administration is very committed to 
the concept of competitive sourcing as a means to try to 
achieve, you know, best taxpayer value as they would say, my 
view is and that is in the end what we're looking for, as both 
of you have said, we're looking for the best answer for the 
taxpayers. And in doing that we have to recognize that a vast 
majority of government will never be subject to public-private 
competition. And therefore what are we going to do with that 
vast majority of government that will be--where it never will 
be subject to public-private competition. How are we going to 
try to make them high performing organizations, what can be 
done to do that? But as a supplement to that to the extent that 
there are certain functions or activities that might at some 
point in time be subject to public-private competition, might 
we provide them to have an opportunity to take advantage of 
this high performing opportunity concept to see if they can 
deliver under that and not get a permanent pass from 
competitive processes, but to get some type of temporary stay 
from competitive processes if they end up, you know, committing 
to and delivering on certain key objectives in advance, whether 
they be performance objectives, cost objectives or whatever 
else?
    And let me also say, I couldn't agree more that we have to 
keep this in context. Our biggest problem is what are we going 
to do to attract and retain a qualified and motivated work 
force. And this is a subset of a much bigger issue and we've 
got to make sure that we're also taking steps not only to deal 
with this controversial area but to deal with the more 
fundamental problem, which is what we are going to do to 
accomplish that broad objective, because over time if we don't, 
the decks are really going to be unfairly stacked just because 
of erosion in government's capacity and capabilities over the 
years to be able to effectively compete.
    Mr. Turner. Clearly to have a high performing organization 
you're saying you have to have a trained and competent work 
force and you have to figure out how to recruit it, train it 
and retain it. What else is in the concept of a high performing 
organization?
    Mr. Walker. It's the concept that you would end up 
providing not only some financial resources to try to be able 
to help the function or activity or agency or entity be able to 
become a high performing entity, but second, you would also 
provide access to technical expertise, that there would be 
individuals who would have requisite expertise with regard to 
people process technology issues, change management issues, 
etc., to try to help determine what needs to be done and most 
importantly to get it done, because in most things in the 
public-private, not-for-profit sector the difference between 
success and failure is not the plan, it's the implementation of 
the plan. Ninety percent of success or failure is based on 
implementation. And so people need support both as it relates 
to resources, as it relates to expertise, training, other types 
of activities.
    Mr. Turner. The high performing organization--is the 
concept then to select certain agencies or subsets of agencies 
and apply management principles and techniques to evaluation of 
the performance of that particular organization that is 
selected and then to implement those? Is that the concept?
    Mr. Walker. Basically. And obviously there's a capacity 
problem. I mean you can't have every department and agency 
doing this at once. It's got to be something that you end up 
doing, you know, in some considered fashion and, you know, 
possibly on some type of an installment basis looking for the 
best targets of opportunity, matching resources to where you 
think you're going to get the best results.
    Mr. Turner. Do you envision a special team of managers with 
expertise being available to the various agencies when they are 
selected and they come in and they begin to evaluate it and 
determine what changes need to be made within that agency?
    Mr. Walker. Without getting into too much detail, I 
envision there could be individuals that are Federal employees 
who have skills, knowledge and abilities in this area as well 
as contractors who have skills, knowledge and abilities and 
experience in this area who could end up being made available 
to provide assistance to the targeted, you know, entities, 
functions or activities.
    Mr. Turner. And I gather that the concept that you're 
referring to is not universally accepted by the panel members, 
and I would like to hear from someone who saw some 
difficulties.
    Mr. Walker. Let me mention one thing and let Jackie speak. 
We voted on the additional recommendations as a package. And 
while the vote on that was 8 to 4, my personal opinion is the 
reason the vote was 8 to 4 was not as much concern over this 
HPO concern, but it is because we voted on it as a package, and 
of course Jackie can speak for AFGE and Colleen for NTEU, etc., 
but my sense was that the concerns that caused them to vote no 
was not this. It was the issue of the FAR-based process and how 
many times Congress should be required to act. I mean that's my 
understanding, but they can speak for themselves.
