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

      NEW CENTURY, NEW PROCESS: A PREVIEW OF COMPETITIVE SOURCING FOR THE
                                  21ST CENTURY

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

                                    HEARING

                                   before the

                                  COMMITTEE ON
                               GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 26, 2003

                                   __________

                               Serial No. 108-42

                                   __________

           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

                                     ______

    89-005              U.S. GOVERNMENT PRINTING OFFICE
                                WASHINGTON : 2003
    ____________________________________________________________________________
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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 June 26, 2003....................................     1
    Statement of:
        Harnage, Bobby L., Sr., national president, American
          Federation of Government Employees; Colleen M. Kelley,
          president, National Treasury Employees Union; David D.
          Dilks, president, DDD Co., Landover, MD, on behalf of the
          Contract Services Association of America; and Stan Z.
          Soloway, president, Professional Services Council..........    79
        Walker, David M., Comptroller General, U.S. General
          Accounting Office; Angela Styles, Director, Office of
          Federal Procurement Policy, Office of Management and
          Budget; Philip Grone, Principal Assistant Deputy Under
          Secretary of Defense for Installations and Environment,
          Department of Defense; and Scott J. Cameron, Deputy
          Assistant Secretary for Performance and Management,
          Department of the Interior.................................     6
    Letters, statements, etc., submitted for the record by:
        Cameron, Scott J., Deputy Assistant Secretary for Performance
          and Management, Department of the Interior, prepared
          statement of...............................................    54
        Davis, Chairman Tom, a Representative in Congress from the
          State of Virginia, prepared statement of...................     3
        Dilks, David D., president, DDD Co., Landover, MD, on behalf
          of the Contract Services Association of America, prepared
          statement of...............................................   120
        Grone, Philip, Principal Assistant Deputy Under Secretary of
          Defense for Installations and Environment, Department of
          Defense, prepared statement of.............................    44
        Harnage, Bobby L., Sr., national president, American
          Federation of Government Employees, prepared statement of..    81
        Kelley, Colleen M., president, National Treasury Employees
          Union, prepared statement of...............................   109
        Ose, Hon. Doug, a Representative in Congress from the State
          of California, prepared statement of.......................    22
        Shays, Hon. Christopher, a Representative in Congress from
          the State of Connecticut, prepared statement of Elwood
          Hampton, ITPE vice president...............................    24
        Soloway, Stan Z., president, Professional Services Council:
            Information concerning revisions to OMB Circular A-76....   132
            Prepared statement of....................................   140
        Styles, Angela, Director, Office of Federal Procurement
          Policy, Office of Management and Budget, prepared statement
          of.........................................................    30
        Walker, David M., Comptroller General, U.S. General
          Accounting Office, prepared statement of...................     9

