[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




 
 BETTER TRAINING, EFFICIENCY AND ACCOUNTABILITY: SERVICES ACQUISITION 
                      REFORM FOR THE 21ST CENTURY

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

                                HEARING

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   ON

                               H.R. 1837

 TO IMPROVE THE FEDERAL ACQUISITION WORKFORCE AND THE PROCESS FOR THE 
   ACQUISITION OF SERVICES BY THE FEDERAL GOVERNMENT, AND FOR OTHER 
                                PURPOSES

                               __________

                             APRIL 30, 2003

                               __________

                           Serial No. 108-29

                               __________

       Printed for the use of the Committee on Government Reform


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

                                 ______

                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
88-195 PDF

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma              C.A. ``DUTCH'' RUPPERSBERGER, 
NATHAN DEAL, Georgia                     Maryland
CANDICE S. MILLER, Michigan          ELEANOR HOLMES NORTON, District of 
TIM MURPHY, Pennsylvania                 Columbia
MICHAEL R. TURNER, Ohio              JIM COOPER, Tennessee
JOHN R. CARTER, Texas                CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota                 ------
MARSHA BLACKBURN, Tennessee          BERNARD SANDERS, Vermont 
                                         (Independent)

                       Peter Sirh, Staff Director
                 Melissa Wojciak, Deputy Staff Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
              Philip M. Schiliro, Minority Staff Director



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 30, 2003...................................     1
Text of H.R. 1837................................................     6
Statement of:
    Tiefer, Charles, professor of law, University of Baltimore; 
      Bruce Leinster, chairman, Information Technology 
      Association of America's Procurement Policy Committee, 
      testifying on behalf of the Information Technology 
      Association of America; Mark F. Wagner, vice president of 
      government affairs, Johnson Controls, testifying on behalf 
      of the Contract Services Administration; and Edward E. 
      Legasey, executive vice president and chief executive 
      officer, SRA International, testifying on behalf of the 
      Professional Services Council..............................   176
    Woods, William, Director, Contracting Issues, U.S. General 
      Accounting Office; Stephen Perry, Administrator, U.S. 
      General Services Administration; and Angela Styles, 
      Administrator, Office of Federal Procurement Policy, Office 
      of Management and Budget...................................   108
Letters, statements, etc., submitted for the record by:
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, prepared statement of...................   240
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia:
        Prepared statement of....................................     4
        Prepared statement of Ms. Lee and Mr. Kelman.............    75
    Legasey, Edward E., executive vice president and chief 
      executive officer, SRA International, testifying on behalf 
      of the Professional Services Council, prepared statement of   213
    Leinster, Bruce, chairman, Information Technology Association 
      of America's Procurement Policy Committee, testifying on 
      behalf of the Information Technology Association of 
      America, prepared statement of.............................   196
    Perry, Stephen, Administrator, U.S. General Services 
      Administration, prepared statement of......................   128
    Ruppersberger, Hon. C.A. Dutch, a Representative in Congress 
      from the State of Maryland, prepared statement of..........   243
    Styles, Angela, Administrator, Office of Federal Procurement 
      Policy, Office of Management and Budget, prepared statement 
      of.........................................................   141
    Tiefer, Charles, professor of law, University of Baltimore, 
      prepared statement of......................................   178
    Wagner, Mark F., vice president of government affairs, 
      Johnson Controls, testifying on behalf of the Contract 
      Services Administration, prepared statement of.............   204
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................   101
    Woods, William, Director, Contracting Issues, U.S. General 
      Accounting Office, prepared statement of...................   112


 BETTER TRAINING, EFFICIENCY AND ACCOUNTABILITY: SERVICES ACQUISITION 
                      REFORM FOR THE 21ST CENTURY

                              ----------                              


                       WEDNESDAY, APRIL 30, 2003

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room 2154, Rayburn House Office Building, Hon. Tom Davis of 
Virginia (chairman of the committee) presiding.
    Present: Representatives Tom Davis of Virginia, Ose, Lewis, 
Jo Ann Davis of Virginia, Schrock, Deal, Turner, Carter, 
Blackburn, Waxman, Maloney, Cummings, Kucinich, Davis of 
Illinois, Tierney, Clay, Watson, Sanchez, Ruppersberger, 
Norton, and Cooper.
    Staff present: Melissa Wojciak, deputy staff director; 
Keith Ausbrook, chief counsel; Ellen Brown, legislative 
director and senior policy counsel; Howie Denis and Jim Moore, 
counsels; David Marin, director of communications; Scott 
Kopple, deputy director of communications; Edward Kidd, 
professional staff member; Teresa Austin, chief clerk; Corinne 
Zaccagnini, chief information officer; Brien Beattie, staff 
assistant; Rob Borden, parliamentarian; Phil Schiliro, minority 
staff director; Michelle Ash, minority counsel; Mark 
Stephenson, minority professional staff member; Earley Green, 
minority chief clerk; Jean Gosa, minority assistant clerk; and 
Cecelia Morton, minority office manager.
    Chairman Tom Davis. Good morning. Thank you for bearing 
with us. The committee will come to order.
    Today's legislative hearing is on H.R. 1837, the Services 
Acquisition Reform Act of 2003 [SARA], that I recently 
introduced along with Congressman Duncan Hunter of the House 
Armed Services Committee.
    This hearing will build on hearings conducted during the 
last Congress on H.R. 3832, the Services Acquisition Reform Act 
of 2002, and on barriers Government agencies face in acquiring 
the goods and services necessary to meet mission objectives. 
The goal of this hearing is to discuss ways to provide the 
Federal Government greater access to the commercial 
marketplace.
    The reforms of the early to mid-nineties have resulted in 
significant streamlining, cost savings, access to technological 
advancements, and reduced procurement cycles, which have 
improved the quality of products and services purchased by the 
Federal Government. Unfortunately, the Government is still not 
able to approach the best practices of industry, particularly 
regarding the acquisition of cutting-edge information 
technology and management services.
    Over the past decade, the growth of services acquisition, 
both in terms of the percentage of the total tax dollars spent 
by the Government and in raw numbers, has been staggering. Each 
year our Government spends well over $200 billion buying goods 
and services. According to the GAO, in 2001, this cost totaled 
about 23 percent of the Government's discretionary resources. 
In the same year the Government spent more than $135 billion 
for services, an increase of about 24 percent since 1990, 
establishing services as our largest single spending category.
    The existing reforms were rooted in the late eighties and 
early nineties context of products and major systems and 
scarcely touched service acquisition. We are now faced with 
Federal spending patterns that have undergone a vast change in 
a relatively short time. With the advent of the war against 
terrorism, the change will accelerate because of the critical 
need for the rapid acquisition of high-tech services and 
management expertise.
    The new service-oriented, high-technology environment has 
simply overwhelmed the current system. Right now we simply do 
not have the right people with the right tools and the right 
skills to manage the acquisition of the services and technology 
that the Government so desperately needs.
    Difficulties in managing the Government's acquisition 
system caused GAO to place acquisition management on its high-
risk list. The current system, improved though it may be, 
simply is inadequate to leverage the best and most innovative 
services and products our vigorous private sector economy has 
to offer. It has not kept up with the dynamics of an economy 
that has over the last few years become increasingly service 
and technology-oriented. Without change, the current system 
cannot support the President's vision, expressed in his 
management agenda, of a Government that is well-run, results-
oriented, citizen-centered, and market-based.
    SARA is targeted at the root causes of our current dilemma. 
SARA will put the tools needed to access the commercial service 
and technology market in the hands of a trained work force that 
will have the discretion necessary to choose the best value for 
the Government and be held accountable for those choices.
    SARA consists of a carefully crafted set of interrelated 
legislative proposals that will address the multiple 
deficiencies plaguing Government acquisitions today.
    One, the lack of up-to-date, comprehensive training for our 
acquisition professionals.
    Two, the inability of the current Government structure to 
reflect businesslike practices by integrating the acquisition 
function into the overall agency mission and facilitating 
cross-agency acquisitions and information-sharing.
    And, three, the lack of good tools and incentives to 
encourage the participation of the best commercial firms into 
the Government marketplace.
    These proposals are grounded on the Service Acquisition 
Reform Act of 2002 from last Congress and the acquisition 
hearings that we held last year in the Government Reform 
Subcommittee on Technology and Procurement Policy. We have made 
progress since then.
    The Congress passed the Homeland Security Act and the E-
Government Act. The Homeland Security Act contains some 
important procurement flexibilities while the E-Government 
contains limited share-in-savings authority and cooperative 
purchasing authority to expand the GSA schedules to State and 
local governments.
    Further, we have received the benefit of comments from a 
wide variety of sources on the original version of SARA. We 
have made a number of changes based on these experiences and 
comments.
    The hearing this morning will help us focus on the reform 
initiatives included in SARA to enable Federal agencies to 
update management practices and develop a strategic approach 
for contracting services. Clearly, recent events have shown 
these agencies must change how they do business in order to 
meet homeland security goals. SARA is intended to streamline 
procurement cycles and integrate agency mission goals and 
acquisition goals in order to help agencies meet the challenges 
presented by the war on terrorism.
    I look forward to the testimony from our two panels of 
expert witnesses. As the legislation makes its way through the 
legislative process, we hope to tap the wisdom and the 
knowledge of both public and private sectors that is so well-
represented by today's witnesses.
    [The prepared statement of Chairman Tom Davis and the text 
of H.R. 1837 follow:]
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    Chairman Tom Davis. We invited two other witnesses to 
today's hearing that were unable to attend: Ms Deidre Lee from 
the Department of Defense and Dr. Steve Kelman from Harvard 
School of Government. Ms. Lee couldn't appear because of a 
death in her family, and Dr. Kelman has pressing classroom 
obligations that prevented him from appearing. Both have 
submitted statements for the record which are available at the 
press table.
    [The prepared statements of Ms. Lee and Mr. Kelman follow:]
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    Chairman Tom Davis. I will now recognize the distinguished 
ranking member, Mr. Waxman, for his comments, and thank him for 
the way we are engaging on this and in issues in the previous 
Congress that led us to some of our legislative victories. Mr. 
Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman.
    Today we are going to hear testimony about the Service 
Acquisition Reform Act [SARA]. This legislation was introduced 
just yesterday. The issues addressed by this legislation are 
complex, and they affect billions of dollars in Federal 
spending. They deserve a thorough and detailed examination.
    Mr. Chairman, you have stated that this legislation is 
needed to, ``streamline,'' the procurement process. I support 
streamlining efforts, but efforts at streamlining must be 
weighed against competing goals of protecting against waste, 
fraud, and abuse. We need to review each provision of this 
legislation to ensure balance.
    The Federal Government is the largest purchaser of goods 
and services in the world, spending over $200 billion annually 
on everything from fighter jets to paper clips to janitorial 
services. In recent years, there has been an especially rapid 
growth in the procurement of services. Contracting for 
services, which is a major subject of the legislation we are 
considering, now accounts for 43 percent of total contracting. 
Each year the Government spends a staggering $87 billion on 
service contracts, a larger amount than on any other category 
of contracts.
    There are two keys that protect the taxpayer from waste, 
fraud, and abuse in service contracts: the Truth in 
Negotiations Act [TINA], and the cost accounting standards. 
These provisions ensure that the Government is not overcharged 
on Federal contracts. TINA applies when the Government enters a 
sole-source contract over $550,000. It requires the contractor 
to submit to the Federal Government cost and pricing data that 
justifies the reasonableness of the price being charged. The 
idea is that this cost and pricing data serves as a substitute 
for competition.
    The cost accounting standards apply to cost-based contracts 
above certain thresholds, generally, $7.5 to $15 million. Cost 
accounting standards require that contractors consistently and 
accurately account for their costs. These standards are 
essential for ensuring that the Federal taxpayer is not 
overcharged for costs such as overhead or executive pensions.
    Chairman Davis believes that these accounting standards can 
sometimes be too burdensome. In particular, he is concerned 
that many smaller companies and startup companies refuse to do 
business with the Federal Government because of the burdens of 
complying with these standards. Thus, many of the provisions in 
the bill waive the application of TINA and cost accounting 
standards to service contracts by deeming these contracts to be 
commercial items.
    Under existing law, TINA and cost accounting standards do 
not apply to contracts for commercial items, on the theory that 
market forces keep prices down for commercial items. Now the 
chairman may have a point. We do need to ensure that smaller 
companies and other companies that don't normally do business 
with the Federal Government are able to do so, but we must do 
so in a way that protects the taxpayers against waste, fraud, 
and abuse. We need to retain that balance.
    My concern is that the bill before us goes too far. 
Halliburton just received a sole-source, cost-based contract to 
put out oil fires in Iraq and perform other oil field 
construction. The contract is potentially worth up to $7 
billion. I don't think anyone here would believe that 
Halliburton should be excused from complying with the cost 
accounting standards, especially given the company's track 
record of overcharging the Government.
    Yet, as I read this bill, the Halliburton contract could be 
considered a, ``commercial service'' contract that is exempt 
from these accountability standards. None of us wants to see a 
return to the days of $600 toilet seats. Yet, some of these 
provisions could lead to $600 contracts to repair broken 
toilets.
    These are far from academic concerns. For years, GAO, the 
Inspector General, and private sector watchdogs have pointed to 
contract management at Federal agencies as an area of high risk 
for waste, fraud, and abuse. The Department of Energy and NASA 
spend more than 90 percent of their budgets on contracts with 
the private sector. Yet, they are consistently cited by GAO as 
examples of poor contract management.
    DOD spends over $100 billion a year on contracts. Yet, it, 
too, is cited by GAO. Billions are lost through cost escalation 
and failed projects. Given this record, we should be 
strengthening the Government's tools to ensure accountability, 
not weakening them.
    I am also concerned about other provisions in the SARA 
legislation such as a provision that allows employees from 
private contractors to take over the management of Federal 
procurement decisions. In essence, this provision could put the 
fox in charge of the hen house.
    Another problematic provision expands the so-called, 
``share-in-savings'' contracts. Under a share-in-savings 
contract, the contractor agrees to bear the initial project 
costs, often entailing capital outlays, until the client agency 
begins to achieve specified results from the work. Payment is 
based on a percentage of the savings realized by the agency.
    These contracts sound great, but they could rapidly become 
a kind of slush fund. Since the contracts don't require upfront 
payments, agencies don't have to come to Congress for 
authorization to enter the contracts. Once again, this removes 
accountability.
    Mr. Chairman, these are major issues with potentially major 
cost consequences. I know that you want to move this 
legislation quickly, but it is more important that we do this 
right rather than doing it fast. Thank you.
    [The prepared statement of Hon. Henry A. Waxman follows:]
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    Chairman Tom Davis. Thank you very much, Mr. Waxman. We 
have a spirited debate on this issue. I think we come at it 
from different directions, but I appreciate your comments and 
look forward to working with you.
    In the interest of time, Members can have 5 legislative 
days to submit any further opening statements for the record.
    Are there any other Members who wish to make a statement at 
this time on my side? Any Members wish to make a statement? Are 
there any Members who wish to make a statement?
    [No response.]
    Chairman Tom Davis. If not, let's move to our first panel. 
We have Mr. William Woods, Director of Contracting Issues, U.S. 
General Accounting Office; Mr. Stephen Perry, the Administrator 
of the General Services Administration, and Ms. Angela Styles, 
who is the Administrator of the Office of Federal Procurement 
Policy of the Office of Management and Budget.
    It is the policy of the committee that all witnesses be 
sworn in before they testify. Would you please rise with me and 
raise your right hands?
    [Witnesses sworn.]
    Chairman Tom Davis. Thank you very much for your time. All 
of you are pronounced experts in the field. What I would like 
you to do, we will start, Mr. Woods, with you, move down to 
Administrator Perry, and then to Ms. Styles.
    Try to do 5 minutes, if you can. We have your total 
statements in the record. I have read them. Members have had an 
opportunity to read it and base questions on your total 
statements, which will be included in the record.
    But if you could sum it up in 5 minutes--we have a light 
down here, and when it turns orange, that means that you have 1 
minute remaining. When it is green you have up to 4 minutes, 
and then when it is red, the 5-minute limit, you could move to 
sum up.
    Mr. Woods, we will start with you, and thank you for being 
with us.