    Ms. Simon. There are sort of two aspects of the HPO issue. 
First, President Harnage would like to say that MEOs shouldn't 
be something that Federal agencies aspire to only when they 
have a gun to their head, the gun being the threat of losing 
the work to the private sector. But if you situate the issue of 
MEOs or high performing organizations in the larger context of 
contracting out, which is where we were discussing this idea, 
it's part of the shift. Once upon a time, privatization and 
contracting out were advocated as a way of saving the 
government money. The idea was that the government was too 
expensive and the private sector could do the job less 
expensively. And for a while, you know, that was sort of the 
reigning argument and the reigning ideology in favor of 
contracting out. But the problem with that was first, as 
Chairman Davis indicated, using a cost based process for 
public-private competition, the contractors lost most of the 
time when cost was the criterion that decided whether something 
would stay in-house or go to contract. And then when the work 
did go out the door and did go to contractors, when cost was 
the criterion for deciding, the resulting contracts were not as 
profitable as the contractors wanted them to be. Consequently, 
when we were discussing a new way of deciding whether work 
should be contracted out and on what the criteria would be for 
selecting which source and the criteria for selecting which 
contractor was going to be something other than cost, the new 
rhetoric was the private sector was better, was more 
technologically adept and more modern and more competent. And 
then that raised the question of, well, why is that the case? 
And you know, the discussion--there's a few factors that we 
could cite but certainly one of them was what Mr. Walker was 
just describing, is the fact that those agencies are 
constrained by Federal budgeting processes when it comes to 
hiring necessary personnel because of FTE ceilings even though 
they are illegal. And in the Department of Defense they are 
still certainly practiced. And the fact that the government is 
prohibited from making large capital expenditures even when 
that's the necessary--to get the new technology that's needed 
to perform at a very high level. And consequently, this concept 
of HPOs was developed. And part of the HPO concept that was 
controversial on the panel, not from our perspective--we 
supported this--was the idea that while an agency or an office 
had been designated as an HPO, it would have a break from being 
subjected to the privatization quotas and it would allow the 
workers in that office or agency to focus on the agency's 
mission and the work at hand rather than spending so much time 
and energy figuring how to comply with quotas or engage in 
competition.
    Mr. Soloway. Mr. Turner, as one who supported the 
recommendations and certainly agree with everything Mr. Walker 
just said in terms of the lay down of how the debate went and 
sort of the issues that were in play, there were a couple of 
areas some of us were concerned about with regard to HPOs but 
not enough to have us certainly oppose the concept because it's 
a very logical, common sense approach. There are really two 
core issues, one of which Jackie just touched on in her history 
lesson, which is the question of are we going to have a process 
where we have commercial activities that are going through an 
HPO process of some kind and using it as an excuse not to 
optimize as opposed to improve. And the report is fairly clear 
that competition is the principal driver of top optimal 
efficiency. So there was that issue. And the other point, even 
perhaps more important to that, and Mr. Walker touched on this 
in his answer, and that is that with all of the work being done 
in government and the amount of government activity that would 
never be considered for competition, appropriately not 
considered appropriate for government competition--some of us 
think that the HPO is best focused there because you are never 
going to have the management tool of competition there and 
therefore where you have other alternatives where competition, 
for instance, can exist, you don't necessarily need to focus on 
what will be limited resources, as Mr. Walker said, in an HPO. 
You need to focus those limited resources where you're never 
going to have competition. It's not a religious or 
philosophical difference. It's just more of an implementation 
question of where the emphasis ought to go.
    Ms. Kelley. Mr. Turner, if I could add, from NTEU's 
perspective, it's pretty hard not to support the concept of 
high performing organizations, and in fact we do. I wish there 
was more emphasis on it outside of the discussions around the 
commercial activities panel because if every agency in fact 
were given the resources and the support to strive for that, 
then the--and if part of that was that agencies were able to 
retain some or all of the savings that they recognize by in 
fact becoming a high performing organization, then that would 
be the incentive and the competition, whatever you want to call 
it, that I think would help to lead agencies to be able to 
actually reach that level without determining whether or not 
it's going to be competitively sourced or out sourced or 
contracted out, or whatever the words are. And so NTEU supports 
that. That was not an issue on our vote to not support the 
panel. It was about quotas. It was about standing. It was about 
a governmentwide roll-out of a new system rather than something 
that would be tested first. Those were our issues on the panel.