      NEW CENTURY, NEW PROCESS: A PREVIEW OF COMPETITIVE SOURCING FOR THE
                                  21ST CENTURY

                                  ----------

                            THURSDAY, JUNE 26, 2003

                              House of Representatives,
                                Committee on Government Reform,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 9:35 a.m., in
    room 2154, Rayburn House Office Building, Hon. Tom Davis
    (chairman of the committee) presiding.
        Present: Representatives Tom Davis of Virginia, Shays, Ose,
    Jo Ann Davis of Virginia, Duncan, Waxman, Maloney, Kucinich,
    Tierney, Watson, Van Hollen, Ruppersberger, Norton and Cooper.
        Staff present: Melissa Wojciak, deputy staff director;
    Keith Ausbrook, chief counsel; Ellen Brown, legislative
    director and senior policy counsel; Randall Kaplan, counsel;
    Robert Borden, counsel/parliamentarian; David Marin, director
    of communications; Scott Kopple, deputy director of
    communications; Mason Alinger, professional staff member; John
    Brosnan, GAO detailee; Teresa Austin, chief clerk; Joshua E.
    Gillespie, deputy clerk; Corrine Zacagnini, chief information
    officer; Phil Barnett, minority chief counsel; 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.
        Mr. Shays [presiding]. Good morning.
        We are here today to examine recently issued revisions to
    Office of Management and Budget's Circular A-76, the Federal
    Government's competitive sourcing process. The administration
    promulgated these revisions on May 29, 2003.
        This is the first major overhaul of the A-76 process in 20
    years. These revisions are the product of a 2-year effort that
    included discussions and negotiations with all stakeholders as
    well as a formal public notice and comment period.
        For almost 50 years it has been the policy of the Federal
    Government to look to the private sector to supply products and
    services whenever possible. The A-76 Circular was first adopted
    in 1966 to formalize the policy requiring government purchasers
    to compare the cost of in-house performance by an agency with
    the cost of performance by the private sector.
        Despite this Circular's long history, A-76 cost comparisons
    have not been widely used by Federal departments and agencies.
    While the Department of Defense has used the guidelines to
    compete functions ranging from computer services to commissary
    operations, few other agencies have used the process. Circular
    A-76 has been criticized over the years as being time-
    consuming, expensive, and unnecessarily complicated, which has
    discouraged Federal managers from using it.
        Recognizing that the A-76 process was flawed, Congress
    created the Commercial Activities Panel, chaired by the
    Comptroller General, to study the government's competitive
    sourcing policies. The panel included representatives from
    government agencies, Federal labor unions, private industry and
    academia.
        The revised Circular under discussion today extensively
    modifies the old process, following some but not all Commercial
    Activities Panel recommendations.
        Under the old rules, commercial activities for which
    contractors and Federal employees competed were awarded to the
    entity that offered the lowest cost to the government to
    perform the work. The comparison involved a two-step process in
    which the private sector price to perform the work was
    determined by competition. Then the winning bid was compared to
    an estimate of the cost of in-house performance by the
    government.
        The new rules, by contrast, provide for a one-step process
    in which all sources, including Federal employee units, can
    submit offers and compete for commercial activities at the same
    time. Although in most instances the work will be awarded to
    the lowest-cost provider, in some limited cases agencies may
    award a contract using a best-value methodology which allows a
    contract award to be decided on factors other than cost alone.
        The revised Circular also eliminates most direct
    conversions, a process in which Federal tasks performed by 10
    or fewer employees could be outsourced to private companies
    without competition. Instead, the revised Circular A-76 permits
    a streamlined competition process for jobs involving 65 or
    fewer Federal employees.
        The new guidelines also set strict timeframes for
    completion of competitions. Streamlined competitions must be
    completed within 90 days, while standard competitions will
    normally take 12 months.
        The bottom line when it comes to public-private
    competitions is get the best value for taxpayers. The revisions
    to the A-76 process are a positive change that will result in
    real savings and greater efficiencies in government operations.
    The revisions are also central to the administration's
    Competitive Sourcing Initiative, a key element of the
    President's Management Agenda.
        We have assembled excellent panels of witnesses who will
    discuss these important issues. On behalf of Chairman Davis, I
    thank each of them for appearing today.
        [The prepared statement of Chairman Tom Davis follows:]

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        [GRAPHIC] [TIFF OMITTED] T9005.003

        Mr. Shays. We will I think introduce the witnesses, and I
    think Mr. Waxman will be on his way. So let me at this point
    recognize our panel and swear them in.
        The Honorable David Walker, Comptroller General of the
    United States and head of the General Accounting Office; the
    Honorable Angela Styles, Director of the Office of Federal
    Procurement Policy at the Office of Management and Budget; Mr.
    Philip Grone, the Principal Assistant Deputy Under Secretary of
    Defense for Installations and Environment at the Department of
    Defense; and Mr. Scott Cameron, Deputy Assistant Secretary for
    Performance and Management at the Department of Interior.
        I think, as you know, it is the policy of the committee
    that all witnesses be sworn in before they testify. So we'll
    have you stand up, and we'll swear you in. Raising your right
    hands, please.
        [Witnesses sworn.]
        Mr. Shays. Note for the record our witnesses have responded
    in the affirmative.
        I think what we'll do is start with you, Mr. Walker. If Mr.
    Waxman arrives, then I think, before we go into the next, we'll
    make sure we hear from him.
        So you have the floor.