STATEMENTS OF WILLIAM WOODS, DIRECTOR, CONTRACTING ISSUES, U.S. 
 GENERAL ACCOUNTING OFFICE; STEPHEN PERRY, ADMINISTRATOR, U.S. 
      GENERAL SERVICES ADMINISTRATION; AND ANGELA STYLES, 
ADMINISTRATOR, OFFICE OF FEDERAL PROCUREMENT POLICY, OFFICE OF 
                     MANAGEMENT AND BUDGET

    Mr. Woods. Thank you, Mr. Chairman. It is a real pleasure 
to be here. We appreciate the remarks, yours and Mr. Waxman's. 
Thank you to the rest of the members of the committee for your 
attention today.
    We are here to discuss the Services Acquisition Reform Act 
[SARA] which is H.R. 1837. The purpose of SARA is to provide 
agencies with additional tools for addressing a number of 
acquisition issues. What I would like to do today is to briefly 
summarize our work addressing a variety of those acquisition 
issues and also to discuss our views on specific provisions of 
SARA that are related to some of those reports.
    The first report that I would like to start with is one 
that we are just issuing today to you, Mr. Davis, and to you, 
Mr. Waxman. It is called, ``Federal Procurement Spending and 
Workforce Trends.''
    This report took a look at the 10 agencies across the 
Federal Government that spend the most on acquisition. 
Basically, that covers about 95 percent of the spending across 
the Government.
    We took a look at 15 key indicators, things that we thought 
would tell us about the current state of affairs in acquisition 
spending. We took a look at competition. We took a look at 
goods versus services. We took a look at the acquisition work 
force at each of these 10 agencies.
    For each of the 15 data elements, you will see in the 
appendix to the report that it addresses where these agencies 
stood as of the close of fiscal year 2001. We do not yet have 
on a governmentwide basis access to the fiscal year 2002 data. 
We plan to update this report as soon as that information is 
available.
    I will not even begin to summarize all of the findings, but 
I want to highlight two things. One is, why are we here today 
and discussing services? The reason is that we see a fairly 
significant growth in services over the course of the last few 
years. Our report cites about 11 percent growth, but when you 
look deeper than that, you find that the issue of services is 
much more significant.
    We have a chart here that is also available in our report, 
but we thought it was worth bringing this to your attention. 
These are the 10 agencies that we reviewed, and this chart 
shows the extent to which these 10 agencies procure services. 
These percentages on the righthand side are the percent of 
services, the extent to which services constitute their total 
acquisition spending.
    You can see that six of the agencies, six of these large 
Federal agencies, spend over 75 percent of their contract 
dollars on services. A couple of agencies spend close to 100 
percent. The Department of Energy, for example, spends about 98 
percent of its contract dollars on services.
    So this is an important area. It is one that we need to 
devote a lot of attention to, and we welcome the Services 
Acquisition Reform Act in addressing these important issues.
    The other piece of information that I thought would be 
particularly important to bring to your attention is that we 
are going to hear a lot of discussion today about the work 
force. There is data in this report that show the extent to 
which our acquisition work force is currently under significant 
pressures. We all have heard that the acquisition work force 
has declined in recent years, and you will find data in this 
report to support that.
    But there is a particular piece of information that I want 
to call your attention to, and that is, what is the workload 
that the acquisition work force is being asked to address these 
days? What we found is that across the board, at virtually 
every agency, the number of small dollar contracts has declined 
rather significantly. We think this is largely due to the use 
of the purchase card, for transactions that are relatively low-
dollar value, generally under $25,000. These are now being 
processed using the governmentwide purchase card.
    But the other half of that is that acquisitions over 
$25,000 have grown dramatically. Let me just highlight one 
example from Mr. Perry's agency, the General Services 
Administration.
    We found that their low-dollar-value contracts had declined 
82 percent over the period that we reviewed. Conversely, their 
large-dollar-value actions have grown by 68 percent. So this 
demonstrates that our acquisition work force today is being 
asked to deal with a greater number of higher-dollar-value, 
more complex actions, and that is something that we need to 
keep in mind as we consider the rest of the provisions of SARA.
    Now how does SARA relate to these issues? I want to just 
touch on a couple of provisions of SARA that I think are 
particularly relevant. We spent a fair amount of time last year 
looking at how commercial companies are dealing with many of 
the same issues that we are finding agencies having to deal 
with. We looked at leading companies. We found a number of 
characteristics in how they are taking a strategic approach and 
are realizing very significant savings, sometimes on the order 
of several hundred million dollars, by taking a strategic 
approach.
    The report we issued on this point outlined a number of 
facts, but I want to just touch on one key one. That is, that 
all of these companies believed that it was important to start 
with leadership, that they needed to have what they termed, or 
what the bill terms anyway, ``a Chief Acquisition Officer.'' It 
was called different things at different companies, but the 
concept was the same.
    That is that acquisition was raised to a very prominent 
level within these companies, so that a single individual had 
responsibility for ensuring that individual could look out over 
the entire enterprise and bringing to bear the resources at a 
very senior level to improve their procedures. Section 201 of 
the Services Acquisition Reform Act would require a Chief 
Acquisition Officer at Federal agencies across the Government, 
and we support that provision.
    Another provision I want to touch on very briefly is the 
exchange program, the Government-industry exchange program, 
that would essentially provide for some of the high-performing 
individuals on the Government side to spend time with the 
private sector and, conversely, for private sector individuals 
to spend periods of time with the Government. We think that 
provision has enormous potential. It has payoff both during the 
periods of time that these individuals are with different 
organizations, but also it provides benefits down the road, 
when they bring the different perspectives that they learned at 
their different organizations back to their home organizations.
    A couple of other provisions I want to touch on, again very 
briefly. One is on performance-based contracting. As Mr. Waxman 
identified, there is a provision that would provide for 
expanded use of performance-based contracting and would make 
that provision applicable to commercial items across the 
government.
    The data in our report--you will find this on page 9 of our 
testimony--shows that there is significant room for growth in 
the use of performance-based contracting across the board. In 
fiscal year 2001, the administration had set a target of 10 
percent of eligible contracts, those that the Federal 
Acquisition Regulation deemed to be good candidates for the use 
of performance-based contract. As you will see in that chart, 
it shows that a number of agencies are lagging behind in 
meeting that goal.
    Share-in-savings. We did a report for this committee, 
looking at how leading companies are implementing a share-in-
savings approach. We looked at four companies that had realized 
some substantial benefits as a result of using share-in-
savings.
    Our report identified four key criteria that would have to 
exist before share-in-savings would be an appropriate tool to 
be used for contracting. Share-in-savings is not something 
that, in our view, will be useful in large numbers of 
procurements across the Government, but in certain areas where 
these four criteria are met, these would be good candidates for 
share-in-savings, and the bill would provide for that authority 
across the board.
    Last, let me just mention time-and-materials contracts. 
There is a provision in SARA that would permit the use of time-
and-materials contracts for commercial item procurements. We do 
not know, frankly, the extent to which time-and-materials 
contracts are used in the private sector. We have not done that 
work.
    What we do know, however, is that the Federal Acquisition 
Regulation provides that, when agencies use time-and-materials 
contracts, they are required to have proper safeguards in place 
to ensure that the Government's interests are protected. The 
Federal Acquisition Regulation makes this available across the 
board for various types of procurements. We do not see any 
reason why that should not be available to commercial item 
procurements, provided, of course, that the requisite level of 
surveillance is there to protect the Government's interest.
    With that, Mr. Chairman and Mr. Waxman, let me stop there 
and I will be happy to take whatever questions you have.
    [The prepared statement of Mr. Woods follows:]
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    Chairman Tom Davis. Thank you very much.
    Mr. Perry, thanks for being with us.
    Mr. Perry. Thank you, Chairman Davis, Congressman Waxman, 
members of the committee. Thank you for inviting me to appear 
before you today and discuss how we might improve the current 
Federal acquisition process.
    As you know, and you both alluded to the fact, each year 
the Federal Government spends about $265 billion in goods and 
services necessary to provide Government programs to the 
American people. That is one very good reason why this is a 
vitally important subject and that the Government's acquisition 
process should, in fact, focus on efficiency, effectiveness, 
and accountability.
    I have submitted a copy of my full testimony for the 
record. So at this point, Mr. Chairman, I would like to just 
summarize some of the highlights of GSA's comments on the 
proposed legislation. We have not reviewed the actual 
legislation, so my testimony is based upon the summary that 
your staff provided to our agency.
    My first comment is on the issue of training, and, Mr. 
Chairman, I would certainly emphatically agree that ongoing 
training of the Federal acquisition work force is an essential 
part of improving the Federal acquisition process. GSA is 
committed to pursuing an effective training program for our 
acquisition work force, and we agree that this must be 
accomplished throughout the entire Government.
    On the second item, the issue of the Acquisition Officer, 
we support the concept of having a Chief Acquisition Officer, 
just as we do at GSA. We believe that a Chief Acquisition 
Officer is critical to the successful acquisition process at 
GSA. For that reason, we believe that the legislation calling 
upon agency heads to establish a Chief Acquisition Officer 
position would certainly signal the importance of maintaining a 
well-managed, integrated, agencywide acquisition plan and 
process.
    We also support the idea of creating a Chief Acquisition 
Officers' Council. This would allow for the sharing of best 
practices on acquisition policies and requirements across 
agencies. This council could also provide a forum for the 
development of innovative acquisition initiatives and the 
promotion of effective business practices in the Federal 
Government's acquisition system.
    With respect to the review of laws and policies, we support 
a review of acquisition laws and policies with a view toward 
ensuring a greater use of commercial practices, when 
appropriate, including practices such as performance-based 
contracting. Such a review could result in recommendations for 
the repeal or amendment of laws and regulations that are 
unnecessary for the effective, efficient, and fair award and 
administration of Government contracts.
    We also support the new definition of the word 
``acquisition'' that would encompass the entire spectrum of 
acquisition processes, starting with the development of an 
agency's requirements through the completion of all aspects of 
contract administration. This, obviously, would enable all 
parties, even beyond the Contracting Officers of organizations, 
to understand their role and responsibility with respect to 
this activity.
    We continue to support your attempt to increase the use of 
performance-based contracts on a governmentwide basis. We know 
that performance-based contracting allows private sector 
companies to offer innovative solutions to complex acquisition 
challenges. Successful use in Government would require 
developing skills in designing tasks in measurable, mission-
related terms and defining required outcomes which are critical 
to successful contracting, and it would follow that rewarding 
contractors for meeting challenging performance goals would 
promote efficiency in Government operations and provide greater 
value to taxpayers.
    On the issue of increasing our use of time-and-materials 
contracts, which is the fastest-growing sector of GSA's 
multiple-award schedules program especially the acquisition of 
services. While authorizing additional commercial contract 
types, such as time-and-materials and labor-hour contracts with 
appropriate safeguards, this legislation could ensure that the 
Government's acquisition program has the flexibility needed for 
additional effectiveness in the acquisition of services.
    In summary, Mr. Chairman and members of the committee, we 
believe that the Service Acquisition Reform Act of 2003 is 
innovative. Its enactment would, in fact, enable or help 
establish a modern, effective acquisition process 
governmentwide, one that can meet the challenges and 
opportunities that we face.
    Thank you for inviting me to discuss this. I would be happy 
to answer questions, and I certainly look forward to working 
with you on this.
    [The prepared statement of Mr. Perry follows:]
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    Chairman Tom Davis. Thank you very much, Administrator 
Perry.
    Ms. Styles, thanks for being with us.
    Ms. Styles. Thank you for having me. Chairman Davis, 
Congressman Waxman, and members of the committee, I appreciate 
the opportunity to appear before you today to discuss the 
Services Acquisition Reform Act of 2003. I thank the committee 
for engaging the administration in a productive dialog as we 
seek to address the many procurement challenges related to 
service contracting.
    For our part, the Office of Federal Procurement Policy is 
pursuing a variety of initiatives to lower costs and improve 
program performance. These activities include establishing a 
Federal Acquisition Council, which is a senior-level forum for 
acquisition officials from over 25 departments and agencies. 
The council held its first meeting almost 2 weeks ago, and we 
established four working groups that are working toward very 
specific, objective goals in human capital, competitive 
sourcing, performance management, and small business.
    We are also strengthening the use of competition in our 
everyday acquisitions for services. We published proposed 
changes to the Federal Acquisition Regulation in the Federal 
Register earlier this month that will improve application of 
acquisition basics and purchases for services from the 
multiple-award schedules program.
    We are revitalizing the use of performance-based service 
acquisitions to capitalize on contractor innovation and meeting 
the Government's needs. An OFPP-sponsored, interagency group is 
working to make performance-based service acquisitions policies 
and procedures more flexible and easier to apply. We are also 
reducing transaction costs and increasing transparency through 
technological advances.
    Finally, we are pushing agencies to improve oversight for 
purchase cards and to track buyer behaviors, so they can 
realize cost savings in acquisition and finance operations 
without wasting hard-earned taxpayer dollars. In pursuing these 
and other initiatives, I have sought to take advantage of the 
existing statutory authorities under a framework that has been 
shaped by the leadership of this committee.
    I believe there is more that can and should be done within 
the existing statutory framework to improve acquisition 
practices. For this reason, I have not actively sought 
statutory changes during my tenure as Administrator. At the 
same time, I recognize that carefully tailored, legislative 
provisions can complement the administration's efforts to 
achieve greater return on our investment of Federal resources.
    My written testimony for the record is organized around 
three themes: strengthening the management of the procurement 
process, improving the use of contract incentives, and taking 
greater advantage of the commercial marketplace.
    I should make one caveat. The comments in my testimony are 
based on a discussion I had with your staff. Because agencies 
were not privy to this conversation, my statement does not 
reflect the benefit of their full insight. After SARA is 
introduced, which it has been, the administration will be able 
to offer more formal views to help inform your thinking.
    As one major goal, SARA seeks to improve the overall 
management of the procurement process. Among other things, the 
new bill would align management structures to better reflect 
the integrated nature of acquisitions and require studies to 
identify opportunities for further improvements. In my opinion, 
both of these efforts have significant merit.
    As a second goal, SARA would include various provisions to 
encourage good contract performance. The new bill would provide 
motivation for agencies to use performance-based service 
contracts, codify the use of award-term contracting, expand the 
application of share-in-savings contracting, and facilitate 
telecommuting by Federal contractors. With a few caveats, these 
are generally positive steps.
    As a third goal, SARA will take several steps to further 
facilitate access to the capabilities of the commercial 
marketplace. Based on my understanding of the revised coverage 
on time-and-materials and labor-hour contracting, I believe it 
is a significant improvement over the originally proposed H.R. 
3832.
    I, however, believe that there are still some serious and 
unresolved problems with this type of contracting. As an 
example, at one agency from last year, from February to 
December 2002, the overall cost of the contract grew from $104 
million to $700 million, a sevenfold overrun on a time-and-
materials/labor-hour contract. There was no incentive for the 
contractor to control costs. There is a very real need for 
appropriate oversight and safeguards in time-and-materials, 
labor-hour contracts, and their use should recognize these 
safeguards.
    Mr. Chairman, the administration shares many of the 
committee's desires to strengthen procurement management, to 
provide better incentives for our contractors, and to take 
greater advantage of the commercial marketplace. While there 
are some areas of disagreement, I believe with continued dialog 
we can reach agreement on a significant number of these 
legislative provisions that can serve to further our joint 
vision of a results-oriented and market-driven Government.
    I look forward to working with the committee as we work 
toward the delivery of better value for our agencies and, 
ultimately, for the taxpayer. Thank you.
    [The prepared statement of Ms. Styles follows:]
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    Chairman Tom Davis. Thank you, and thank you all very much.
    Let me make just a couple of comments and then get into 
some questions.
    First of all, I think, just trying to respond very briefly 
to a couple of comments made in my friend Mr. Waxman's opening 
statement, cost-type contracts can't be used under commercial 
procedures. So the cost accounting standards are not that 
important.
    And, second, the TINA waivers really applied to the 
certification requirement. The agency still is required to get 
the information it needs to find the price fair and reasonable.
    We often lose some of these firms as competitors in the 
Government market altogether. Alternatively, such firms may 
form a separate entity or production line to deal with the 
Government, at a considerable extra cost to both the consumers 
and the taxpayers.
    For example, a company may sell aircraft in the commercial 
market that they can also sell similar aircraft under a special 
configuration to meet Government needs. Normally, one would 
expect the aircraft to be produced on the same line and under 
the company's commercial accounting system. But if cost 
accounting standards or data certification requirements were to 
apply, the company would have to use a different accounting 
system and sometimes even a different production line for the 
products sold to the Government. How does that save anything?
    A number of high-tech, commercial IT firms simply refuse to 
compete for Government business because they refuse to change 
their perfectly proper and legally sufficient accounting 
systems to meet Government requirements. So that is our 
challenge, is how to bring more competitors into the 
marketplace and how to reduce the costs to taxpayers, and at 
the same time balance Mr. Waxman's concerns and other concerns 
expressed here on waste, fraud, and abuse, and making sure that 
we can have a general check on these items.
    Let me ask just a question for each of you to try to get 
things started. Mr. Woods, share-in-savings contracts is one of 
the innovative contracting techniques that we promote under 
SARA. As we know, they can be misused if you use the wrong 
contracting vehicles. Time-and-materials may not be an 
appropriate vehicle in some areas.
    I know you did work on this issue just recently. Could you 
elaborate on some of your findings and tell us when this 
technique has been successful?
    And let me just say I used this in Fairfax County. I came 
in as the head of a county government there where we had no 
money to spend, and yet we needed IT improvements. That is 
eventually how we would be able to get more efficient about the 
way we do things. This was a way we didn't have to upfront the 
costs. We were able to move and do a lot of things we never 
would have been able to do, had we not had that vehicle.
    So, from our experience, if it is used correctly, it can be 
a real enhancer. Use it incorrectly--there is a tremendous 
upside and it needs appropriate oversight and training. I think 
that is what we are trying to get to.
    Go ahead.
    Mr. Woods. And that, Mr. Davis, is essentially what we 
found in our review of the commercial companies' use. But, in 
specific answer to your question in terms of what we found, 
there were four key indicators, four essential ingredients that 
needed to be in place in order to have successful share-in-
savings contracts.
    First of all, the outcome needed to be clearly specified. 
There needed to be agreement between the customer and the 
provider, if you will, on exactly what they were trying to 
achieve.
    Second, the incentives for the contractor to perform needed 
to be very clearly defined.
    Third, there needed to be performance measures to make sure 
that there was a way to track whether the outcomes were being 
achieved and whether progress was being made toward that 
result.
    Then, last, and perhaps even most importantly, there had to 
be top management commitment because, typically, what we found 
is that these agreements tended to be most successful over 
time. That is when the savings kick in, if you will. The 
initial upfront investment is made by the contractor, but the 
savings are achieved further downstream. So there had to be an 
upfront commitment by the companies, by the leadership of the 
companies, to maintain the arrangement with the contractor. 
Those are the essential ingredients that we found in our work.
    Chairman Tom Davis. OK, thank you.
    Mr. Perry, let me ask you, you point out in your statement 
GSA's commitment to training the Federal work force. You note 
GSA's innovative training initiatives. In your view, would the 
increased funding that could be made available through SARA's 
work force training enhance these initiatives in a significant 
fashion?
    Mr. Perry. Well, certainly, increased funding is part of 
the formula for success. I was really quite surprised when I 
first learned the degree to which we at GSA, in terms of our 
acquisition work force, fell well below the Clinger-Cohen 
requirements. We have been aggressive in trying to move that 
up, but we still have a long way to go.
    Part of that will have to require resource investment. So 
the issue of providing resources to make that possible on a 
faster pace than we have been able to achieve it up to this 
point certainly is essential.
    Chairman Tom Davis. OK, thank you.
    Ms. Styles, first of all, thanks for working with us as we 
try to remold this legislation and we continue to try to 
address some of your concerns as this moves through the 
legislative process.
    SARA would place commercial services on the same level as 