    Mr. Turner. Well, I think the concept certainly deserves 
our attention. It certainly seems to go to the heart of 
creating a more efficient Federal Government, and I hope we'll 
have the opportunity to pursue that further. Thank you, Mr. 
Chairman.
    Mr. Davis. Thank you very much. Let me get back on my 
script here. The panel endorsed the consideration of both cost 
and non-cost factors. This is really for anybody who wants to 
comment. The panel endorsed the consideration of both cost and 
non-cost factors in making source selections in public-private 
competition. Are there any instances in which such an approach 
would not be appropriate? Why would the government not want to 
consider technical past performance, innovation management 
approach and other such non-cost factors? Anybody want to take 
that?
    Ms. Styles. I think it's important to clarify here that 
costs from our perspective--cost is never, never the only 
consideration. Whether it's our procurement process or an A-76 
competition, whether it's the old one or the new we're 
developing, it's never exclusively a cost determination. If 
somebody can't meet the technical qualifications to do the 
work, they shouldn't and I hope they aren't doing the work. My 
best example is custodial and lawn maintenance services in our 
minds, whether it's now or going forward, shouldn't be subject 
to cost-technical tradeoffs. We should be buying those based on 
lowest costs. But they do have to make a determination that 
those kinds of things are technically acceptable, you know, you 
have the ability to mow the lawn, you have the equipment, that 
type of thing.
    Mr. Sikes. I would add to that since DOD is the one that is 
limited to cost by statute that I would agree totally with what 
Angela said. We found that we've gone to cost-technical 
tradeoff when it gets really complex because we find we're not 
getting the best value to the government if the true innovation 
of whoever is coming to bid is not able to be taken into 
account. In effect, sometimes the competition gets skewed away 
from that because we don't look at it. Cost is always going to 
be there and we have ways we can do that in the simpler 
custodial kinds of things. It gets difficult when we start 
talking about some of the complex functions we're looking at 
now.
    Ms. Kelley. From NTEU's perspective there are two issues 
that concern us and it has to do with one, a level playing 
field for the Federal employees who currently do the work. If 
the innovation which we are not opposed to nor are the Federal 
employees opposed to, if they don't have the resources or 
technology to be in that level playing field as the bar gets 
raised, that's a concern. And also there's a concern as to 
whether or not in fact the services being provided would have 
what some might call bells and whistles that the taxpayers 
don't need and could end up paying for services that are 
actually over and above what in fact the taxpayers do need. I 
don't have a specific example--I wish I did--that I could give 
you in our experience in working with the A-76 process, but I 
know that my concerns were not put to rest in our year long 
discussions that we had on the commercial activities panel. So 
seeing it actually play out and until I can see it play out 
where those issues are eliminated, they will continue to be 
concerns for NTEU.
    Mr. Soloway. Mr. Chairman, we have a long experience with 
what Angela referred to as cost-technical tradeoff or best 
value judgments in Federal procurement. I think there are two 
critical issues here. One is that under the A-76 process there 
can be a best value determination made but only in the 
evaluation of the private sector bidders. It does not apply to 
the government bidder. So there's a fundamental inequity when 
you have a whole set of factors that you apply to one side that 
are not then applied to the other. That is one of the 
inequities of a FAR-based process where everybody is subject to 
the same evaluation, criteria and so forth would be addressed.
    The second thing that's important to note is that we 
sometimes presume that you either have a best value competition 
or you have a cost competition, but in the Federal acquisition 
legislation best value really encompasses virtually all 
categories of procurement with the exception of things like a 
sealed bid where we wouldn't get into that. But it is either--
it can be a low cost, technically acceptable decision and go 
all the way up the spectrum to very high end, high technology 
R&D kinds of environments where cost becomes very secondary 
because you are really looking for unique technical skills or 
what have you. But the best value construct underneath it 
exists all of these varying alternatives that we're talking 
about and the whole concept is that you would design your 
acquisition strategy to meet your requirement rather than being 
locked in as you are in A-76 to effectively a cost only 
decision.