       STATEMENTS OF DAVID M. WALKER, COMPTROLLER GENERAL, U.S.
     GENERAL ACCOUNTING OFFICE; ANGELA STYLES, DIRECTOR, OFFICE OF
     FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET;
      PHILIP GRONE, PRINCIPAL ASSISTANT DEPUTY UNDER SECRETARY OF
       DEFENSE FOR INSTALLATIONS AND ENVIRONMENT, DEPARTMENT OF
     DEFENSE; AND SCOTT J. CAMERON, DEPUTY ASSISTANT SECRETARY FOR
         PERFORMANCE AND MANAGEMENT, DEPARTMENT OF THE INTERIOR

        Mr. Walker. Thank you very much for the opportunity to
    appear today to discuss the Office of Management and Budget's
    revised Circular A-76. If I can, Mr. Chairman, I would like for
    my entire statement to be included in the record. It's fairly
    extensive, and I'd like to make just a few highlight comments
    now if I can.
        Mr. Shays. Yes, please do that.
        Mr. Walker. Thank you very much.
        This is an important, complex and somewhat controversial
    topic. As you pointed out, Mr. Chairman, because of the
    importance complexity, and controversy associated with the
    entire issue of sourcing strategy in general and competitive
    sourcing in particular, including A-76, the Congress by law
    enacted legislation that required the creation of a Commercial
    Activities Panel, which I had the--I don't know if it is the
    privilege, but I had the obligation to chair and took it very
    seriously.
        It was an extensive effort. It involved a number of public
    hearings, a diverse group of--and highly qualified parties as
    members of the panel, including several witnesses here today.
        After that extensive process, the panel unanimously agreed,
    as you know, to 10 sourcing principles that should guide all
    sourcing policy. That was unanimous. Furthermore, a
    supermajority--but not unanimous by any means--a supermajority
    of the panel also agreed to certain other supplemental
    recommendations dealing with the proposal to create a
    streamlined, FAR-based process as a supplement to, not a
    substitute for, A-76 and also the need to look at how we can
    promote high-performing organizations throughout government and
    not rely on competitive sourcing as our primary means of trying
    to achieve economy, efficiency and effectiveness, given that a
    vast majority of the Federal Government will never be subject
    to competitive sourcing.
        I think it's important to note that while we're still
    reviewing the final A-76 Circular, that in general GAO's view
    is that it is generally consistent with the Commercial
    Activities Panel sourcing principles and recommendations. We do
    have certain concerns.
        For example, as anything goes, you can have a perfect
    policy, but how it is implemented is absolutely key. We're
    particularly interested in trying to get a sense as to how
    these streamlined cost comparisons for under 65 might be
    handled in actual practice. The panel did talk about having to
    restrict direct conversions to a de minimus amount of 10 FTEs
    or less. Time will tell whether these streamlined cost
    comparisons will end up occurring.
        We had some concerns about the reasonableness of the
    timeframes. I know that OMB was responsive to note that they
    are not hard and fast timeframes, but I think in that regard it
    is going to be critically important that Federal agencies have
    adequate financial and technical resources available in order
    to assure that Federal employees will be able to compete fairly
    and effectively in connection with any competitions.
        We continue to have concerns with the need for enhanced
    cost data for both the winners that might be in the public
    sector as well as the private sector, and we're concerned about
    more details being needed for high-performing organizations, if
    you will.
        But, in general, as I said, it appears in design that what
    OMB has done is generally consistent with the Commercial
    Activities Panel recommendations subject to those comments.
        I would also like to, if I can for the record, Mr.
    Chairman, be able to refer to a couple of things that one of
    the subsequent panel members will be testifying to, namely, it
    is true that the Commercial Activities Panel did talk about
    retaining a 10 percent cost differential on A-76 competitions
    as well as major competitions.
        Second, it is untrue that GAO is the biggest booster of
    best value.
        And, third, for the record, what I would like to state is
    that about a year ago I received a call from several Senators
    and Members of Congress on both sides of the aisle who asked my
    view about a legislative provision that was being considered by
    the Congress at that point in time. I provided my views to
    those Members, basically stating that I did not believe that
    arbitrary goals or quotas were appropriate. I felt that the
    initial 15 percent and 50 percent targets for the
    administration were arbitrary and therefore not appropriate.
        However, I also felt that it was possible to be able to
    come up with a considered approach by reviewing past activity,
    by looking at, on a more considered basis, to come up with some
    type of a number that would be based upon a considered review
    and analysis, and I didn't believe that it would be appropriate
    to say that was per se improper by law. And so, as a result, I
    stand by what I did, and Congress evidently felt that it was
    valuable and acted accordingly.
        So, with that, Mr. Chairman, I think this is an important
    topic. I look forward to respond to any questions that you and
    other members of the committee may have subsequent to hearing
    from the other panel members. Thank you.
        Mr. Shays. Thank you.
        [The prepared statement of Mr. Walker follows:]