commercial products. You express a concern about this concept. 
I am not clear why commercial services shouldn't be put on the 
same plane as products, and can you give us the differentiation 
in your view on that?
    Ms. Styles. Sure. I think it is just the extent to which 
you can determine what the price in the marketplace is. I think 
you made a very good example when you started off about, why 
should you be applying cost accounting standards or intricate 
accounting systems to a contractor if they are selling 
something that is a service that is available in the commercial 
marketplace?
    I don't know if putting out oil field fires is available in 
the commercial marketplace, but I assume it is, and I assume it 
is available in substantial quantities and we could actually go 
to the commercial marketplace and say, ``Here's the price for 
doing this versus the price that we are paying in the Federal 
Government.''
    If you have that data and capacity to look at one service 
that we are buying in the commercial marketplace and compare it 
to what we are paying for it in the public sector, that is 
really what we need. We need the capacity to look at that. As 
long as it truly is commercial, I think that is fine.
    It is a little harder sometimes to compare services than it 
is commodities, and that is a little bit of the difficulty, but 
I----
    Chairman Tom Davis. Because of their uniqueness, basically?
    Ms. Styles. Exactly. That is exactly right.
    Chairman Tom Davis. OK. Do you think that the provisions in 
SARA that would expand the coverage of commercial items to 
include more services and to include items acquired from a 
commercial entity would encourage the participation of more 
firms in the commercial market?
    Ms. Styles. I think it certainly could. I have seen it from 
my perspective in working with defense contractors in the 
private sector, that they do reorganize based on our 
requirements and to meet them or not. That may not be the most 
efficient way for us to be buying from some of these companies.
    Whether that is the right solution or not or whether we can 
come up with another solution, I think we do need to come up 
with a solution for some of these companies that may be 
spending more and ultimately charging us more in some of the 
cost contracts because of the way they structure themselves to 
meet our needs.
    Chairman Tom Davis. Thank you very much.
    Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    Section 404 of the bill expands dramatically what kinds of 
products and services can be considered, ``commercial'' items. 
Commercial items are exempt from essential safeguards against 
waste, fraud, and abuse, such as the cost accounting standards. 
This section would provide that any product or service shall be 
considered a commercial item if it is produced by an entity 
whose primary customers are in the private sector at the time 
the contract is entered into. Specifically, this section 
provides that if 90 percent of a company's sales over the past 
3 years were to non-government entities, then this would apply.
    Now if an entity meets this test, it doesn't have to 
provide any data to the Government to justify its costs and 
prices under the Truth in Negotiation Act. It doesn't have to 
account for overhead, travel, management, or other expenses 
using standard cost accounting standards. In essence, it can 
charge the Government whatever it wants without oversight.
    Moreover, the proposal would allow, and even encourage, 
contractors to manipulate the system by creating, ``special 
purpose entities'' or subsidiaries that are set up specifically 
to obtain commercial item status for goods or services. 
Contractors could also make any contract for unique Government 
items or services exempt from oversight through such 
manipulation.
    Now, Ms. Styles, you have testified that the administration 
opposes this provision. The DOD IG also opposes this provision. 
According to the IG, the provision, ``would allow contractors 
to manipulate what is considered a commercial item by creating 
or reorganizing business entities or allocating contracts to 
different business entities in order to obtain commercial item 
status for what are actually military-unique products.'' Can 
you elaborate on why you are concerned about this provision?
    Ms. Styles. Certainly. It is more a concern about the 
method to resolve what I think are some real problems, and what 
we need to work on is how we resolve some problems that 
contractors are having in supplying us goods and services, and 
how they are structured to meet, whether it is cost accounting 
standards or truth in negotiation or whether it is an issue of 
something that is commercial that we are not really buying as 
commercial. So we are putting additional restrictions on there 
that we may not need to protect our interests.
    We certainly were concerned that this would allow a company 
to sell us something that is not commercial, that is not 
available in the commercial marketplace, that we wouldn't be 
able to judge whether the pricing was fair and reasonable 
pricing or not, because we didn't have sufficient purchases in 
the commercial marketplace to make that comparison to what we 
were paying.
    Mr. Waxman. Mr. Woods, do you have concerns about this 
provision?
    Mr. Woods. We do have concerns, as Ms. Styles indicated, 
that when you have a Government-unique item, in many cases you 
need to have other tools available to help in the pricing 
decision.
    Mr. Waxman. Under current law, a service can be considered 
a commercial item only if they are offered and sold 
competitively because then you have a marketplace to make 
judgments. Section 403 would change this definition 
dramatically. It would expand the number of services that can 
be considered commercial items. In fact, almost any service 
that is offered, or that theoretically could be offered, to a 
private sector purchaser can count as a commercial service 
under the new definition. Even the contract with Halliburton to 
extinguish oil well fires in Iraq or contract with Mr. Richard 
Blum to do work in Iraq as well could potentially qualify under 
this new definition.
    Now the consequences of designating these services as 
commercial items are profound. They exempt the services from 
important accountability standards such as the Truth in 
Negotiation Act and the cost accounting standards, Essentially, 
they strip the Government of any means to check whether the 
prices it is paying are reasonable for the services it is 
receiving.
    I believe there is a question of whether the definition of 
commercial services should be changed. According to the IG, 
``the current definition of commercial services is a very 
reasonable definition with safeguards to prevent purchasing 
non-commercial services. It permits services which are sold 
competitively and for which a market price can be established, 
to be treated as commercial services. This provision has 
permitted the Government to purchase a myriad of services as 
commercial services.''
    Ms. Styles and Mr. Woods, how do you respond to the 
comments of the DOD IG on this?
    Ms. Styles. I think there is room for more flexibility in 
determining what is commercial in the services arena. We do 
have to be cautious here. I think we have to recognize that we 
are cautious and we have to have some certainty that the price 
we are receiving is fair and reasonable. I think it is a 
difficult line to draw at times, but I think it is one that we 
should recognize that we should seek, to the extent we can, 
some additional flexibilities here.
    Mr. Waxman. So you disagree with the DOD IG?
    Ms. Styles. No, I don't think it is disagreeing. Well, I 
mean, he says that we shouldn't change it at all, and I think 
we should examine that. I think we should look at it and see if 
we can be more flexible in the services arena.
    Mr. Waxman. And, Mr. Woods, what are your concerns and 
analysis? I don't know from Ms. Styles whether she agrees with 
the definition in the bill or she thinks they ought to be 
negotiated further to see what that provision should be.
    Mr. Woods. Well, we at GAO, like the rest of this panel, 
have not yet had a chance to review the precise language in 
detail.
    Mr. Waxman. That is a problem.
    Mr. Woods. That said, though, buying services does present 
very different challenges than goods. Let me give you an 
example.
    We did a report a couple of years ago looking at buying off 
the General Services Administration Schedule. There are very 
different procedures for doing that. It is relatively simple 
when buying goods. You can go to the schedule. You can compare 
the specifications and the prices.
    It is not so easy for services. In fact, GSA has 
established special ordering procedures for services to 
highlight the difference.
    Just very briefly, in buying services, particularly 
professional/administrative services, that sort of thing, which 
the Government is buying more and more of these days, or 
information technology services in particular, it is not just 
enough to go to the schedule, for example, and look at the 
rates that are being charged for various positions or various 
services that might be provided, such as the rates for 
different skills categories.
    You need to look at the mix of skills. You need to look at 
how many hours are going to be provided by each of these 
individuals. So it is a very different process than just 
ordering goods. So there are some key differences there that we 
need to take account of.
    Mr. Waxman. Just yes or no, do you think we ought to go 
with section 403 as it is in the bill or would you want it 
changed or eliminated?
    Mr. Woods. Well, I haven't seen the bill, sir, so I can't 
really comment.
    Mr. Waxman. OK. Ms. Styles, section 403, is it acceptable?
    Ms. Styles. I have not seen what has been introduced. I 
think we would still like the constraint of it being sold in 
substantial quantities, though. We do want to be able to find 
prices in the commercial marketplace to be able to make the 
comparison.
    Chairman Tom Davis. Thank you, and, of course, the whole 
purpose of this is to allow that Contracting Officer to get--
they can determine what is fair and reasonable, but they have 
to find the data to do it. If they can't, then this doesn't 
lie.
    Instead of having the company certify in this place, we are 
really putting the onus on the Contracting Officer. But the key 
here is that these buyers are going to be trained to do this, 
and they are going to have to make the appropriate 
substantiations.
    So I don't think we are losing anything, but we would be 
happy to get you the language. If you want to comment on that 
and get that to Mr. Waxman, I think that would be an important 
part of the record and we would welcome you doing this. Thank 
you very much.
    Mr. Lewis.
    Mr. Lewis. Yes, thank you, Mr. Chairman.
    I guess this question would go to Mr. Woods. Does the 
increase in contract dollars spent on services, how does that 
relate to a reduction in civil service personnel? Or does it?
    Mr. Woods. We haven't really looked at those issues in 
tandem. We are seeing both of those phenomena that you have 
cited. We see, as indicated, a significant growth in services, 
and then our work on looking at the civil service side has 
focused just on the acquisition work force for the area that I 
am responsible for. So I don't bring any particular expertise 
across the board in civil service.
    Mr. Lewis. I guess the other question, looking at the 
decrease in the acquisition work force and the increase in the 
number of high-dollar procurement actions, was there an 
increase in contracts or a decrease in contracts in 
relationship to the procurement actions?
    Mr. Woods. What we find, when we look, relates to contract 
actions. So it is not contracts, but contract actions. The 
difference is that, when an agency awards a contract, there are 
a number of contract actions that would follow from that. 
Funding changes, just changes to the contract itself in terms 
of the specification and the work required, task orders that 
are issued under a multiple award, indefinite delivery contract 
would qualify as an action. So there are multiple contract 
actions.
    In specific answer to your question, though, we found that, 
by and large, the number of contract actions has declined 
somewhat over the 5-year period that we looked at.
    Mr. Lewis. I am wondering, is that because of more 
centralized purchasing or procurement, and that is in direct 
relationship to the decrease in the acquisition offices?
    Mr. Woods. That could very well be. The primary 
explanation, we think, is the use of purchase cards. Purchase 
cards gets to your point about the acquisition work force. You 
do not have to be a member of the acquisition work force in 
order to use a purchase card. That was the design. The theory 
was, why involve people with detailed contracting expertise 
when all we need is someone from a program office to make a 
purchase that is needed at a given point in time? So there has 
been a decline in the numbers, and a lot of that--there is also 
seen a decline in the work force, too.
    Mr. Lewis. This piece of legislation that we are talking 
about today, will that do anything, or can you tell me how it 
will decentralize the acquisition or the procurement process? 
Because I have a feeling that, with regional purchasing, it is 
a one-size-fits-all-type purchasing philosophy that sometimes 
causes a lot of waste.
    I have seen that. I have Ft. Knox in my district. I have 
seen that regional purchasing has put them in a situation, 
where they actually don't receive the things that they actually 
need where they could have purchased it locally.
    So does that do anything to decentralize that process?
    Mr. Woods. I don't believe that there are provisions in 
SARA specifically on that point. But one of the reasons that we 
support the Chief Acquisition Officer, for example, is we need 
a person in the organizations that can take note of issues like 
you are raising and determine whether we need more consolidated 
contracting, or in some cases we may very well need less 
consolidated contracting to meet specific needs. It is only 
when you have an individual that is at a fairly senior level 
that can look out across the organization to make those kinds 
of assessments.
    Mr. Lewis. OK, thank you.
    Chairman Tom Davis. Mrs. Maloney.
    Mrs. Maloney. Thank you. Thank you, Mr. Davis. I would like 
to really be associated with the comments of Chairman Waxman. I 
personally was very concerned that our panels----
    Chairman Tom Davis. ``Chairman Waxman?'' [Laughter.]
    Mrs. Maloney. Did I call him ``chairman?''
    Chairman Tom Davis. I will permit a lot of freedom of 
speech in this hearing.
    Mrs. Maloney. ``Leader.'' Leader Waxman for the Democrats. 
[Laughter.]
    I think he raised some important points. As much as I 
respect Mr. Davis, I tell you I have deep concerns about this 
bill, having just read a 68-page bill that I got last night. 
But I am concerned that the panelists hadn't even seen the 
bill. I think that we should have another hearing on this after 
the panelists have seen the bill.
    We are the largest consumer in the world. We spend $215 
billion in goods and services, and we need to make sure that 
the taxpayers are protected in this.
    I am particularly concerned that the Chief Acquisition 
Officer, building on my colleague from the other side of the 
aisle's comments, according to this bill, will not be a career 
person. To me, when you are making decisions on $215 billion, 
you should have a career person whose purpose is to serve the 
Government, not someone who may be a political appointee from a 
business that they may go back to after they award these 
contracts to them.
    So, at the very least, I have always known that what we 
worked for was to professionalize the procurement system. Here, 
if I am reading it correctly, the Chief Acquisition Officer is 
to be non-career--in other words, political--but non-Senate-
confirmed appointees.
    This, of course, is in the face of recommendations from 
many quarters that there should not be political appointees 
making contracting decisions. I come from a long history of 
contract abuse from probably the biggest abuser in contracts in 
the country, New York City. One of our biggest reforms that we 
did was to make sure that whoever made these decisions was a 
professional person trained in procurement, not someone who 
comes in, in one administration, is gone the next, and when the 
scandal hits the front pages, they can say, ``I don't know who 
made that decision. They have already left.''
    So I want to know, and just start with Ms. Styles and go 
right down to Mr. Perry, and my eyes are so bad I can't even 
see your name. Mr. Welsh.
    Mr. Woods. Woods.
    Mrs. Maloney. Woods. Do you believe that the Chief 
Acquisition Officer should be a political appointee, like what 
this bill does? Is that not in the face of what procurement 
history has been and professionalism, not to mention the fact 
that the IG has come out in opposition to this?
    Ms. Styles. I would like to explain the problem that I see 
at some agencies now. I certainly think there may be a lot of 
ways to resolve it, but it is a real problem that we have 
procurement officers, we have procurement executives at the 
agencies who have been career people for a long time. With only 
two, maybe three, exceptions that I can think of in my mind, do 
they have access to the head of the agency, are they involved 
in the front end from a program decision perspective, deciding 
the requirements, knowing what they are, well before you make 
any decisions about how it is going to be bought from a 
procurement perspective.
    So you can kind of see that our Chief Procurement Officer--
--
    Mrs. Maloney. So are you saying that we shouldn't have 
professionals making this, that it should be a political 
appointee instead? Is that what you are saying?
    Ms. Styles. Well, I am trying to address the problem----
    Mrs. Maloney. Yes, OK.
    Ms. Styles [continuing]. That I perceive here. I think 
there is a lot of flexibility to figure out how to address the 
problem, but it is a real problem that we have our procurement 
executives, with a little ``p,'' focused on the laws and the 
regulations of procurement, which clearly we need people to do, 
but the problem in the acquisition arena is that we don't have 
anybody that focuses on cradle-to-grave acquisition issues.
    You can't take that little ``p'' person and make them a 
Chief Acquisition Officer and expect in the culture of the 
agency for them to suddenly be involved in program requirements 
and management decisions. So you have to figure out----
    Mrs. Maloney. So you think it is better to hire, say, an 
executive from Lockheed or Bechtel to come in and do this job, 
instead of a career person?
    Ms. Styles. I don't know what the right answer is here, but 
I do know that you have to figure out a way to give that person 
access to the head of the agency and involvement from the front 
end of procurement decisionmaking. Is that a political person? 
Well, there is a much greater likelihood that a political 
person is going to be able to have that upfront involvement 
from cradle to grave than the little ``p'' procurement person 
that we have had.
    So there is a problem that needs to be resolved----
    Mrs. Maloney. Excuse me. I am about to blow up. I cannot 
believe that you said that, that it is better to bring in a 
political appointee, a revolving door out to private industry, 
who will benefit from these contracts, as opposed to 
strengthening professionals to make these decisions.
    But I am taking your challenge. I am offering an amendment 
right now in the bill that will create a chief procurement--
what is it called--Chief Acquisition Officer who will be non-
partisan, professional, trained, and that person will have the 
authority from the beginning to the end to make taxpayer-
protection, the benefit-of-our-country decisions on the $215 
billion contracts in all of our agencies.
    If it is such that our procurement officers cannot make 
decisions and have no access to what the material is supposed 
to be, then we need to change that, but certainly the answer is 
not to go back and bring in political appointees. I find this 
very, very wrong and very dangerous, particularly when we need 
to be very careful in protecting our taxpayers' dollars.
    And I must say--and I want to say something nice about the 
chairman--he has consented to come to New York, and we are 
suffering very deeply from the recession from September 11th, 
to do a procurement conference. At first I was just going to do 
it with September 11th businesses, but it is like a fire: 
Everybody wants to come because everybody wants to have the 
opportunity to build on Government contracts and to know how to 
do it.
    I thank you for doing that, but it shows that people want 
access. I think if you have a system that is dependent on a 
political appointee, it will undermine the confidence of the 
American people in our contracting process.
    I feel so strongly about it, because in New York City we 
let a contract for hundreds of millions of dollars on 
technology that didn't exist, on a program that didn't exist, 
and gave it to a company that opened up a bank account the day 
before with $25 in it. The way that happened is that there was 
a political appointee making the contracting decisions.
    We changed that. We now have Chief Acquisition Officers who 
are professionals, who are trained, who have access, and who 
make independent decisions for the benefit of the city of New 
York and city of New York taxpayers to just get the best 
product at the lowest price.
    I feel this is a terrible example of cronyism. I am 
adamantly opposed to it, Mr. Chairman, and we must get this 
provision changed in the bill.
    Very briefly, I am very concerned about transparency. From 
my first glance in the 68-page thing, transparency is smudged 
in it. One of the chief tenets and values and principles of 
contracting has been that it be transparent and that it go to 
the lowest competitive, competent bidder. That is removed in 
this bill, and I find it very troubling.
    My time has expired. Thank you.
    Chairman Tom Davis. Thank you. I was going to bring, for 
our procurement conference, I was going to bring some political 
appointees up to New York. Can I do that, do you think? 
[Laughter.]
    Mrs. Maloney. No, I am not going to bring political 
appointees. I am going to have businesses there that want to 
learn how to bid on Government contracts. They will not even 
bid on Government contracts if they believe a political 
appointee is making that decision. They will feel that the way 
to get the contract is to make a contribution to a political 
party or somebody else, and that is wrong, instead of the 
merits of the product that they are putting before the Federal 
Government.
    Chairman Tom Davis. Thank you. Well, for the record, the 
Chief Acquisition Officer has no contracting warrants, does not 
have any authority to contract anything. They are a policy 
person. The theory here is to have someone that will have the 
ear of the head of the agency, as opposed to someone who is 
down there that can write memos that never make it to the top.
    But I will be happy to work with the gentlelady on this 
issue. I think we understand the concerns, but, again, the 
Chief Acquisition Officer has no contracting authority to give 
a contract to anybody. So I hope that will assuage some of her 
thoughts, but I would be happy to work with the lady. I 
appreciate her expressing her thoughts on this.
    Mr. Turner.
    Mr. Turner. I don't have any questions. Thank you.
    Chairman Tom Davis. Let me see, Mr. Ruppersberger is next.
    Mr. Ruppersberger. Yes, thank you, Mr. Chairman.
    A couple of things, the specific areas that are contract 
term, share-in-savings, if we have time, the government-
industry exchange program. What we are trying to do is to find 
the best system. It is all about accountability and performance 
in the end. We have learned from mistakes, and we need to learn 
from mistakes, and then move forward.
    As far as contract term is concerned, section 302 would 
authorize agencies to extend the contract performance period 
for service contracts by one or more periods. There are no 
numerical limits on the number of such extensions. In effect, 
this would make for a potentially unlimited contract which 
really would permit service contracts to have options for an 
unlimited number of extensions, each for a period of unlimited 
duration. That is an issue I think we need to address.
    In addition, the DOD Inspector General has commented, ``The 
periodic expiration of a service contract should provide an 
occasion to spur competition and permit the Government to 
obtain a better deal or better technology than offered by the 
incumbent.''
    Now, I guess, Ms. Styles, the Competition in Contracting 
Act requires full and open competition, correct?
    Ms. Styles. Yes, that is right.
    Mr. Ruppersberger. OK. Now at the end of a contract 
performance period--generally, it is about 5 to 7 years--the 
contract is recompeted. Now do you agree that this is important 
to recompete contracts, and how long, if you do agree, should 
they be recompeted?