    Mr. Wagner. Stan was right. Currently the A-76 process 
forces the MEO to produce a low cost, technically acceptable 
bid and actually I think puts a wet towel on their ability to 
innovate. The beauty of the FAR is that it allows you the 
flexibility. If the particular service that you are procuring 
is the type that you want to buy in a low cost technically 
acceptable process, then the buyer may want to take that 
approach. They have the flexibility to go to best value or 
anything in between in terms of tradeoffs and percentages, 
including past performance and other criteria, whether they be 
management or technical things to consider in there. The beauty 
of the FAR-based process is that it will allow the MEO to 
actually propose best value solutions if that's the way the 
procurement is designed because that's the best solution for 
whatever the complexity--if the particular service they are 
buying is complex. And sometimes they can be. Sometimes you can 
have grass mowing along with some IT services bundled into it. 
You could have a whole lot of different services put together 
to make a relatively complex procurement.
    Mr. Sikes. Following on my two former DOD colleagues, I can 
guarantee you this is essential to the discussion of the 
integrated process because we worked for a long time with the 
separate process to figure out how to deal with that. And no 
matter what we did, everybody thought we were skewing it the 
other way. So it's sort of what they used to call a second bite 
of the apple. We were trying to level it, but whoever thought 
they were going to lose figured we were just skewing it one way 
or the other. The integrated process should hopefully allow us 
a way to do that at once so it's obvious that we are treating 
everybody fairly.
    Ms. Simon. Chairman Davis, in our written testimony we 
offer a very long and detailed critique of the FAR-based best 
value process and its subjectivity. And I am really happy about 
this discussion here today because it's very different from the 
last hearing on the CAP panel where it seemed--the implication 
seemed to be that A-76 lacked a mechanism for considering 
quality and was only a cost-based process. But one of the 
things I think is really important to point out with the FAR-
based process is it takes away from the government or certainly 
allows the government to divest itself of the responsibility 
for determining what quality standards the government wants in 
its purchase. Although the government needs to reveal in its 
request for proposals whether cost or technical factors will 
predominate, they don't have to reveal by how much and they 
don't have to reveal which cost or technical factors will have 
what weights assigned to them prior to the offeror submitting 
that proposals.
    And I would also like to quote Marshall Doke, a very well 
known conservative legal scholar actually from Texas. He is 
very prominent in the Texas Republican Party. He has written at 
length on the shortcomings of the FAR-based best value process. 
And I will quote him here briefly. He says it's a popular 
misconception that a low price means low quality. If you're 
buying or selling gold and specify 98 percent purity, the price 
is irrelevant to quality if you specify the purity required and 
inspect to ensure that the product conforms and reject any 
nonconforming products. The problem with the FAR is that all 
those standards aren't required to be revealed until after the 
proposals have been submitted and it's really ultimately a very 
anticompetitive process.
    And one other point about the FAR-based best value. A lot 
of times contractors say they are very comfortable with it 
because it's widely used in private-private competition, 
competition between contractors. And although it has some 
problems in that area that I really can't speak to here, one 
thing that can be said is that when it's private-private 
competition, you can't have any kind of systematic bias in 
favor of one group at the expense of another. Contractors will 
be competing between one another and a contractor--one 
contractor will win but the loser will also be a contractor. 
But in the context we're living in where there's such 
tremendous political pressure to privatize, agency officials 
are under tremendous pressure to use the discretion that the 
FAR process gives them to exercise a bias against Federal 
employees and in favor of contractors. And that's one of the 
most important problems with the FAR approach to best value.