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        Mr. Shays. Ms. Styles, before recognizing you, we've been
    joined by two Members. They may have opening statements. Mr.
    Ose and Mr. Ruppersberger. Mr. Ose, do you have an opening
    statement?
        Mr. Ose. I do, Mr. Chairman.
        Mr. Shays. If you don't mind, we're going to kind of go to
    Members now. Mr. Ose.
        Mr. Ose. Thank you, Mr. Chairman.
        As a member of this committee and a former owner of various
    small businesses, I am happy to be participating today in this
    hearing on the administration's new competitive sourcing
    policy, which was issued by OMB on May 29, 2003.
        Mr. Chairman, in the interest of time, I'm going to
    abbreviate my remarks and submit my full statement for the
    record. I will say that, subsequent to the November issuance of
    the proposed policy change, I've had my staff looking at any
    number of things, not the least of which was the impact on
    identifying the number of jobs, if you will, that would fall in
    the commercial inventory focused on California.
        We focused on the seven functions, with over 1,000
    employees each in California and we've analyzed six of them. We
    have used the threshold of 100, as opposed to 65 positions. In
    sum, the analysis indicates that, in California alone, in those
    six function areas, there's about 3,500 slots available for
    commercial consideration in nursing services at the Department
    of Veterans Affairs; 1,704 in medical services at DVA,
    Department of Veterans Affairs; 1,582 in the Defense storage
    and warehousing function; 1,240 in the Agriculture Department's
    fire prevention and protection function; 1,168 in the Defense
    commissary operations; and 1,019 in the Treasury Department
    data processing services.
        This just gives you some sense of the scope of what this
    particular proposal may envision. In total, there were 32,284
    commercial jobs performed by Federal employees at nine Federal
    agencies in California, according to the analysis my staff did.
    This is an opportunity for us to take a hard look at what these
    positions offer and to try on focus government's role.
        I look forward to the testimony from our witnesses today. I
    think this is a great step in the right direction. I appreciate
    the time.
        Mr. Shays. Thank you, Mr. Ose.
        [The prepared statement of Hon. Doug Ose follows:]

        [GRAPHIC] [TIFF OMITTED] T9005.016

        Mr. Shays. Mr. Ruppersberger.
        Mr. Ruppersberger. I have no statement.
        Mr. Shays. Mr. Van Hollen, do you have any----
        Mr. Van Hollen. No.
        Mr. Shays. Thank you both for being here.
        Let me just deal with unanimous consent before we get to
    you, Ms. Styles. I ask unanimous consent that members and
    witnesses shall have 5 days to submit written statements for
    the record; and obviously any abbreviations of your own
    statements will be submitted in the record if you choose to
    speak orally. That will obviously be a part of the record as
    well.
        Also, I ask unanimous consent to insert into the record a
    statement from Elwood Hampton, ITPE vice president, and without
    objection, so ordered.
        [The prepared statement of Mr. Hampton follows:]