    Ms. Styles. Our current regulations, with the exception of 
information technology, require recompetition every 3 to 5 
years. Generally, recompetition is very important for receiving 
lower prices, making sure we get the best quality, but you also 
want some flexibility in there to be able to reward a 
contractor that is clearly meeting your expectations at a low 
cost.
    So, you know, award-term contracting is actually allowed 
under the current FAR. In many respects, this is a codification 
of what is currently allowed.
    Do we need to make sure that we are firm on recompetition 
in a certain period of time? I think so, but it is also good to 
incentivize our contractors as well.
    Mr. Ruppersberger. Well, my concern is there are no 
numerical limits on the number of such extensions. I think that 
is a concern. You know, I would think you would have an 
advantage if you have the contract and you are doing a good 
job. But if you are not, then you need to recompete, and that 
gives incentives to do the job. I am concerned with that 
section. That is one issue.
    The other, share-in-savings, the bill would authorize a 
contract type called ``share-in-savings,'' where the contractor 
agrees to bear the initial project cost, including capital 
outlays, until the client agency begins to achieve specified 
results from the work, and the payment is based on percentage 
of the savings realized by the agency.
    Now, at first look, I think that this is out of the box, 
and I am not in favor of going out of the box. I think that 
when we are trying to move ahead and be innovative, it is 
something that I think we should do. As a result, I think, of 
this type of program, which really puts a lot of the money and 
burden on the contractor, not the Government.
    I understand, after some negotiation, that there were about 
15 pilot programs that are under this program right now, but 
that these 15 programs have not really been analyzed yet, and 
the results have not come back to make sure this is where we 
want to go. Yet, this bill really opens the door for that.
    I think there is one, and I am not sure, and I went to 
visit Ft. Mead, and that is Government housing for your 
military, where the contractor puts the money up, and it seems 
to me to be extremely innovative. But the issue there is this 
contract goes way out. It could go 50 years out. Anytime you 
have something like that and you don't have accountability, an 
accountability of performance, I have some concerns. Do you 
have any comments, panel, on that share-in-savings provisions 
of the bill?
    Mr. Woods. Well, if I could----
    Mr. Ruppersberger. Yes, anybody on the panel.
    Mr. Woods [continuing]. Step out on this one, you are 
absolutely right; accountability is extremely important, and 
particularly as the contracts extend out in terms of years. You 
need to have periodic performance measures. You need to have 
people in place on the Government side to make sure that the 
contractor is delivering on what it promised to do.
    It is not enough just to award a share-in-savings contract 
or any other type of contract, for that matter, and then sit 
back and hope that you are going to get what you paid for. You 
need to have very serious surveillance plans in place.
    Mr. Ruppersberger. And that is my concern about this bill, 
that some of that is lacking.
    Finally, because I see the middle light and it is not how 
long you take to answer questions sometimes, but the 
Government-industry exchange program, again, something that I 
think, if it works the right way, but it could be certain 
people could say that it is basically the fox guarding the hen 
house sometimes.
    My concern really is not about that, if you have the checks 
and balances, but it is about losing qualified, good people. We 
have a lot of people that would go into the Government exchange 
program, and we might lose our Government employees. They are 
going to go to the private sector.
    We train them. We develop their expertise, and then they 
are gone as a result of that program. Are there any checks and 
balances that you know of that we could use to make sure that 
we protect our resources, that they don't go to the other side 
for more money--when I say, ``the other side,'' to go to 
private industry? Any comments on that? Anybody?
    Mr. Woods. Well, again, not having seen the provisions of 
the bill----
    Mr. Ruppersberger. And that is why I bring it up.
    Mr. Woods [continuing]. There could easily be requirements, 
either in the statute or implementing regulations, that would 
require the parties to come back for a certain period of time, 
essentially, to enter into a contract with their agency that 
says, ``yes, I will go to the private sector for a period of 
time, but I will agree to come back.''
    Chairman Tom Davis. Thank you. The gentleman's time has 
expired.
    Let me just make one comment. The key factor here is, if we 
have a cadre of trained professional buyers for the Government 
that are close to the customer, understand what the customer 
wants, that we give them discretion. They are trained. It will 
be transparent. They are going to have to substantiate it, but 
better that than having everything driven by the same set of 
central regulations that basically handicaps them when you have 
a good performer where you have to make a change and the like.
    You know, if there is a theory behind it, it is that we 
think that is where the savings are. It is not fraud and abuse, 
but it is waste.
    Mr. Ruppersberger. I don't object to the program. I am just 
saying the checks and balances to make sure that we don't----
    Chairman Tom Davis. That is fine, and I think, as we work 
through this, we are going to be interested in comments from 
committee members. It is a work-in-progress. This isn't a take-
it-or-leave-it proposition. I understand the concerns being 
raised, and that is why we are having a panel of a lot of 
different opinions as we come into it.
    But the fact of the matter is that we waste billions of 
dollars annually in contracting that we are taking from our 
taxpayers that don't need to be wasted, that we could be a lot 
more efficient about doing this, and we are looking at ways to 
do that. We have a panel of experts. On our next panel I think 
they are going to be talking about their experiences in this.
    I am not sure everybody has the right idea for the best way 
to correct it, but we have heard from Ms. Styles and others 
talking about some of the systematic problems in the current 
system that are costing taxpayers billions annually. That is 
what we are trying to get. I appreciate the gentleman's 
comments.
    Mr. Ruppersberger. One other thing, Mr. Chairman, if I 
could just raise this issue: Basically, it seemed to me that at 
one time it was strictly a bidding on the contract and the 
lowest bidder. In my opinion, that has caused so much 
inefficiency----
    Chairman Tom Davis. Correct.
    Mr. Ruppersberger [continuing]. Inferior product, inferior 
performance, and that is why we need different programs and to 
move forward in those programs. So I understand that. I assume 
that we have come a long way since that time.
    Chairman Tom Davis. We have, and we are trying to go a 
little further. If the gentleman would be happy to sit with 
some of our staff and Mr. Waxman's staff so he can ask 
questions, whether you want to get comfortable with provisions 
or maybe some additional amendments you would like to offer, 
but I appreciate it.
    Ms. Watson, thanks for being here.
    Ms. Watson. Thank you so much, Mr. Chairman, and thank you 
for the opportunity to have the comment from the General 
Accounting Office.
    I want to thank the GAO for raising the concerns, but I 
find you very timid. I do know we are working in an atmosphere 
where you are gagged in many ways if you are critical of what 
is going on. That is very disturbing to me in a democracy.
    I have seen things occur in the last few months that are 
appalling. I was startled when I found that the deal was 
already done and Halliburton received a contract without 
competition. In a democratic society, should that ever occur?
    At a time when we have a budget that is proposing a tax cut 
that limits the revenues, at a time when States are hurting, 
particularly mine with 35 million people, California, with a 
$35 billion deficit, with tens of thousands of people out of 
work, we have to watch every single penny. To give a contract 
without competition to a firm that we know has been connected 
to someone in this administration I think fits the definition 
of abuse.
    Now thank God for the GAO. You are supposed to raise these 
concerns. Without any connection to partisan, you raise the 
issues. I am just pleased that you have gone as far as you 
have. I don't think you are strong enough, though.
    What I am really concerned about, if these little in-house 
deals are going to be made, and this proposed bill, as I 
understand, you have not seen the provisions, am I correct? 
Just nod your head. Have you seen the provisions?
    Mr. Woods. We have all seen a detailed, section-by-section 
analysis, I believe, but----
    Ms. Watson. But have you seen the bill itself?
    Mr. Woods. The bill was just introduced yesterday, and I 
certainly have not had----
    Ms. Watson. Of course, and neither have we. So we work in 
the blind. I find it very troubling here in Congress working in 
the blind. You never see the actual wording of the bill, and, 
you know, a bill is law. Any word in that can be taken to court 
for a definition. So, you know, we are operating, Mr. Chairman, 
in the blind. We should have not the analysis, but the bill in 
front of us, so that we could really have direct and relevant 
comment.
    But, anyway, it raises great concerns to me, representing 
an area, a large urban area in Los Angeles that is suffering 
because of lack of jobs. I want any one of you that is willing 
to comment to let me know, if you know if this legislation 
includes any protections to ensure that small businesses, 
minority businesses, women-owned businesses have a realistic 
chance to participate in the Federal procurement process as a 
prime contractor.
    Small businesses are the fuel that runs the engine of our 
economy. From what I am seeing, we can expand language and 
definitions and put our friends in, and small businesses, 
minority businesses, women-owned businesses don't even try. 
This is what I am gathering from this.
    Some of the streamlining incentives and procedures I think 
end up excluding, because, you know, we can do it real quick. 
So I would like you to comment.
    The other thing, too, and this goes to Ms. Styles, do you 
see the need to start training these ``little people,'' as you 
described like that, these ``little people,'' and do you see a 
way, can you suggest to us or recommend to us a way to give 
them a broader specter of what is going on from the 
administration on down? Are we to say that the political 
appointment is the only way to go here or can we make 
professionals out of our staff? Or can we have someone employed 
in this position that is not connected up to the 
administration?
    I mean I am trying to find a way around this. What would 
you suggest?
    Ms. Styles. I think there is a lot that can and should be 
done to train our people in small business requirements and 
what small business brings to the table in terms of innovation, 
creativity, and lower cost. We have taken some steps to 
encourage agencies to reallocate resources to their Offices of 
Small and Disadvantaged Businesses, which actually include both 
political and career appointees that report to the heads of 
their agencies.
    We also think, I personally think that we have a negative 
culture toward small business within the Federal Government 
that has developed because we have a very confusing set of laws 
on the books in the small business arena. We have very 
confusing judicial interpretations. We have very confusing 
regulations. And we can train and train and train our 
Contracting Officers, and they may still not be able to 
understand whether they should prioritize a woman-owned 
business, an 8(a), an SDB, a HUB Zone, a service-disabled 
veteran, or a veteran-owned small business, because it is very 
difficult to interpret and understand.
    So I think that there is a lot that we can do, whether it 
is training, whether it is streamlining, whether it is 
simplifying a small business' entrance into the system or 
simplifying it from the perspective of a Contracting Officer, 
that they can check off one box or SBA can check off one box 
and know for all procurements that business is a small 
business, not just for this procurement and this NAICS or SIC 
code or this industry; that this person is small for all 
purposes, and that there is something that they can be 
reassured that there is some accountability, that it really is 
small and there is no question about whether it is an accurate 
certification or not.
    So I think that there is a lot that we can do, that we have 
been pushing to do, within the administration, particularly 
through the SBA, and I would say focusing in our Offices of 
Small and Disadvantaged Businesses within the agencies to 
really pursue opportunities for small businesses within their 
agencies.
    Chairman Tom Davis. Thank you. The gentlelady's time has 
expired.
    Let me just add one thing. We would be happy to work with 
you on some clarification of this. I think by expanding the 
definition of commercial entity, that opens it up to a lot of 
small businesses that right now are reluctant to change their 
accounting systems and deal with the Federal Government. But if 
the gentlelady will work with us, maybe we can put some 
language in there that could improve this.
    Ms. Watson. Mr. Chairman, may I ask you a question?
    Chairman Tom Davis. We have a vote in 5 minutes, and I want 
to try to get through all the questions before----
    Ms. Watson. OK. Just an ending question. It says that GAO 
is not making recommendations. I am wondering if you could make 
some recommendations and send them to the committee?
    Chairman Tom Davis. I have asked them to try to do that. 
That would be fine.
    Ms. Watson. Thank you. Thank you very much for your 
indulgence, Mr. Chairman.
    Chairman Tom Davis. Thank you.
    Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman. 
It seems as though whenever I sit next to the gentlewoman from 
California, her thought processes kind of rub off on me. 
[Laughter.]
    And, plus, I just left some activity dealing with small 
business.
    How do we really get small businesses more actively 
involved, if we have a policy that promotes contract bundling, 
which I think in many instances raises the bar beyond the 
ability of small businesses to participate? Do you have any----
    Ms. Styles. We don't have a policy that promotes contract 
bundling. We have been actively, at the suggestion of the 
President, pursuing efforts to unbundle contracts. We came out 
with recommendations in November, at his request. He asked my 
office to come up with recommendations to unbundle Federal 
contracts.
    We have a nine-point action plan that the General 
Accounting Office has looked at and believes is a good plan for 
moving forward. We introduced regulations on January 31st to 
address problems. We had a 60-day review period, and we are 
requiring quarterly reports on agencies for their efforts to 
unbundle contracts.
    Mr. Davis of Illinois. So we have been active? This is 
relatively new and current?
    Ms. Styles. Absolutely.
    Mr. Davis of Illinois. Because the records that we have 
been reviewing have indicated that most Government agencies are 
doing very poorly even itself with small businesses, in 
contracting with small businesses, or finding ways for small 
businesses.
    I know the ones that I interact with catch holy Hell trying 
to get some business, and they maintain that the processes do 
not really help them, but pretty much shut them out. So I am 
pleased to know that we are moving in a different direction, 
and we will look forward to the kind of progress that we make.
    Mr. Perry. Mr. Congressman, if I can answer that, add to 
that answer, at GSA, while the congressional requirement for 
the portion of business done with small businesses is 23 
percent, we at the end of last year were able to achieve 40 
percent. Under this directive, we are striving to make it 
higher.
    So unbundling is one of the aspects. But even in cases of 
contracts which are bundled or remained bundled, it is with 
special emphasis on small businesses being included.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    The bells are going off for a vote. Mr. Cooper has not had 
an opportunity yet. We will conclude with your questions and 
you can stop, and then I will dismiss this panel. We will 
recess for 15 minutes and come back and do the next panel.
    Again, thank you for being here.
    Mr. Cooper.
    Mr. Cooper. I thank the Chair and I will try to be brief.
    On the next panel, Professor Tiefer will be testifying. If 
it is according to his written testimony, he makes several 
claims here. One is that the bill is much broader than the 
title would suggest. He says that ``its diverse provisions 
outrun the stated general justifications for relaxing 
procurement safeguards.'' It is hard to accurately title a 
bill, but, still, I think that should raise concern to Members, 
that we know the broad reach of the legislation.
    Second, and much more alarming, he says, ``The rationale of 
giving out incentives to favored contractors without 
alternative disciplines for procurement risks just produces a 
Christmas tree of procurement giveaways.'' I don't think 
anybody on this panel on either side of the aisle is interested 
in legislation that could backfire to that extent.
    I see the chairman looking with some amusement. I assume 
that you----
    Chairman Tom Davis. Well, the gentleman has opposed every 
reform measure that has come down through here. So he wants to 
go backward, not forward, but we will get them in the next 
panel.
    Mr. Cooper. We will let the gentleman speak for himself.
    It is particularly alarming because I am a business 
Democrat, and I think competition built America. This gentleman 
is claiming that under this legislation formal competition to 
provide Government services could become an endangered species.
    He is particularly worried that, when you couple this 
legislation with the new and revised version of A-76, that it 
will have a tendency, ``of the new A-76 toward contracting out 
for contractor's sake rather than for the public interest. 
Provisions like this could extend contract terms to create 
contractors for life.''
    Surely, that would be an unintended consequence of this 
legislation, but contractors are hardy folks, and if there is a 
way for them to get a contract for life, that is a pretty good 
deal.
    I would like to ask this panel, have you looked at the 
downside of this legislation sufficiently--and I know you 
haven't been given a detailed copy of it--so that you could 
comment on the professor's concerns here? Because if true, 
these are pretty serious allegations.
    Ms. Styles. I certainly, from my review of what I have seen 
so far, don't see how you would be creating a contract for life 
for anyone. I think, you know, we will all----
    Mr. Cooper. Should there be a numerical limit on contract 
extensions?
    Ms. Styles. We have them in regulation right now. Quite 
frankly, the award-term provisions in my understanding of them, 
and I don't have the text in front of me, is that it codifies 
existing flexibilities. So I think the dangers may be 
overrated.
    Mr. Cooper. It is my understanding there are not any 
numerical limits on contract extensions, and already many 
billions of contracts are not competed out. Whether it is 
Halliburton or somebody else, I think that should raise red 
flags, shouldn't it? The American way is competition, healthy 
and hardy competition.
    Ms. Styles. Absolutely, and I think that we should always 
be promoting competition, but you also have to recognize that 
at times----
    Mr. Cooper. Except for Halliburton.
    Ms. Styles [continuing]. We are going to be able to get a 
better value for the taxpayer if we award good-performing 
contractors at a low cost for what they are doing, just like 
the private sector does. So I think we have to have some 
flexibility here.
    Mr. Cooper. Flexibility with competition in as many cases 
as possible?
    Ms. Styles. Absolutely, absolutely. Absolutely.
    Mr. Cooper. Any other panelists have a comment?
    Mr. Perry. Well, I would just add that I think in all of 
these cases we will have to put some emphasis on having 
processes or procedures that are correct and that are 
appropriate, but also some of what we are discussing is good 
execution. In other words, if we don't have good execution, we 
can have a very limiting or very open process, and without good 
execution, it doesn't work.
    I think some of the challenges that we will face in making 
all this successful is to focus on good execution and not try 
to make the process so proscriptive, such that we eliminate all 
the flexibility, but at the same time manage that flexibility 
with good execution. I think some of our difficulties will be 
resolved by good execution.
    Mr. Woods. If I could just add a couple of points?
    Mr. Cooper. Yes, please.
    Mr. Woods. One is on the competition issue that you raised. 
I would refer you to our report that analyzes the extent of 
competition at the 10 major agencies.
    But, second, what we are trying to achieve across the board 
with a number of these provisions and other initiatives is to 
try to come up with incentives for good contract performance.
    Chairman Tom Davis. Could the gentleman speak into the mic?
    Mr. Woods. Oh, I'm sorry.
    Chairman Tom Davis. It is hard to hear you.
    Mr. Woods. We are trying to come up with incentives for 
solid contract performance across the board in order to enhance 
the value that the taxpayer gets for contract dollars. There is 
a number of ways to do that, and two are on the table right 
now. Periodic competition is certainly a good way to enhance 
contractor performance. But another way perhaps would be to 
provide the possibility for award-term contracts for good 
performance. That is what I think this bill is trying to 
accomplish.
    Chairman Tom Davis. Let me thank the gentleman for his 
questions. Let me also refer you to the testimony of Dr. 
Kelman, who is a Harvard professor----
    Mr. Cooper. I read that, too.
    Chairman Tom Davis [continuing]. And the Clinton 
administration's procurement czar, who is at Harvard today and 
could not be down here. He takes a somewhat different view as 
well.
    There are a lot of views in here. We try to hear from 
everybody and then put it together. I appreciate a lot of the 
comments that Members are making, and, of course, we will take 
this into account as we go into markup.
    So we have a vote on the floor right now and----
    Mr. Waxman. Mr. Chairman.
    Chairman Tom Davis. Yes?
    Mr. Waxman. Before we break----
    Chairman Tom Davis. Yes, Mr. Waxman.
    Mr. Waxman. I know Ms. Styles said that the administration 
hasn't had an opportunity to offer proposed changes, but now 
that there is actually a bill that has been introduced within 
the last 24 hours, you will have a chance to do that, and maybe 
the other two members of the panel----
    Chairman Tom Davis. I invite all the panel members to 
address the specifics.
    Mr. Waxman. Yes, the problem we have, of course, is that we 
originally were going to go to a markup tomorrow, which is a 
very short period of time. I think we may have a little bit 
more time than that, but I would request that we get some 
further input from the three of you, now that you can look at 
the details of the legislation, not simply a summary or a 
discussion with the staff, so that we can have the full benefit 
of your input.
    Chairman Tom Davis. Thank you. Let me just add, 90 percent 
of this bill everybody has seen before and we have held 
hearings on, and I think they can address that in short order, 
so you can have their comments, and I appreciate it.
    Let me say to the panel, thank you very much for being with 
us. I think this has been very, very helpful. I will dismiss 
you at this point.
    I will recess the meeting. We will come back for our next 
panel in about 15 minutes. Thank you.
    [Recess.]
    Chairman Tom Davis. Thank you all for bearing with us.
    We have on this panel Professor Charles Tiefer of the 
University of Baltimore; Bruce Leinster, chairman of the 
Information Technology Association of America's Procurement 
Policy Committee; Mark Wagner, vice president of Government 
Affairs, Johnson Controls, testifying on behalf of the Contract 
Services Association, and Ted Legasey, the executive VP/chief 
operating officer of SRA International, a northern Virginia 
company.
    It is the policy of this committee that we swear all 
witnesses in. So if you would rise with me?
    [Witnesses sworn.]
    Chairman Tom Davis. Thank you.
    Why don't you start, Professor Tiefer? We will start with 
you and move right on down.
    Again, the rules are 5 minutes. We have your total 
statement in the record. You can see Members have read this. 
When it turns orange, you have a minute to sum up. When it is 
red, your time is up. Thank you very much.