    Mr. Walker. First, it's not that A-76 doesn't provide for 
considering something other than cost. It's just not dynamic 
enough. Second, A-76 does not provide for a level playing 
field. A-76 is not consistent with the principles adopted by 
the panel. At the same point--existing A-76. At the same time 
the panel recommended modifications to A-76 and it did not 
expressly recommend repeal of A-76, I might note. It said that 
we needed to move to a new integrated FAR-based process that 
was consistent with the principles, it had a level playing 
field. Had to modify A-76 in part to be able to handle the 
transition period and in part possibly there are some 
circumstances where it makes sense where it's not highly 
sophisticated and it's not highly technical and where cost is a 
primary driver and where you don't need the dynamic interchange 
on technology and certain other things. I think when you get 
right down to it there's three kinds of businesses we're 
talking about here just cutting through it, thinking about the 
panelists. You've got core that the government should do that 
should not be out sourced, and without getting into the debate 
of what that is, all right, that's one reason you need HPOs. 
There's a lot of that, tremendous amount of that.
    Second, you have noncore that's new. It's new. The 
government may or may not have people who could do it, they may 
or may not have the technology available, they may or may not 
have the excess capacity. And in that kind of situation more 
likely than not it's probably going to be done externally. And 
you have noncore or gray areas where we do have government 
workers working. And one of the real fairness issues that I 
think people are touching on but not raising directly is that 
sometimes you need investments in technology and sometimes you 
need investment in training and development in order for the 
work force to be able to effectively compete. And candidly the 
way our budget system works, it doesn't facilitate that always, 
you know the fact that we don't have a capital budgeting 
concept and the fact that things are done based on cash-flow 
and not based on economical value added or discounted present 
value concepts. So as a result that ends up leading in certain 
circumstances to perverse decisions.
    But last thing is, I think words matter. I think A-76 has 
got a lot of baggage. Rightly or wrongly, I think best value 
has a lot of baggage, too. I think what we're talking about 
here is what's the best choice, what's the best choice for the 
taxpayer, which is a lot more dynamic term. It considers 
whether or not we ought to ever think about it going outside 
the government or not as well as all these other factors that 
we're talking about.
    Thank you.
    Mr. Davis. Ms. Simon, let me ask you a question. In your 
statement you made it clear that you object to the use of any 
FAR-based, best-value type process for public-private 
competitions. But I was puzzled to find no mention of the FAR-
based process that DOD has used over the past decade and-a-half 
or so for its depot-level workloads. As I understand it, that 
process has evolved over the years from one that used the 
standard FAR-based value selection process in the late 1980's 
and early 1990's, to a more limited best value process based on 
the assignment of dollar values to technical aspects of the 
proposals. Also, as I understand it, in the most recent 
competitions using this process, the public sector either won 
outright or its proposals submitted in conjunction with the 
private sector partner were selected. These awards were quite 
substantial, in the realm of hundreds of millions of dollars up 
to over $10 billion.
    I guess my question is, and if you don't want to answer it 
today you can get back to us, but try to understand this as we 
move and try to iron out where the administration is coming 
from with their FAR-based proposals. Have you studied the DOD 
FAR-based depot competition process? What specific objection, 
if any, do you have to the DOD competition process and do you 
think the experience gained with this process would be valuable 
in implementing the panel's recommendation for a FAR-based 
process?
    Ms. Simon. I would like to answer you later in writing.
    Mr. Davis. It's not a trick question, but we all want to 
understand what works for you.
    Ms. Simon. Just responding now, you know, the FAR allows 
both best value and cost-based decisions. And it sounds like 
you're referring to a procedure for assigning costs to quality 
differences that are sometimes called dollarization. And one of 
the principles that AFGE certainly sought in the panel and has 
continued to advocate is that additions in public-private 
competition should always be cost based. We are no more wedded 
to A-76 than anybody else, although for very different reasons. 
I think there was one reason that all of the panelists agreed--
one area of A-76 that everyone agreed A-76 needed improvement 
in, and that was the area of how time consuming it was and how 
slow a process it was. And although the FAR-based best value, 
as is acknowledged in the report, will certainly be no faster 
than A-76, we have always been open to changes in A-76 that 
would make it faster and we have been open to wholly new 
approaches that were in the end cost based.