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        Mr. Shays. Ms. Styles, you have the floor.
        Ms. Styles. Thank you, Chairman Shays and members of the
    committee. I appreciate the opportunity to be here today to
    update you on the administration's Competitive Sourcing
    Initiative and our recent overhaul of OMB Circular A-76. I am
    pleased to report that we are making significant progress
    toward public-private competition being an accepted management
    practice at our departments and agencies. Our initiative
    requires a transformation of culture and mind-set from one that
    resists competition to one that welcomes the value that
    competition generates.
        The administration's Competitive Sourcing Initiative asks
    people to make very hard management choices, choices that
    affect real jobs held by very real and dedicated, loyal career
    civil servants. But the fact that our initiative requires hard
    choices and a lot of hard work makes it one that can and is
    affecting fundamental, real and lasting changes to the way we
    manage the Federal Government.
        The clincher here is the taxpayer. This initiative,
    competitive sourcing, strives to focus the Federal Government
    on its mission, delivering high-quality services to our
    citizens at the lowest possible cost. It's a hard pill for a
    lot of people to swallow or to believe, but we really don't
    care whether it is the public or the private sector that is
    delivering those services. Competitive sourcing is a commitment
    to better management. It is a commitment to ensuring that our
    citizens are receiving the highest quality service from their
    government without regard to whether that job is being done by
    dedicated Federal employees or the private sector. What we care
    about is the provision of government service by those best able
    to do so, be that the private sector or the government itself.
        Our recent revisions to OMB Circular A-76 could not make
    this commitment any more clear. Each policy change was made
    with three questions in mind: What is the right answer for the
    taxpayer? How can we provide the best service to our citizens
    at the lowest possible cost? And do we have a reasonable
    expectation that we can implement this policy?
        As we discuss these changes today, many of you are going to
    ask why particular decisions were made. My answer will probably
    always be the same, that after extensive discussion we decided
    that the policy was in the best interest of the taxpayer and
    providing exceptional service to our citizen at the lowest
    possible cost. This decisionmaking process applied to many of
    the difficult decisions, including the elimination of direct
    conversions, the elimination of policy guidance on Inter-
    Service Support Agreements, the elimination of the minimum cost
    differential for a streamlined competition and the elimination
    of the 50-year-old policy statement that presumed that the
    private sector was better than the public sector at providing
    commercial services.
        The steps we have taken to improve the process for
    determining whether a commercial activity will be performed by
    a public or private source are significant. We committed to a
    complete overhaul of a broken process, to creating something
    that was streamlined, transparent and easy to understand. But,
    most importantly, we committed to creating a process that was
    fundamentally fair to all parties participating, including our
    Federal work force.
        We also committed to holding our service provider, be they
    public or private, accountable for results. We have followed
    through on each and every one of these commitments, and while
    these changes to the Circular are significant, we recognize
    that better guidance is only one ingredient for success.
    Agencies need a knowledgeable and committed management support
    structure to implement these changes. For these reasons, we are
    taking a number of actions to make sure agencies have the
    necessary support structures in place.
        First, we are requiring agencies to establish a program
    office that will be responsible for the daily implementation
    and enforcement of the Circular. Effective oversight will serve
    to enhance communications and facilitate sharing of experiences
    within the agencies and among agencies. This type of a
    communication may be especially helpful to government
    providers, many of whom have told us they have the capability
    to be highly competitive, but they lack the private sector's
    insight and experience in competing for work.
        Second, the Federal Acquisition Council has created a
    working group to discuss common needs among agencies. This
    group is being ably led by Scott Cameron from the Department of
    Interior, who is here today. The working group's efforts should
    help agencies to better understand and successfully implement
    the administration's vision for a market-based government.
        Third, OMB intends to meet with managers at the scorecard
    agencies, the 26 CFO agencies, over the coming months to
    understand what, if any, agency-unique challenges they face and
    how we at OMB can help them in meeting these challenges. The
    faster challenges are identified and addressed, the sooner
    agencies will be in a position to routinely use the competition
    processes.
        While there is a certain level of comfort in maintaining
    the status quo, our taxpayers cannot afford this, nor should
    they be asked to support a system that operates at
    unnecessarily high cost, because many of our commercial
    activities are performed by agencies without the benefit of
    competition. For this reason, the administration has called
    upon agencies to transform their business practices. We have
    provided tools for meeting this objective in a responsible and
    fair manner.
        This concludes my prepared statement, but I'm pleased to
    answer any questions you may have.
        Mr. Shays. Thank you, Ms. Styles.
        [The prepared statement of Ms. Styles follows:]