 STATEMENTS OF CHARLES TIEFER, PROFESSOR OF LAW, UNIVERSITY OF 
  BALTIMORE; BRUCE LEINSTER, CHAIRMAN, INFORMATION TECHNOLOGY 
    ASSOCIATION OF AMERICA'S PROCUREMENT POLICY COMMITTEE, 
TESTIFYING ON BEHALF OF THE INFORMATION TECHNOLOGY ASSOCIATION 
   OF AMERICA; MARK F. WAGNER, VICE PRESIDENT OF GOVERNMENT 
AFFAIRS, JOHNSON CONTROLS, TESTIFYING ON BEHALF OF THE CONTRACT 
SERVICES ADMINISTRATION; AND EDWARD E. LEGASEY, EXECUTIVE VICE 
   PRESIDENT AND CHIEF EXECUTIVE OFFICER, SRA INTERNATIONAL, 
   TESTIFYING ON BEHALF OF THE PROFESSIONAL SERVICES COUNCIL

    Mr. Tiefer. Thank you, Mr. Chairman. I am professor of 
government contracts at the University of Baltimore Law School.
    My overall view of the statute, of the proposed SARA bill, 
is that in a situation we have now, where out of the total of 
procurement $123 billion is not being competed fully each year 
and one-third of the total procurement is being sole-sourced, 
we need to be cautious about a series of provisions that are 
primarily incentives. They are not primarily provisions in this 
bill which have an alternative discipline which say we can 
relax competition because we have some other discipline that 
will take its place. We have gone in this bill far in the 
direction of having incentives without disciplines.
    Actually, rather than adhere to the format of my written 
testimony, I was struck by the number of points on which the 
administration and myself have the same criticisms of these 
provisions. I will just go through several of those items in 
the bill because the administration has a way of speaking less 
than expressly, even though their point is quite clear.
    With respect to the share-in-savings provision, section 
301, I read the administration's testimony as that they are 
opposed to any expansions of share-in-savings authority, the 
reason being that the Congress just gave a hefty proposed SIS 
provision for information technology. We have had no chance to 
see how it is going to go. Why rush ahead with a provision that 
basically authorizes backdoor spending until we have seen it? 
So the administration is critical; I join them.
    With respect to section 502, the so-called emergency 
flexibility provisions, which were permanent for the Department 
of Homeland Security, but which are only 1 year in duration 
under current law, the administration, Ms. Styles said that 
they should remain subject to an appropriate sunset date. They 
have a 1-year sunset under current law. The proposal in the 
SARA legislation is to make them permanent, and I agree with 
the administration; they should remain subject to an 
appropriate sunset date.
    The danger is that you would be surprised at how much comes 
under the very loose statements of what that could cover, since 
it is governmentwide. I see no reason that Halliburton's 
contract could not come under that because Halliburton is part 
of a response to an Iraq situation, which could fit under the 
definition of 502. So we could have a complete relaxation of 
all procurement safeguards, which is the way 502 works, 
permanently, wherever they can be dragged under a very broad 
definition throughout the Government.
    Section 404, the commercial entities provision, the 
administration's objection is that they are, ``unable to find 
any meaningful protections for the taxpayer,'' in this, the 
reason being that if you have an entity that sells, like 
General Electric, light bulbs commercially, but then sells 
items that are utterly uncommercial, that are defense-only, 
that are sole-sourced, if they can fit under 404, they get to 
walk away from all the restrictions that the Government puts in 
as safeguards.
    To speak promptly about the last pair of provisions, 
section 404, which says that commercial treatment can be given 
to contracts as long as they are in performance-based terms, 
this has no dollar ceiling on it. This can be a billion-dollar 
services contract which aims the requirement that it be sold 
and it applies even if the materials are not sold widely in the 
commercial market. This, too, is something that cost-type 
contracts are not clearly excluded from this, as they should 
be.
    And, last, with respect to section 402, the time-and-
materials provisions, I see no reason why--this is where the 
administration pointed out that the DOD IG has found a 
sevenfold cost overrun under such contracts. I see no reason 
why Bechtel couldn't change its fixed-price construction 
contracts to become time-and-materials under this provision.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Tiefer follows:]
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    Chairman Tom Davis. Go ahead. Mr. Leinster, thanks for 
being here.
    Mr. Leinster. Mr. Chairman and members of the committee, I 
am Bruce Leinster, director of contracts and negotiations of 
IBM's Global Government-Industry Group, I guess effectively 
IBM's chief procurement executive.
    Thank you for inviting me today to testify on behalf of the 
450 corporate members of the Information Technology Association 
of America. I am here in my capacity as chairman of ITAA's 
Procurement Policy Committee.
    As you know, many of ITAA's member firms provide computer 
software and services to the Federal Government, and it is with 
great pleasure that I represent ITAA this morning.
    IBM has worked with the U.S. Federal Government for more 
than 90 years. IBM provides e-government solutions to a host of 
agencies, including civilian, defense, and homeland security.
    For over two decades, ITAA has been very active on issues 
and legislation pertaining to Government procurement of 
information technology. Additionally, our Procurement Policy 
Committee worked with your staff to recommend some of the 
provisions contained in the legislation, which was introduced 
this week.
    For these reasons, we are especially pleased to be able to 
testify in strong support of the Services Acquisition Reform 
Act [SARA]. We supported the bill when it was introduced in the 
last Congress and continue our enthusiastic support for this 
important legislation.
    We live in interesting times, Mr. Chairman. Our Nation 
remains under the threat of terrorist forces that seek to 
destroy our way of life. When ITAA last testified in support of 
SARA in March 2002, the creation of the new Homeland Security 
Department was just being discussed.
    Now that it is up and running, we believe that it and other 
civilian agencies and the Department of Defense need now, more 
than ever, to have quick, efficient access to IT solutions to 
address the critical missions now facing them. In this regard, 
steps that the Government takes in service acquisition reform 
should be undertaken so as to build public confidence, improve 
the delivery of critical Government services, and raise the 
level of agency performance and interagency cooperation across 
the board.
    The Services Acquisition Reform Act is a very comprehensive 
bill and covers a wide range of subjects. Therefore, ITAA will 
not be able to comment on all of its provisions in this 
statement, but we are supportive of the entire bill.
    I would like to begin by focusing on what we believe are 
the key provisions within SARA that are most critical to the 
meaningful services acquisition reform from our members' 
perspective.
    The first would be the definition of commercial services. 
ITAA has been advocating this change ever since the enactment 
of the Clinger-Cohen Act. As you know, commercial items may be 
purchased through streamlined acquisition procedures because 
their availability in the marketplace provides buying agencies 
an incontrovertible reference to quality and competitive price, 
assuring that these agencies receive the best value for their 
purchases.
    Unfortunately, the definition of commercial services was 
intended to be the same as commercial items when Clinger-Cohen 
was passed by Congress, because commercial services and items 
share the same policy rationale, justifying streamlined 
acquisition procedures. Unfortunately, the definition of 
commercial services was altered slightly, but significantly 
enough that IT companies may have difficulty in meeting the 
definition when selling a service to the Federal Government.
    In many cases, services failing to meet the definition are 
not exempt from the onerous cost accounting standard 
provisions. ITAA believes that the changes in SARA would give 
commercial services acquisition parity with commercial 
products, a key distinction.
    The next issue is the authorization of additional 
commercial contracts. ITAA is delighted to support this 
provision in SARA. We strongly believe that this provision will 
clarify one of the most troubling problems that has faced the 
IT services industry since FAR Part 12 was amended.
    There seems to be a perception among many in the Federal 
sector that time-and-materials contracts are not commonly used 
in the commercial sector. In the case of my own company, IBM, I 
can testify that not to be the case. ITAA has polled its 
commercial companies, and we have found overwhelming evidence 
that T&M contracts are commonly used in the commercial sector 
along with fixed-price vehicles. They both play an appropriate 
role in the commercial marketplace, and this provision would 
provide badly needed clarification of the role of T&M contracts 
in the Federal sector. This relief cannot come soon enough.
    Agency acquisition protests: ITAA was one of the 
associations recommending this addition to SARA, since we 
believe that this technical change will act to reduce Federal 
protests. Currently, when a company objects to a contract 
award, it has the option to file an informal protest with the 
contracting agency or a formal protest; for instance, before an 
administrative forum like the General Accounting Office.
    Under current law, in order to obtain a stay of procurement 
activity, and, thus, retain meaningful relief, should it be 
determined that the initial contract award was improper--a 
company must file a protest within 10 days of contract award. 
This requirement creates a problem. Even though a company may 
wish to work informally with this agency customer, the reality 
is that, if the agency does not answer the company within the 
10-day post-award period, such a company is compelled to file a 
GAO protest to stay the procurement. SARA's technical 
correction will allow companies and agencies to work out 
misunderstandings regarding this inconsistency.
    Finally, Mr. Chairman, ITAA is disappointed that the co-
sponsors of SARA could not accept a change to the law regarding 
the Trade Agreements Act, which was included in last Congress' 
version of this bill. ITAA has long advocated reform in this 
area.
    TAA is a complex provision that is little understood by 
many in both industry and Government, but it results in 
onerous, elaborate, Government-unique tracking, monitoring, and 
risk for vendors. It also imposes a serious restriction on 
products available to Federal agencies.
    The significant administrative burden and cost imposed on 
IT contractors is unlike any that they confront in the 
commercial marketplace. We understand that the purpose of the 
Trade Agreements Act is to encourage countries to sign the GATT 
Treaty by precluding Federal agencies from purchasing products 
made in non-signatory countries. There is no evidence, however, 
that the act has compelled more countries to sign, nor has it 
persuaded companies to relocate their manufacturing sites.
    TAA does, however, deny to the Federal Government the 
widest array of products available because vendors are 
reluctant to establish such monitoring systems separate from 
their commercial businesses. For this reason, ITAA hopes that 
the sponsors of SARA will reconsider their decision to remain 
silent on this issue and to permit an IT exemption from the 
TAA.
    Thank you.
    [The prepared statement of Mr. Leinster follows:]
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    Chairman Tom Davis. Thank you very much.
    Mr. Wagner, next, please.
    Mr. Wagner. Thank you, Mr. Chairman, Mr. Waxman, members of 
the committee. My name is Mark Wagner. I am with Johnson 
Controls, and I am here today on behalf of the Contract 
Services Association of America, representing a wide range of 
over 400 companies providing services to the Federal 
Government.
    We are very pleased that you have recognized the need for 
and have introduced SARA. In fact, last night at dinner, when I 
was explaining to my 14-year-old daughter what I was going to 
be doing today, she was very impressed that you named the bill 
after her, and, trust me, it is tough for a father to impress 
their 14-year-old. [Laughter.]
    Chairman Tom Davis. Well, we do anything to get support. 
[Laughter.]
    Mr. Wagner. I appreciate it. Thank you.
    In all seriousness, Mr. Chairman, in your letter of 
invitation you asked several questions, and let me try to 
answer those specifically.
    First, you asked whether the various provisions of SARA 
would help the Government address the lack of adequately 
trained personnel and procurement professionals. Absolutely. 
Training and education of the work force is a vital component 
of the reform process, and your bill provides an innovative 
method of funding for training and is a necessary and positive 
step toward ensuring the acquisition work force has the proper 
tools to implement service acquisition reform, particularly 
with regard to performance-based service acquisition, which 
holds great promise to reduce costs while increasing service 
and quality. But properly implementing performance-based 
contracting is not easy, and acquisition work force training is 
essential to its success.
    Also, we support the SARA provisions that would authorize 
the development and utilization of a personnel exchange program 
between the Government and the private sector to promote a 
better understanding of, and an appreciation for, acquisition 
issues confronting both parties.
    Your second question was whether the provisions of title 
II, including the establishment of a Chief Acquisition Officer, 
will improve the Government's acquisition management function. 
The establishment of a new CAO would help ensure that 
acquisition activities are properly managed at civilian 
agencies, and such a position can ensure the proper monitoring 
of acquisition policies, activities, and evaluate them on 
performance measurements. It would also focus attention and 
establish accountability for the acquisition of services.
    Third, you asked if it was constructive to again undertake 
a review of the regulatory and statutory process surrounding 
acquisition to determine what barriers exist to reform. 
Absolutely. Such a review has not occurred since the monumental 
report on the Acquisition Law Advisory Panel, which was the 
basis for the 1994 Acquisition Streamlining Act.
    Periodically, reviewing our laws and statutes is necessary 
to ensure what we have on the books contributes to a 
streamlined and effective process that allows the Government to 
take advantage of commercial practices while at the same time 
and, most important, protecting the interests of the U.S. 
taxpayers.
    With regard to performance-based contracting, you asked if 
the preference for the use of these contracts establishes a 
needed incentive to significantly increase their use 
governmentwide. The answer is, most certainly. The SARA 
provisions for performance-based acquisition should go a long 
way in increasing their use throughout the Government.
    Authorizing extension options will leverage the benefit of 
performance-based contracts. Treating certain performance-based 
contracts as contracts for commercial items will help encourage 
their use and increase competition, and establishing a Center 
of Excellence for service contracting will identify the best 
practices to help enhance the use of performance-based 
contracting.
    Your last question was whether the other provisions in 
title IV of SARA, including those regarding the use of time-
and-materials contracts, will increase leverage to the 
commercial marketplace. Again, the answer is yes. The bill 
would expand the availability of contract types by use of 
Federal agencies acquiring commercial items, including 
standard, commercial-type contracts such as T&M or labor-hour 
contracts. In the commercial marketplace, services are 
regularly acquired on a fixed rate per hour or day because the 
method is flexible and predictable.
    There are several other provisions worth noting. Improving 
payment efficiencies for service contractors is a win/win for 
both the Government and private sector contractors. It will 
save money for the Government because contractors will have 
less carrying costs that would otherwise be passed on to the 
Government.
    In this electronic age, we should be able to provide 
electronic invoices and be paid electronically, ``as soon as 
possible.'' Too often payments are held until the end of the 
30-day period allowed by the Prompt Payment Act, even though 
they could be paid sooner. Small businesses, in particular, 
will benefit greatly from this SARA provision which will ease 
cash-flow problems and help companies, particularly those small 
ones, meet their payroll.
    Mr. Chairman, in closing, let me commend you and the 
members of the committee and your staff for your commitment to 
improve service contracting for the Federal Government by 
working to pass this important piece of legislation. I will be 
happy to answer any of your questions.
    [The prepared statement of Mr. Wagner follows:]
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    Chairman Tom Davis. Thank you much.
    Ted, thanks for being with us.
    Mr. Legasey. Mr. Chairman, members of the committee, my 
name is Ted Legasey, and I am the executive vice president and 
chief operating officer of SRA International. SRA is an 
information technology company. We have been in business for 25 
years. We have about 2,500 people serving virtually all the 
agencies of the Federal Government.
    I have been with the company since there were just two of 
us 25 years ago, and I have watched not only the evolution of 
our company, but also the evolution of this industry as it has 
grown to be a partner with Government.
    I also serve as the vice chairman of the Professional 
Services Council, which is the leading national trade 
association representing the professional technical services 
industry doing business with the Federal Government.
    I appreciate the opportunity to testify this morning on 
behalf of PSC and its more than 145 member companies. These 
companies perform the full range of services to every agency of 
the Federal Government, from IT projects to engineering, 
consulting, scientific, and environmental services.
    I want to express our appreciation to Chairman Davis for 
his continued leadership on the full range of critical issues 
related to Government management and procurement, and in 
particular, his leadership on initiatives to enhance the 
partnership between Government and the private sector.
    As I have seen the relationship of the private sector and 
Government evolve over the last 25 years, it is clear to me 
that the partnership model that we have now is a whole lot 
better way to do business and to ensure that we really get the 
mission of Government accomplished, and is best for the 
citizen, in the most effective and economical way possible.
    The passage of the Services Acquisition Reform Act, also 
referred to as SARA, will be an important and timely initiative 