    Mr. Davis. You might want to supplement. If anything, this 
panel showed that everybody is prepared and there is a lot at 
stake obviously for the individual constituencies here. Ms. 
Styles, let me ask this. The panel recommended that OMB make 
limited changes to the existing A-76 process and outlined a 
number of potential changes. Can you share with us what changes 
you anticipate making and will you be making more changes, do 
you think, in addition to the ones included in the panel's 
report, and what's the time period you think before any changes 
could be implemented?
    Ms. Styles. We have really over the past several months 
taken kind of a top to bottom review of A-76 and we have 
completely overhauled it. We are ready very soon to cancel the 
existing circular and come out with an entirely new circular 
and reissue it as a new document. We are going to be folding in 
a couple things. We are folding in another circular A-97 which 
deals with sales to and from State and local governments. We're 
also folding in a policy letter 92-1 on what's inherently 
governmental and what's commercial. So you are going to be 
seeing very shortly, and it's in final clearance right now, I 
would expect by the end of October, a draft proposal with some 
very significant, substantive changes to the circular itself. 
They are coming out in draft. We're going to have a 45-day 
notice and comment period. Then we'll take some time after that 
to assess the comments we received.
    But I think what you're going to see is some real needed 
changes to this circular. It's been a document that's been 
around for 50 years. People kept tacking things on to it and 
changing them without consistency. So you are going to see a 
readable document, one that makes sense, one that reads well.
    When I was reading the old circular, I came upon the word 
``privatization,'' and I thought and thought and thought and 
I'm like I've never seen privatization in the circular. Why is 
it defined here in the definitions? Turns out I did a search 
and privatization was never used in the circular. So there are 
a lot of strange inconsistencies that we've cleaned up. 
Specifically, some of the things that were recommended, I think 
all of our changes are consistent with the recommendations of 
the panel. There's going to be some issues that people are 
probably going to argue about, whether they're consistent or 
not. There are a few things that were recommended in changes to 
the A-76 process itself that we've definitively adopted, 
strengthening the good business practices by eliminating even 
any appearances of conflict of interest between the MEO and the 
PWF, implementing some tools for aggressive enforcement of the 
process, including better pre and post-award reviews, audits 
and inspections. You will see an adoption of the integrated 
process. You'll also see an overlay of many of our FAR 
processes that we have for consideration of the solicitation, 
of the award, of how bids are treated.
    I think you will see this as a document that people in the 
acquisition field will understand and can use to a much better 
extent than the current circular.
    Mr. Davis. Anything further?
    Mr. Wagner. Could I add one last thing. I think Mr. Walker 
said it best when he said what's really important is the best 
choice. You get to the best choice through competition, through 
good, rigorous competition, where the best come to play and 
compete. At the end of the day whatever process OFPP will come 
up with, and I hope it will be a good one, it's got to be one 
that the private sector is willing to compete in vigorously and 
good companies coming in and getting good quality proposals 
because on a public-private competition, the public sector will 
be there every time. If you don't have a process that is not 
attracting the best in the private sector, the government and 
the taxpayer are going to be cheated out of getting the best 
choice ultimately.
    Mr. Davis. Let me say, the nub of this is we need to do two 
things. One is bring in the best from the private sector to 
compete and try to beef up our public sector and make sure that 
we can continue giving them the tools so they can be even 
sharper than they are now. If we do that, taxpayers won't lose 
and at the end of the day that's what we are about.
    I want to take a moment to thank everybody for attending 
the hearing today. A lot of thoughtful testimony, not all in 
agreement of course, but that's why we are here; to try to 
solicit comments. I want to thank Congressman Turner for 
participating and thank staff for organizing this. I think it's 
been very productive and I'm going to enter into the record the 
briefing memo distributed to subcommittee members. We'll hold 
the record open for 2 weeks from this date for those who want 
to forward submissions for possible inclusion on some of the 
questions or afterthoughts that you may have.
    Thank you very much and the proceedings are closed.
    [Whereupon, at 3:20 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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