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        Mr. Shays. Mr. Grone.
        Mr. Grone. Thank you, Chairman Shays.
        Mr. Shays and distinguished members of the committee, I am
    pleased to have this opportunity to appear before you today to
    discuss the revision to OMB Circular A-76 and its expected
    impact on the Department of Defense.
        We know the forces of competition produce more efficient
    services at reduced cost to the taxpayer, regardless of who
    performs these services. We were successful at achieving
    savings under the old Circular, and we believe the new Circular
    provides an opportunity to strengthen the efforts of employees,
    industry and managers of a competitive sourcing program to
    produce the best outcome that meets the mission needs of the
    Department in the most cost-effective and efficient manner.
        The administration through OMB has taken significant steps
    toward these objectives by providing a competitive framework
    that promotes fairness, transparency and accountability. The
    Department's initiatives support the President's vision of a
    market-based government used to achieve our President's
    Management Agenda goals for competitive sourcing. We intend to
    use the new Circular to meet the Department's competitive
    sourcing targets.
        As we implement the new Circular, we will review our
    ongoing programs to determine how best to comply with the
    Circular's transition objectives. A smooth transition is
    absolutely essential. We believe the credibility of the new
    process depends upon the successful execution of these initial
    competitions. As we start competitions using the new
    procedures, we need to ensure responsible officials are
    properly trained for new and expanded duties.
        We will continue to work closely with our dedicated and
    resourceful work force to promote the fairness, transparency
    and accountability the Circular advocates as the Department
    implements the new procedures. Employee involvement in our
    competitions has been essential to successful results, and we
    will ensure their continued participation as we implement the
    new process. Clearly defined representatives of directly
    affected employees as outlined in the Circular brings
    standardization to the process, ensuring the ability of
    employees to participate fully while avoiding the appearance of
    conflicts of interest.
        We believe there are significant positive elements of the
    new Circular: The designation of competitive sourcing officials
    and centralized management are crucial to spreading best
    practices and avoiding common pitfalls of competitions in the
    past.
        Clear and unambiguous application of the Federal
    Acquisition Regulations in combination with the Circular
    require contracting officers to evaluate all prospective
    providers, private and public, in a single evaluation process
    that will enhance transparency. The use of a one-step process
    should help level the playing field for all participants,
    mitigating a common complaint about past competitions.
        The new Circular's emphasis on preliminary planning
    recognizes a long-standing need for proper preparation. Proper
    preliminary planning leads to better packaging of activities
    for competition and avoids negatively impacting on Federal
    employees. Preliminary planning is among the most important
    improvement to facilitate reducing the length of the process.
        OMB's new tradeoff source selection process promotes best-
    value competitions and is available to all agencies except the
    Department of Defense. At the present time, we are limited to
    the lowest-cost provider due to the statutory limitations
    imposed by section 2462 of title 10, United States Code. The
    Department continues to believe relief from this limitation
    would further encourage innovation by both the public and
    private providers and significantly improve the quality of
    services. We continue to urge the Congress to adopt this part
    of the Secretary's transformation legislative package to put us
    on a par with our sister Federal agencies who are not limited
    in this fashion.
        Mr. Chairman, the Department is pleased that the new
    Circular recognizes DOD's A-76 costing expertise and requires
    use of our A-76 costing software known as COMPARE for all
    Federal agencies. Costing the government will remain a
    challenging part of the public-private competition process, but
    standardization allows all parties to understand the rules that
    are used.
        The knowledge management Web site developed by the
    Department known as SHARE A-76! will continue to promote the
    sharing of best practices resulting from A-76 competitions
    conducted by all Federal agencies.
        In spite of all the anticipated positives of the new
    Circular, we do anticipate for a period of time we will likely
    have a program operating under two sets of rules to some
    degree. The new Circular will apply to a number of ongoing
    competitions while some in-progress competitions will need to
    be completed under the old Circular. We will make public
    announcements of competitions requiring transition by the
    Circular and ensure the requirements of the new and old
    Circulars are not combined to the advantage of any party.
        Again, I want to emphasize it does not matter who wins
    public-private competitions as long as the decision delivers
    results, services at the best value for the taxpayer.
        As of June 1, 2003, the Department of Defense has completed
    competitions in excess of 71,000 positions; and this exceeds
    the 15 percent competitive sourcing target negotiated with OMB
    for this fiscal year. By reaching this target, we hope to be
    among the first Federal agencies to reach yellow status on the
    score card.
        Mr. Chairman and committee members, thank you again for the
    opportunity to address these important issues today; and I'm
    happy to answer any questions you may have.
        Mr. Shays. Thank you, Mr. Grone.
        [The prepared statement of Mr. Grone follows:]