that will enhance and strengthen that critical partnership. PSC 
strongly supports SARA and is committed to working closely with 
the committee throughout the legislative process.
    We believe that SARA appropriately focuses on the three 
critical pillars of acquisition and management. That is people, 
structure, and process.
    First, let me talk about people. In services businesses 
such as I have been in for many, many years, people are, our 
most important asset. Indeed, at SRA we believe a key reason 
that we have been selected as one of the 100 best companies to 
work for in America for the last 4 years in a row is because 
one of our core values is caring about our people. People 
really are the most important thing we have.
    The same should be true for the Federal work force. Our 
focus on people is one of the hallmarks of our industry and one 
of the reasons that PSC has been a strong, vocal advocate for a 
well-trained, well compensated Federal acquisition work force.
    We are really pleased to see that SARA includes several 
provisions that address the key human capital issues for the 
Federal acquisition work force. A well-educated work force has 
to be there to be effective in today's environment. Things are 
changing so fast, the way in which rules and regulations are 
changing, the way in which new systems and techniques are 
coming into play, it is really in the best interest of 
Government and industry for these people to really be trained 
as fully as possible.
    While we prefer to see funds for this training be provided 
through direct appropriations, as a practical matter, the funds 
for those things would never survive the budget process. 
Despite the good intentions of many, it simply doesn't happen. 
This is a fact which we get reiterated repeatedly in a survey 
of senior procurement executives that PSC has conducted, and we 
are providing a copy of that survey for the committee's use.
    The second point focuses on the most appropriate structure 
for managing the growing responsibilities placed on the Federal 
acquisition system. The bill creates in each agency a Chief 
Acquisition Officer. It has been mentioned several times today 
that the Federal Government procures well over $200 billion 
worth of goods and services. The magnitude of this spending 
deserves the full attention and commitment of key leadership in 
each department and agency.
    At PSC, we have worked successfully with senior procurement 
executives in virtually all the Federal agencies. They are 
dedicated people who have a passion for their work and a strong 
professional commitment to the execution of their agency's 
missions. In some cases, these individuals have the power to 
lead their organizations. Unfortunately, in many cases they 
simply do not, and the CAO provision seeks to address that.
    Almost three decades ago, the Congress created the Office 
of Federal Procurement Policy. More than a decade ago, the 
Congress created a position of Under Secretary of Defense for 
Acquisition and made that individual the third-ranking civilian 
in the Department's hierarchy. He or she has a seat at the 
table. Such a position is no less important in the other 
agencies.
    Third, I would like to say a few words about process. We 
have talked a lot about performance-based contracting and T&M 
contracts. These are good things if implemented properly. Sure, 
there are reasons that excesses can take place, but the 
procurement of services as a commercial item on time-and-
materials contracts, as my colleague from IBM indicated, is a 
very common practice in the commercial world.
    There is no reason why, without the right controls in 
place, that this can't be a very powerful thing in Government. 
We need to make sure that we have really good companies coming 
into our industry, and these provisions will ensure that we 
have that taking place.
    The last point I would like to mention is that it is also 
time to begin a serious discussion about the ways in which 
Government behaviors as a buyer drives and shapes the market 
for services. Today you see a number of procurement practices 
that, if left unchecked and unaddressed, could result over the 
long term in a market that is not as diverse and competitive as 
it is today.
    As a practical matter, the market is not a bunch of little 
companies and a bunch of big companies. It is a broad spectrum 
of companies that form this industry, and we need to recognize 
that in all the practices that we follow.
    The bottom line is that the Government is best served by a 
robust, diverse, and balanced technology services marketplace. 
The Government plays an important role in shaping that 
marketplace. SARA will help play an important role in helping 
to ensure that marketplace is healthy.
    Thank you for the opportunity to testify today, and I would 
be pleased to answer any questions that you may have.
    [Note.--The Professional Services Council publication 
entitled, ``PSC Procurement Policy Survey, Navigating a 
Changing Landscape towards Acquisition Excellence,'' may be 
found in committee files.]
    [The prepared statement of Mr. Legasey follows:]
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    Chairman Tom Davis. Thank you very much. I don't know where 
to begin, but, Mr. Tiefer, let me just start with you.
    You don't have any evidence that the White House played a 
role in the Bechtel--what you call the ``sweetener of 
indemnification'' or the Halliburton contract, do you?
    Mr. Tiefer. Oh, on the contrary, my understanding is that 
the sweetener of indemnification which was given in the Bechtel 
contracting cannot be given out without White House approval, 
and I saw repeated references, not from me but in the press, 
that it had obtained White House approval.
    Chairman Tom Davis. What about Halliburton? Any evidence 
the White House was involved with Halliburton? Or the URS 
Corp., which is Ms. Feinstein's husband's company? I mean, I 
think this stuff--what we are trying to get away from is no 
political involvement. We want trained professionals out there 
in the front line, career, professional Contracting Officers in 
touch with the customers, know what the customers want, which 
is sometimes a huge problem in this business, going out, being 
able to communicate what they want, and then getting the right 
contractual vehicle and getting the best deal for the 
Government, the career professionals.
    I think it is a philosophical question sometimes whether 
you trust trained, professional Federal employees if you train 
them to do this job or if you want everything written with 
centralized regulations that strap them, so that not only is it 
inefficient, but the procedures drive the outcome.
    We have seen so much waste under that procedure, and that 
is the concern in bringing this up, not to give the White House 
or politicians or political appointees control. There has been 
a lot of stuff, not by you, Mr. Tiefer, but members here that 
seems to be a misunderstanding of what we are trying to do.
    And there are philosophical differences over the best way 
to approach this, but let me ask you this: Our training fund, I 
thought at least under the training fund that we set up that I 
would get you to support that one, and you did compliment me 
for dropping some language you consider to be on Davis-Bacon 
and stuff like that. And that is the political realities; if it 
were up to me, I would have kept it in, but we weren't going to 
get it passed with that.
    But the SARA provision that provides for a work force 
training fund, this is a fund that you can't knock out in the 
appropriations process, but when the agency's budget is cut, 
they don't go to cut training and travel and the kind of things 
that they usually do, so that we don't have officers that 
understand the latest techniques and the latest technologies.
    And your objections--and I may be misreading it; I want to 
give you a chance to clarify it--but is your objection based on 
your view that private firms might do some of the training?
    Mr. Tiefer. I am going to plead guilty here. I don't wish 
to come down hard on the training fund concept.
    Chairman Tom Davis. OK, phew. [Laughter.]
    You can say that loud. I just want to get it. [Laughter.]
    Mr. Tiefer. As a law professor, I naturally would like to 
see a little bit more emphasis on certain areas of training 
that are not expressly recognized in that provision. But I wish 
I could shed this negative image and this would be a good place 
to start. [Laughter.]
    Chairman Tom Davis. Well, a journey of 1,000 miles begins 
with the first step.
    Let me ask you this: You seem to take the view that the 
expansion of the commercial acquisition provisions to services 
is somehow anticompetitive. Do you have any evidence that the 
establishment of the commercial procedures that was primarily 
for products in the Federal Acquisition Streamlining Act and 
Clinger-Cohen reduced competition? Because that would be the 
appropriate analogy, it seems to me.
    Mr. Tiefer. I stand with Angela Styles for the 
administration when she said, with respect to that provision, 
that if you are going to do something that makes services more 
readily treatable as commercial, she said, ``I would further 
recommend that the committee retain current requirements for 
competitive sales in substantial quantities.'' It is the 
dropping of the quantities of sales in the commercial market 
that creates a risk because----
    Chairman Tom Davis. Well, it is a risk because you don't 
have the data, basically, in terms of forming the price. Isn't 
that the problem?
    Mr. Tiefer. It is not just data. It is susceptible to abuse 
because, if there are not, as Ms. Styles--the reason I read 
that she correctly says you should retain a requirement for 
substantial quantities is that anybody can offer anything. I 
could offer anything. But unless someone is buying it from me 
in substantial quantities, it could be a shell game in which 
what I am doing is saying, look, I offer to the commercial 
market the following service: repairing war planes. So since I 
am offering repairing war planes in the commercial market, but 
of course no one buys it from me, so I am offering it, but it 
is not being borne in substantial quantities. I then take a 
walk from all the safeguards.
    Chairman Tom Davis. Well, not necessarily. I mean, again, 
the key here transparency. The Contracting Officer has to make 
the case, has to have the data. If it is not there, as it 
wouldn't be, I think, in the case that you have talked here, it 
would not apply.
    But, look, we are dealing with human beings. Contracting 
Officers are human beings, and I think we need to understand 
that they are going to make mistakes once in a while. But the 
theory here is that somehow, by allowing to take the shackles 
off them and allow, giving them enough contracting vehicles, 
enough training, getting them in touch with the customers, 
things that, frankly, they don't have now and that are costing 
the Government a lot of money, not through fraud or abuse, but 
by waste, that we would put up with the mistakes that human 
beings make occasionally on these to get more streamlined 
savings.
    You have to trust your Federal employees to do that, but we 
gave a great cadre if people I see out there that are dying to 
learn the latest technical innovations, to learn the latest 
procedures, if we just give them a chance, and yet we cut the 
budgets for training. I mean, that is the theory.
    I understand--we have gone back and forth. I have read the 
history of Government contracts, how we go back and forth 
between putting the shackles and the handcuffs on these people, 
so that nobody makes a buck or steals a dollar, but they can't 
do much of anything else either. And it is a question of 
finding the right balance.
    So your testimony is helpful, and I think we need to factor 
all of these in. I have one other question for you.
    We talked about these long-term contracts, and you note 
that nothing in the provision limits the duration; that this is 
where we authorize agencies to include options in service 
contracts based on exceptional performance, something that 
would have to be detailed, taken upstairs, reviewed by--not 
politicians, not political appointees--by career professionals 
that are trying to get the job done.
    And under those exceptional areas, we will allow options in 
service based on that performance. The provision is neutral. It 
is the duration. So it operates under any current limits there 
are in the length of service contracts.
    But can you give us a view on what might be an appropriate 
limit? Because I think we can agree there may be exceptional 
types where someone has earned an option, and it is not worth 
the time and trouble and expense to go out and bid it out maybe 
for a short period, because someone is performing well; you are 
getting your money's worth, and there is an agreement on that.
    Could you suggest a duration period? Because I am not 
adverse to putting a duration period in this legislation. I 
want it to be reasonable. I certainly don't want to leave 
everybody with the impression that we have cut a sweetheart 
deal for Halliburton and we want this thing to continue for 100 
years.
    Mr. Tiefer. It would have to be less than 10 years for the 
period, and I might couple that. I might couple that because, 
as Ms. Styles correctly emphasized, it is also important that 
at the end of whatever period there is that there be full and 
open competition. The danger is, if we extend, if we take a 
contractor who under current regulations really shouldn't be 
getting that contract for longer than 3 to 5 years, and we say 
you can extend 5 years and another 5 years, which, as I say, 10 
years might be a reasonable number, we need a guarantee that at 
the end of that 10 years there is full and open competition, 
because, otherwise, the longer a contractor has a particular 
piece of work, the more entrenched they get. The more that what 
starts out as----
    Chairman Tom Davis. They lose innovation. You get no 
argument from me on that. I mean I don't think we disagree on 
that.
    The question--and public policy is tough. You can take all 
your theories and stuff, but it doesn't always work out in the 
process. So, no, I think it is a constructive suggestion. I 
want you to know I am listening to you, and I was just trying 
to find out, you know, where that might come down.
    If I can have just a couple more questions and then we will 
move on? I am a little over my 5, but I want to just try to get 
through this.
    Mr. Leinster, many worry that expanding the definition of 
commercial items will bring more products and services outside 
the traditional scrutiny of the Federal oversight provisions 
and that it will undermine the benefits of competition. How do 
you respond to that?
    Mr. Leinster. Well, I guess my initial response would be to 
say that I think it will enhance and increase competition 
because so many companies, particularly the smaller companies 
you mentioned this morning, are reluctant to get into the 
Federal arena because of the onerous provisions----
    Chairman Tom Davis. Regulations?
    Mr. Leinster [continuing]. Regulations that they face. So I 
think it will greatly enhance competition, which, by the way, I 
do not think is lacking in the first place.
    Second, as for scrutiny, I don't think changing definitions 
or using different contract types is in any way going to reduce 
scrutiny. Contracting Officers still have the responsibility to 
determine that prices offered are fair and reasonable, and 
there are ways to do that when you are dealing with commercial 
items and commercial services that can be short of imposing 
these God-awful provisions of the cost accounting standards 
and/or TINA, for that matter.
    Chairman Tom Davis. Do you think the Government is 
disadvantaged in its ability to acquire the most leading-edge 
technologies by the domestic source restrictions under the 
Trade Agreements Act?
    Mr. Leinster. Oh, absolutely.
    Chairman Tom Davis. I take it from your statement?
    Mr. Leinster. Yes, absolutely.
    Chairman Tom Davis. Mr. Wagner and Mr. Legasey, do you have 
a comment on that? Then I will ask Mr. Tiefer as well. The 
Trade Agreements Act, the domestic source restrictions there, 
do you think that limits our ability to get the best deal many 
times and the best technologies, the lowest price?
    Mr. Wagner. No, I agree, and I also agree with what Bruce 
was saying with regard to the commercial-like contracts side. 
It increases competition. At the end of the day if you have 
encouraged competition all across the board and invited new 
companies in, I mean I don't know of too many other better ways 
to find out whether the Government got the best deal and had 
vigorous competition out there.
    Chairman Tom Davis. Yes. In fact, what keeps the big 
companies out isn't the accounting systems and those 
regulations. What keeps them out sometimes are the IT 
provisions or the liability provisions that they are not 
comfortable with.
    Mr. Wagner. Yes.
    Chairman Tom Davis. But the regulatory provisions are what 
keep a lot of small companies from getting involved and 
changing their whole accounting system or their whole lines of 
production, it has been my experience, having worked in the 
business for 20 years before I came here.
    Mr. Legasey. I would agree also, and as somebody who 
started out as one of two people in the business, I have had a 
lot of people over the years come to me and ask me about how do 
you get into this business and how you get started. It is just 
daunting if you really don't have an understanding of that.
    So any way in which we can ease the avenues by which 
responsible small businesses can participate, without having to 
go through the gauntlet of becoming CAS-qualified and all these 
things before they can begin to deliver services and products, 
is a healthy thing.
    As a practical matter, this is a very competitive 
marketplace. I am sitting here trying to figure out where all 
this stuff that goes up without any competition is, and I 
figure I have missed the mark for 25 years. [Laughter.]
    I haven't seen this stuff. I mean it just doesn't exist in 
the part of the industry that we are a part of.
    Chairman Tom Davis. Yes, and I can assure you they didn't 
write the bill, either, those people, because I haven't talked 
to them, either.
    And I remember when SRA started.
    Mr. Legasey. Thank you, sir.
    Chairman Tom Davis. I was at a young company called Adtech 
then and met with your CAO. We just talked about some ideas. 
How large are you now?
    Mr. Legasey. We are 2,500 people.
    Chairman Tom Davis. Thank you. How many of them in northern 
Virginia?
    Mr. Legasey. Most in northern Virginia, sir. [Laughter.]
    Chairman Tom Davis. OK. Let me just ask Mr. Tiefer----
    Mr. Legasey. But some in California. [Laughter.]
    Chairman Tom Davis. And you are looking at that Baltimore 
office, aren't you? [Laughter.]
    Mr. Legasey. We actually have a Baltimore office. 
[Laughter.]
    Mr. Tiefer. With respect to the specific thing of the Buy 
America Act exemption for commercial IT, I was thrilled when 
the draft of the bill dropped that. [Laughter.]
    So I would like to add that to the items I was praising you 
for.
    Chairman Tom Davis. Hey, you have taken two steps today. 
[Laughter.]
    Thank you. No, thank you very much.
    Would you want to add anything else?
    Mr. Leinster. A comment on participation: Certainly, my 
company participates in Federal Government procurements and has 
CAS-compliant systems, but we shield those systems and that 
participation from the vast majority of our company. It is 
those other areas of my company that the Government wants to 
access, because you are buying commercial systems.
    Chairman Tom Davis. Right.
    Mr. Leinster. And, yet, it is extraordinarily difficult to 
bring those skills into this arena without exposing them to the 
requirements that my commercial divisions are not prepared to 
and will never be----
    Chairman Tom Davis. Well, the theory is, if you are 
competing with this set of systems out in the open marketplace 
every day at the commercial level, that you are competitive and 
we don't have to come back and recheck the configuration. I 
mean that is the whole key.
    But this is very, very confusing for the average Member. I 
have been in business 20 years, and I still learn things every 
hearing in terms of the way this operates. That is why I think 
you have shed a lot of light on the record. I am going to 
probably come back for questions, but I want to give Mr. Waxman 
an opportunity to ask some questions. I know he has something.
    Mr. Waxman. Thank you, Mr. Chairman.
    Mr. Tiefer, you and Ms. Styles from the administration have 
a sort of mirror image of the way you have made your 
presentation, but in many places you came out in the right--not 
in the right, but in the same spot. She was praising all the 
things she liked, but left to the bottom of her testimony the 
things that she was critical of. You came out with the 
criticisms right up front, and reluctantly--maybe not 
reluctantly--but under questioning, you admitted, of course, 
there are parts of this bill that you like.
    I think all of us like the intent of this bill. We want to 
train people to handle the acquisition of services who know 
what they are doing, that are going to be professional about 
it, and we want more people, businesses, to be able to come in 
and offer these services.
    But a very wise Republican President said, ``Trust but 
verify.'' I don't think we want to let somebody have the job, 
even as well-trained as they might be to enter into these 
contracts, but then eliminate the safeguards in the law that 
verify that the Government and the taxpayers that are paying 
for all that--let's don't forget it is the taxpayers that are 
paying all this money--that we are getting our money's worth. 
It serves no one's interest to waste the taxpayers' dollars. So 
that requires us to look at the details.
    Section 404 of the bill expands dramatically what kinds of 
products and services can be considered, ``commercial items.'' 
If it is considered a commercial item, then it is treated 
differently.
    Mr. Tiefer, the bill says that, if it is produced by an 
entity who has 90 percent of its sales over the past 3 years to 
non-governmental entities, then it would be considered a 
commercial item. That is a change in the law.
    What is it that concerns you about that change in the law? 
Do you fear that it is going to allow contractors to manipulate 
what is considered a commercial item by creating or 
reorganizing business entities? Why shouldn't we go along with 
this change in the law?
    Mr. Tiefer. Because what gives commercial quality, as Ms. 
Styles said, is unrelated; that is, the way 404 works, General 
Electric sells light bulbs commercially, and so under 404 it 
can get commercial treatment even if it sells a jet engine that 
has only one--that is sole-sourced to the Defense Department. 
The same with United Technologies Co.; it is fairly easy for a 
mixed Defense Department and commercial company to get out from 
under it.
    I listened to the statements that the IT sector would like 
to get free from accounting restrictions. The danger with 404 
is I see many of its uses for very traditional Defense 
Department contracting having nothing to do with IT.
    Mr. Waxman. The bill expands the number of services that 
can be considered commercial items. We talked about that in 
terms of 90 percent of its sales, but there are others as well. 
What are the consequences of this designation? Are they 
something that we ought to be concerned about?
    Mr. Tiefer. Yes. It is the end of full and open 
competition. Once they are called commercial items, they can be 
bought without having many of the requirements of full and open 
competition, which this is the room in which CICA, in which the 
requirement of full and open competition was originated in, and 
apparently it is the room in which that requirement is going to 
be done away with.
    Mr. Waxman. Section 402 of the bill specifically permits 
time-and-materials and labor-hour contracts to be considered 
commercial items if the services covered by the contracts are 
commonly sold to the general public through such contracts. Now 
the DOD Inspector General opposed this section.
    He stated, ``These time-and-materials and labor-hour 
contracts are the highest-risk and least-preferred contract 
types. Under these types of contracts, contractors have little 
incentive to control costs or increase labor efficiencies. We 
believe the use of these types of contracts should be 
discouraged and not encouraged.'' Do you agree with those 
comments?
    Mr. Tiefer. 100 percent.
    Mr. Waxman. I have more of a background in health policy 
than I do in defense policy, but I can tell you, from a health 
policy perspective, when you have a third party paying the 
bill, and if you pay whatever the cost may be, there is no 
incentive to hold down costs. I worry that we are opening the 
door to this sort of thing for taxpayers' dollars. We had to 
plug up those loopholes in the Medicare system over and over 
again.
    SARA establishes this Government-industry exchange program 
for acquisition personnel. The idea is that we are going to get 
better-trained personnel through this exposure. Should this 
provision be modified to state that the private sector 
employees detailed to the Department cannot perform inherently 
governmental functions, and if we can get such an amendment 
accepted, is that enough of a safeguard?
    Mr. Tiefer. It is the beginning. The problem is that, given 
that they are 6-month detailees, and then they go back to their 
permanent company, the notion that they are not going to be 
loyal to their permanent company all the way through their 6-
month Government service period is illusory.
    So I don't know that there is anything you can do once you 
let the fox in the hen house, particularly when they are only 
there for a short period of time and they are still members in 
good standing of the ``fox association.''
    Mr. Waxman. We all start off with an understanding that we 
do not have enough acquisition personnel with all the 
qualifications we want. If we start sending some of them to the 
private sector at taxpayers' expense, are we going to keep our 
governmental agencies from having the services that we need 
from these very same people?
    Mr. Tiefer. They are going to be gone. The way the law is 
written, they have to come back only for the period of time 
they go out. So they go from the Government to a private 
company for 6 months. Then they come back; they stay in the 
Government 6 months. They have seen the greener pastures. They 
pay their dues and they are out.
    Mr. Waxman. So the training that we put in will be to train 
for the private sector employees, not Government employees?
    Mr. Tiefer. Oh, I'm sorry, I was thinking about the fox-
and-hen-house provision. I lost that.
    Well, I have tried to be positive about the training 
provision.
    Chairman Tom Davis. You have taken a half-step backward 
again. [Laughter.]
    Mr. Waxman. It is just like the stock market; it doesn't go 
down or up in a straight line. [Laughter.]
    There is a sharing-in-savings provision. You have talked 
about that, but I think it is worth exploring further because 
we had a provision in the E-Government Act of 2003 which 
authorized 15 share-in-savings contracts in military 
departments and 15 in civilian agencies. The idea was that 
these 30 contracts would serve as pilot projects or 
demonstration projects.
    Now we are, in effect, giving all the agencies permanent 
authority to enter into an unlimited number of these contracts 
before any of these pilot projects have even begun. There were 
a few other pilots in place prior to passage of the E-
Government Act. Have there been demonstrable benefits to date? 
And can you--well, why don't you answer that question first?
    Mr. Tiefer. There has not been a demonstration. It is so 
early. Until that provision was passed, we kept hearing how 
important it was to try share-in-savings out for information 
technology. Now the ink is barely dry on that, and we are 
talking about making it governmentwide.
    It is a backdoor mechanism by which non-appropriated 
money--I think when you use the term ``slush fund,'' you are 
exactly right--non-appropriated money gets, in effect, borrowed 
from the contractor. They build it into the premium cost that 
is in the contract, and then they are funding the Government.
    I was struck that Ms. Styles who, as you say, tried to 
express things in the kindest possible way would use the blunt 
words, ``OMB is opposed.'' I mean, that is a strong negative 
from the people who are responsible for the Treasury, for the 
FISC.
    Mr. Waxman. Another area where we are trying something out 
before we know how well it is working is in the Homeland 
Security Act, where we said that where procuring for defense 
against terrorism or nuclear, biological, chemical, or 
radiological attacks, all agencies for 1 year could treat such 
procurements as commercial acquisitions. This bill would now 
make these authorities permanent for all agencies.
    Can you explain why treating these as commercial items 
causes you concern?
    Mr. Tiefer. Well, it is treating something as commercial 
which is utterly non-commercial; that is, an item which has 
never been, and would never be, sold in the private sector 
receives all the exemptions from competition and safeguards 
because it gets the commercial status.
    What concerns me is this wide--that the terms used for 
defining this are so wide open that we don't know the limits to 
which they could be put. One particular example: There was an 
exchange earlier where Mr. Davis said bluntly, ``Well, we 
can't--of course, cost reimbursement, cost-type contracting 
isn't available for commercial items.'' I wish it were clear 
from the language of the legislation that was true, but it is 
not clear from the language of the legislation that is true.
    The reason I know it is not clear is that, if you look at 
Angela Styles' testimony, she says: At least we ought to make 
clear that you can't use this to bring cost-type contracting 
under this loose commercial arrangement.
    So we have no idea how far this authority can be pushed, 
how far it can be used for even relatively routine contracting 
throughout the Federal Government. The language is too new.
    Chairman Tom Davis. Would the gentleman yield for just a 
second? FASA prohibits the use of cost-type contracts for 
commercial items. We don't change it. We don't change that. 
Just for the record, we don't change that.
    Mr. Tiefer. I would welcome it if--I mean no----
    Chairman Tom Davis. No, I understand.
    Mr. Tiefer. I strongly suspect from this, Mr. Davis, that 
you could clarify this bill as it goes along----
    Chairman Tom Davis. I just wanted to make it clear; that is 
where we are. If when Mr. Waxman and I sit down we need 
clarification, we will clarify that. I just want to make our 
intent clear that is what it is. I appreciate your raising 
this, and it is the first brush at it. We really do. We solicit 
a lot of views here in trying to put this together, but I just 
want to make it clear to everyone watching that this is not the 
kind of thing that we are trying to do.
    Mr. Waxman. Well, I appreciate that, and we need to pin 
things down because in legislation, once it is a law, if we 
open up a loophole, there are people and businesses that will 
try to take advantage of that loophole. So I think we have to 
be very, very careful, especially when we are talking about 
taxpayers' money. Sometimes we have unintended consequences, 
and I fear the unintended consequences.
    But one area where we have an unintended consequence that I 
fear would be made more routine is, the transactions dealing 
with non-traditional contractors. Under current law, we permit 
the Defense Department to enter into basic, applied, and 
advanced research contracts without regard to many Federal 
statutes and regulations. This bill would extend this other 
transactions authority to all civilian agencies for research 
and development of projects related to defense against 
terrorism.
    It sounds well-intended, but the other transaction 
authority that was intended to give the Defense Department 
greater flexibility in acquiring research and attract non-
traditional defense contractors has not, from what I 
understand, worked. Do you have any sense of this? Have you 
looked at this, Mr. Tiefer? Should we expand this program? Am I 
correct in saying it appears that it has not worked?
    The Defense Department Inspector General reported these 
arrangements are subject to waste, fraud, and abuse. So if that 
is what he thinks, should we be extending them to all civilian 
agencies?
    Mr. Tiefer. You are exactly right, Mr. Waxman. I cited a 
GAO study of the use of other transaction authority by the 
Defense Department. They looked at 97 contractors who had such 
agreements to see whether they were, as we had hoped, non-
traditional, unusual, small research shops, or other such non-
traditional contractors. And GAO found that, of 97 contractors 
who had this sort of wildcard, outside-the-law authority, 84 
out of the 97 were traditional defense contractors--84 out of 
97.
    The authority purports to, but it is no way restricted. It 
has not been written in such a way that it wouldn't just be a 
get-out-of-jail-free card for every giant contractor.
    Mr. Waxman. Businesses in my district want to be able to 
compete for Government contracts, and they want the rules to be 
fair, but the thing they want the most--and I hear over and 
over again--is not to waste taxpayers' dollars, because if 
taxpayers' dollars are wasted, they have to pay more in taxes, 
and they lose confidence in Government, and they want 
Government there to provide the basis for businesses to 
succeed, businesses to operate. That is the value, the great 
lesson this country gives to the world, that we have a country 
that provides a climate for businesses to succeed and prosper, 
and it does an enormous amount of good for all of us.
    So I just want to be sure. As we look at this legislation--
I thought the three of you, and I didn't ask you questions--I 
thought your points were excellent, why we need to make sure 
that we can encourage businesses to come in and deal with the 
Government and try to avoid some of the stumbling blocks. It is 
a balance, and we need to achieve the right balance.
    Mr. Chairman, I certainly want to work with you to 
accomplish that.
    Chairman Tom Davis. Thank you very much. And let me just 
say, you talk about unintended consequences. The biggest 
unintended consequences we have today are the costs of 
verification and these rules and these regulations and these 
burdens that we are putting on Contracting Officers and 
companies that result in nothing except additional and 
tremendous--tremendous--cost to the American taxpayer.
    It is balance, and there is no question that, if we don't 
have appropriate verification, much of this verification we 
transfer from the old certifications to the Contracting 
Officer, but we make it transparent. We train them. The key 
here is trusting the Contracting Officers, Federal career 
employees, not politicians, not political appointees, to make 
the best buying decision for the customer. How we get there is 
something that we will be talking about as we move----
    Mr. Waxman. Let's put our trust in the rule of law and have 
good individuals----
    Chairman Tom Davis. Sure.
    Mr. Waxman [continuing]. Administering them, but not 
repealing the laws and then hoping that the good individuals do 
what is right.
    Mr. Wagner. Can I add a point to what you just said----
    Chairman Tom Davis. Yes, sure.
    Mr. Wagner [continuing]. Which I think is very important? 
At the end of the day, you know, there is going to be an 
individual decision on how a particular service is going to be 
purchased, an acquisition. It is part of the acquisition 
strategy. Whether they use some of the new authorities that we 
are able to use here or not ought to be part and parcel of that 
decisionmaking process.
    Maybe the decision is that it ought to be a CAS-compliant, 
you know, fully CAS-compliant contract that meets those types 
of requirements.
    Chairman Tom Davis. In fact, I would err on doing that, if 
we have to make a----
    Mr. Wagner. I almost felt at one point we were saying, 
well, they have to do it this way and buy it commercially. No. 
I think that those are decisions that these good, trained 
people are going to make out there, and we have to trust them 
to make good decisions. There are going to be some bad, horror 
stories along the way, and we are going to have lessons learned 
from it, I think.
    Chairman Tom Davis. We have it under the current system, 
too, a lot of them.
    Mr. Wagner. Thank you.
    Chairman Tom Davis. Thank you very much.
    I'm sorry, you have been sitting there patiently, and thank 
you for being with us.
    Mr. Ruppersberger. That's fine, a good discussion.
    Mr. Waxman. I would like to point out that our colleague, 
Mr. Ruppersberger, has had the personal experience, sitting as 
an executive in Baltimore, in dealing with those who come in 
and apply for contracts who say they will do the work.
    Chairman Tom Davis. As have I, for the record, in Fairfax 
County.
    Mr. Ruppersberger. And, Mr. Chairman, there is that, too. 
It is a frustrating process. When you are administrating, you 
want to get to the bottom line as quickly as you can. You want 
efficiency. You want to hold people accountable.
    But there is a balance, and I think, Mr. Legasey, your 
comment about the relationship between Government and business 
and how it is getting stronger, I think that is important. We 
can't do it alone.
    The only issue is that we would like to say we want to run 
Government like a business, but there are a lot of issues and 
things that we have to deal with that we can't completely do 
that. Our shareholders are the voters, and there are a lot of 
checks and balances.
    I think Mr. Waxman said the comment of balance and that 
balance is important. I think we need to learn from history. If 
you look in the 1980's, I think there were a lot of abuses of 
sole-source contracts. As a result of that, there was a lot of 
investigations that occurred, and then probably the pendulum 
went too far the other side, and the restrictions were there; 
it made it almost impossible to do business, to get the right 
people.
    You know, the competitive bid just based on price was 
ridiculous. You were getting incompetent contractors or you 
weren't getting anything for your money, and you had to hire 
somebody else to come in and fix it. I think we have come a 
long way since then.
    What we are trying to do now is to find a way to make it 
work. Now I do have some concerns. I asked these questions 
before. When there are not safeguards, when there are not 
checks and balances and accountability--safeguards, checks and 
balances, and accountability--I feel very strongly that they 
have to be a part of the law that we, hopefully, and a policy 
that we will set, so that we can all follow that law or policy 
or procedures.
    I will give an example. The contract term, that causes me 
concern, that you don't have a check and balance and 
accountability for contract term. Now I am going to mention IBM 
because my wife worked for IBM in the seventies.
    IBM was the greatest corporation in the world. Now they 
have come back and they are still one of the best, but they had 
a time when their management really took the wrong road from a 
policy point of view and they were not able to do and to stay 
where they needed to be because of a policy decision. Now if 
IBM had a long-term contract with the Government and we were 
relying 100 percent on IBM, and when they went through that 
phase when they had some difficulties, we as a Government would 
be in a position where we might not have been getting the best.
    Yet, it is very difficult for anyone, small business as an 
example, and a company like yours, Mr. Legasey, in the 
seventies to compete with IBM because they were so big, so 
wealthy, and had a great reputation. But they did not during 
that period, and I am not saying about now because you have 
come a long way.
    I think your President or Chairman from Baltimore?
    Mr. Leinster. Yes, Sam Palmisano.
    Mr. Ruppersberger. I am glad to hear that. Do you have any 
jobs in Baltimore, by the way, Mr Legasey? [Laughter.]
    Mr. Legasey. Yes, sir.
    Mr. Ruppersberger. But I use that as an example because 
what my concern is, is that you don't have the accountability 
of performance and that you don't have the incentive to 
continually do better.
    Now, on the other hand, to seek this balance, you don't 
want to make it such a cumbersome process that it is going to 
cost you money, time, hours on the Government's side and on the 
contractor's side, that you have to turn around, and the 
contract is not the type that you should really recompete every 
3 years. You might need 7 years or 8 years, which leads me to 
an issue, the contract itself.
    That is an issue I think we have to look at, the contract 
itself, the kickout, so to speak, you know, the accountability 
in the contracts that will allow you to deal with lack of 
performance and to do it quickly, just like you are saying you 
want to do it quickly on the other side. I agree, the quicker, 
the better, but the ability to have kickers and then to roll 
somebody in right away, that is one issue. And I am making 
statements instead of questions, but I would like to hear your 
opinion.
    The other thing I think that is important, I am concerned 
that the commercial items, that we are going too far right now, 
and that could be an avenue that could be subjected to abuses. 
I mean, it is so broad.
    And even you mentioned about how it doesn't help business. 
I think, if anything, the commercial items, the way that it is 
defined here, hurts small businesses. You know, a lot of small 
businesses don't know how to do Government contracts or get 
involved, and some of those small businesses, especially in 
technology, as an example, might have the technology that we 
need to help our troops or to do what we need to do in homeland 
security. Usually, I mean, if you are smart, you are going to 
come in as a subcontractor with one of the big boys. That is 
the way I would look at it.
    Any comments on what I have said?
    Mr. Leinster. I guess I would argue that it is those very 
small businesses that are going to get crippled by these 
provisions that we are trying to be subjected to, our 
commercial services.
    Listen, when I put together an organization to design and 
build a weapons system, I will put in place the accounting 
standards necessary to meet that scrutiny. But when you are 
buying my commercial services from my commercial divisions, we 
are not prepared, because we don't have to, to establish and 
maintain those kinds of rigorous cost accounting standards. We 
have cost accounting standards, but they don't meet the 
Government's.
    Small businesses, in trying to penetrate this marketplace, 
I think would be sorely disadvantaged.
    Mr. Ruppersberger. Let me ask you this, and then my time is 
up: But the issue of the contract itself, sometimes we are 
trying to write laws that could be interpreted one way or 
another, and we might really be hurting the whole process. 
Don't you think we really need to look more into the actual 
contract between the vendor and the Government?
    Mr. Legasey. I would certainly agree, and the example Ms. 
Styles gave this morning, that sounds like the biggest case of 
mismanagement I have ever heard. We are not going to fix that 
in the law. Where somebody had a seven times overrun, that is 
not going to get fixed in legislation.
    In every time-and-materials contract that my company has 
ever been engaged in, there is either a limit on the number of 
hours you can bill or the maximum dollars that are there, and 
that doesn't get to be seven times what it is without a lot of 
conscious decisions on the part of people who are involved. And 
if people are not managing that process in a correct way, then 
Government is not being served well, and, frankly, the industry 
is not being served well.
    But those are checks and balances and reasonable management 
things that need to be in place.
    Chairman Tom Davis. Would the gentleman yield for just a 
second?
    Mr. Ruppersberger. Yes.
    Chairman Tom Davis. Let me just give you what my experience 
has been, when these have gone bad, sitting on the contractor 
side is it is either the Government doesn't know what they want 
or they changed the requirements in the middle, and so you 
spend a lot of money going one way and they want you to come 
back another. That tends to be the Government's fault many 
times when that happens.
    Or sometimes you are just not overseeing these correctly. 
You need Contracting Officers that ride herd on these 
contractors, watch it, audit them, and do that. Sometimes there 
are failures to do that.
    That is why this training is such a critical component to 
making this work. You throw out the training; this bill is 
worthless, because you are not going to have people out there 
overseeing. But if you train them right, a trained Contracting 
Officer can do more to get the best value for the Government 
than any rule or regulation that we can write. So that is kind 
of where we are.
    Mr. Ruppersberger. And we agree. Mr. Chairman, I would hope 
that we could consider somehow focusing part of this bill on 
the contract itself, and then, in the event that there is lack 
of performance, a lack of whatever we need to do, and then if 
there is a--because contracts take a long time, there needs to 
be a kicker in there somehow that we can move quickly for the 
benefit of Government, and a procedure that would say, if 
someone is not performing, if someone is not doing what they 
need to do, we need to move that contractor out quickly and 
move to the next arena and get the right person in.
    That is what I think needs to be done more than anything, 
instead of passing a law that somehow will be reinterpreted 
again. I mean we look at the seventies, the eighties, and we 
keep going back and forth.
    Mr. Wagner. I just wonder if I can add, I heard this term 
this morning, ``contract for life.'' Like Ted said this morning 
with all those sole-source contracts, I don't know where they 
are and I would love to find them, if they are out there, but I 
don't think they are out there. [Laughter.]
    What you see, generally, on the award-term contracts now 
are either some annual type of terms that you can add to this, 
and trust me, there are contracts out there where, if the 
contractor isn't performing midway into it, if it is a 5-year, 
it is generally a 1-year plus four 1-year options out there. 
There are contracts out there right now in year three they are 
starting to think about recompeting because maybe that 
particular contractor isn't providing the type of services they 
want. So I think those safeguards are in there in most of the 
contracts that we see.
    Mr. Ruppersberger. What is the problem then? What is the 
problem then?
    Mr. Wagner. What's the problem?
    Mr. Ruppersberger. What's the problem then? You say they 
are there. I meant that as a little joke. [Laughter.]
    Mr. Legasey. As a practical matter, when somebody is not 
performing well on a contract, the rest of us would like to get 
that contract and are pretty good about pointing out the fact 
they are not performing well and trying to stimulate some kind 
of----
    Mr. Ruppersberger. You're all over each other.
    Mr. Legasey. It is a very competitive industry.
    Mr. Ruppersberger. Let me ask you this: If you were so 
small, most small groups, how do you get involved? How did you 
do it and you are doing well now?
    Mr. Legasey. We founded our company in 1978, which was 
before the Competition in Contracting Act, and we built our 
company one person, one contract at a time by competing openly 
long before competition in contracting, simply by trying to 
write a better proposal and price it appropriately, and then 
perform well.
    Chairman Tom Davis. Were you a small business at the time?
    Mr. Legasey. We were technically a small business, but as a 
practical matter, in our 25 years of existence we only had two 
small business contracts. It was not in the domain of interest 
that we were after. So we competed full and open from the very 
beginning, and we did it based upon trying to hire people who 
really understood the customer's problem and really had the 
right technical solution, and then going in and doing a good 
job, which is what many people try to do.
    But both of us had come out of Government and so understood 
the workings of Government well. So it wasn't quite as thick a 
marble wall that we had to get through to understand the rules 
and regulations, and, therefore, we weren't as intimidated by 
it, like someone who has not been part of the processes of 
Government.
    Chairman Tom Davis. Yes, but they also have been--not 
blowing smoke--an excellent company in terms of the quality and 
that kind of thing. That is how you win your share and you keep 
growing, is through reputation in this business.
    Mr. Legasey. Thank you, sir.
    Chairman Tom Davis. Let me ask one other question. It is 
kind of unrelated to where we are in the bill, but somewhere we 
may go. We heard some of the members earlier express concern 
about small business and minority businesses getting a piece of 
this and bringing up the bundling issue. I think there is a lot 
of utility in bundling, but the difficulty is that you bundle 
pieces that used to be reserved for 8(a)'s or for small 
businesses.
    Now what we ask is the prime contractor is to take a piece 
of that for 8(a), and they would choose their subcontractors 
and team partners. The difficulty, from a small business, 8(a) 
perspective, is that many times they don't get the choice 
pieces or what they thought, and the prime contractor, who is 
responsible for the overall operation and delivery of the 
product, will take the choice pieces. There has been a lot of 
grumbling and complaining, as you can imagine.
    And the marketing strategies, instead of going right to the 
Government and the Contracting Officers there and getting your 
setaside, now have to market large firms and network with 
larger companies.
    But it is a concern of a lot of members on this committee 
and in the Congress, and I think it is something that we may 
address along the way. I know Representative Collins, I mean 
Senator Collins, who chairs the committee in the Senate, is 
concerned. We heard one of our members talk about it today. It 
is something we need to address.
    It may be that what we do is we make this more of a 
priority as we bundle contracts, to hold accountable the 
percentages that are going out. Does that give any of you any 
concern, were we to do that? Mr. Tiefer, I would want to hear 
your comments about how we do that, too.
    I think the utility in bundling is, instead of the 
Government being the integrator, you let the prime pick their 
teammates, and I think there is some utility in doing that, but 
we don't necessarily want to do that at the cost of small 
businesses and 8(a)'s.
    I will start with Mr. Tiefer and go down and see if there 
is any reaction.
    Mr. Tiefer. I would like to mention two things. One is a 
recent headline in Federal Times, March 31, 2003: Most IT 
spending goes to large firms.
    We have been hearing a lot of what I think is happy talk 
about how, even under existing law, acquisition reform opens 
things up to the small business. It is the other way. The trend 
has been that, as you end full and open competition, as you use 
these governmentwide, ``commercial,'' vehicles, the contracts 
go to the--it didn't happen by accident. Most IT spending is 
now going to large firms.
    Chairman Tom Davis. It has always been that way. I mean, 
you have a large, multibillion dollar contract. What are you 
going to pick? A three-man outfit to do it? I mean, that is the 
nature of the beast. I don't know if that counts in the 
subcontractors that they have and their team members as part of 
that, that they distribute on down.
    But my question is, I mean if you could just try to get the 
question, maybe with stronger oversight, and this may place a 
regulatory regime to hold people accountable in terms of their 
final checks and stuff to ensure this is happening, because I 
think sometimes these contracts, we talk about it and we don't 
go back and check it to make sure the 8(a)'s and the small 
businesses are getting the job.
    I just want to see, is that an approach that would be 
reasonable and workable? That is what I am asking.
    Mr. Tiefer. Congressman Wynn has introduced in each 
Congress a bill that would change the 23 percent figure for 
what small business should get to 25 percent. I heard Mr. Perry 
at GSA testify earlier today: ``Twenty-three percent? That's 
easy. We are up at 40 percent.''
    So why not move the figure governmentwide from 23 to 25 
percent? That would add a pro-small business provision to this 
bill.
    Chairman Tom Davis. But it doesn't address the kind of 
contracts you are getting, how they are administered, and these 
businesses market the Government, or, in this case, in bundling 
network with others. I just want to see if what I have talked 
about is a workable way, because I don't know how close we are 
checking this.
    Any reaction? It is kind of out of the air, but----
    Mr. Leinster. Right. The observation that I would make 
regarding unbundling is that, if it is artificial, I think it 
is wrong. The steps that are being proposed to make sure that 
contracts are, indeed, properly bundled--that is, to have them 
go to a procurement small business advocate within the 
administration before they are released--again, our concern 
there is that it will delay the procurement, and delays in the 
procurement add to the acquisition costs, the cost of pursuing 
the business.
    We are all small business advocates. We use them 
enormously. We use them in our commercial sector, where we had 
no Federal regulation to do it. So utilization of small 
business is an integral part of our strategy for going to 
market, both in the Federal and the commercial marketplace.
    So bundling/unbundling, it is not something we overly 
concern ourselves with in terms of, would we be alarmed?
    Chairman Tom Davis. Any other reactions?
    Mr. Wagner. Mr. Chairman, I think at the prime contract 
level, I think it is a balance. You have to be able to look at 
what your goals are in your acquisition strategy, determine 
what is available for setting aside for small businesses.
    Frankly, we have seen in our business some fairly large 
contracts out there set aside for small businesses, ones that 
we might look to contract for, $10 and $20 million-type 
contracts set aside. OK, that is fine. We need to know that up 
front, and then we go on because there are other things out 
there to bid.
    Mr. Leinster. Or we sub to them. [Laughter.]
    Mr. Wagner. On the subcontract level, we have some rigorous 
requirements in all of our contracts to sub to small, 
disadvantaged, minority, women-owned businesses, veteran-owned 
businesses. The requirements continue to grow out there. 
Anywhere from 25 to upwards of 40 percent of our contract might 
have to be subcontracted out to small business.
    I think if we do a better job of tracking those dollars and 
accounting for those dollars at the congressional level as 
well, I think the face of small business contracting out there 
may actually look a little different.
    Mr. Legasey. My reading of the study that was quoted--and I 
did read that study--was that it dealt only with prime 
contracts. It didn't measure the flowdown to small businesses. 
Therefore, you really couldn't conclude how many dollars are 
going to small businesses, only those that are going to small 
businesses as a prime contractor, which is not the bulk of the 
money that comes to small businesses.
    As has been indicated, in virtually every program of any 
size that our industry competes for, there is a small business 
requirement, and those requirements are enforced. Case in 
point: The largest contract that our company has ever won, 
which was very recently, there were two things that we were 
judged to be better than the other company. One was our use of 
small businesses.
    So the Contracting Officer made a significant enough point 
to say that the way in which we had included small businesses 
in that contract was a discriminator in a very, very large, 
multiyear contract. These people are paying attention to this 
fact, and it is being used. I would agree the data is not there 
to really show how much it is being used.
    A final point on small businesses: To throw a small 
business out in the cold and ask them to be a prime contractor, 
when they are really not well-equipped to do it, doesn't serve 
that small business well because they get their reputation 
tarnished before they have had a chance to really learn the 
ropes. Working for a good prime contractor, who is going to 
mentor them and help them really pick up the business processes 
that they need and learn how to do business in this 
environment, is a very, very constructive and important thing 
to happen.
    PSC would like to amplify on our views on small business, 
if you would take some written commentary from us.
    Chairman Tom Davis. We would be happy to. Get it as quickly 
as you can----
    Mr. Legasey. Yes, sir.
    Chairman Tom Davis [continuing]. Because we could be 
marking this up as early as next Tuesday.
    Mr. Legasey. Yes, sir.
    Chairman Tom Davis. Well, anything else anybody wants to 
add?
    [No response.]
    Chairman Tom Davis. Let me just thank all of you for being 
here today. It has been a spirited discussion.
    I know you all have busy schedules, and we appreciate your 
being here and staying with us through the votes and everything 
else.
    The committee stands adjourned.
    [Whereupon, at 1:17 p.m., the committee was adjourned, to 
reconvene at the call of the Chair.]
    [The prepared statements of Hon. Wm. Lacy Clay and Hon. 
C.A. Dutch Ruppersberger, and additional information submitted 
for the hearing record follows:]
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