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        Mr. Shays. Mr. Cameron.
        Let me just say we've been joined by Ms. Norton from D.C.
        Mr. Cameron. Thank you very much, Mr. Chairman and members
    of the committee. I'm delighted to be with you today to talk
    about the Interior Department's competitive sourcing program
    and Circular A-76.
        We view the President's Management Agenda as a set of tools
    to help us improve the quality and cost-effectiveness of the
    services we provide the American people. Competitive sourcing
    is one of those tools to enhance value for our citizens.
    Interior's competitive sourcing program emphasizes competition
    as a tool for enhancing performance. It also emphasizes the
    importance of periodic review of how we deliver services to
    assess whether we can serve the public, our customers, better
    through reengineering, through outsourcing or by maintaining
    existing structures. As we focus on how to best meet the
    public's needs, we are also focused on making certain that our
    highly dedicated employees are treated fairly.
        Our challenge as managers is to show our employees how
    competitive sourcing can be a tool to advance the agency
    mission to which they are so very strongly committed. As we
    generate efficiencies, our bureaus can reinvest in mission
    delivery any savings that they generate by competitive
    sourcing, and in this way competitive sourcing can provide
    resources that we can plow back into our parks, back into our
    other programs, our other activities in the Department, to
    increase the level of service to the American public.
        We believe that changes made to this Circular will help the
    Federal Government become more results-oriented, citizen-
    centered and efficient. The new Circular also reinforces
    employees' ability to compete by allowing them to reengineer
    functions with less than 65 FTEs and by removing the
    presumption that commercial functions belong in the private
    sector.
        One point of my testimony I think is very worth
    communicating at this point, Mr. Chairman, is that Interior has
    analyzed approximately 1,600 FTEs through competitive sourcing,
    and I'm happy to tell you that, while our employees have won
    some of those competitions and lost some of those competitions,
    in no case has a single Interior employee been involuntarily
    separated from permanent service as a result of those studies
    to date.
        Our study plan for fiscal years 2002 through 2004 now
    equals approximately 25 percent of the FTEs listed as
    commercial in our year 2000 FAIR Act inventory. That represents
    just 7 percent of the Department's total employment.
        I would like to add that competitive sourcing has proven
    economically beneficial to some of our former employees. In a
    review of Federal employee lifeguards in Florida, for instance,
    in the National Park Service, the winning contractor hired all
    our former temporary and seasonal workers; and these employees
    report they are now working more hours for the contractor than
    they did as government employees. So they are bringing home
    more pay as a result.
        The Department communicates on a frequent basis with
    employees involved in ongoing and planned studies. We use town
    hall meetings, e-mail, newsletters and other means. These
    efforts have proven effective. We also keep our Departmental
    Council on Labor-Management Cooperation, which is a joint
    labor-management organization, informed about the changes that
    we're making in competitive sourcing and the progress of
    studies within the Department.
        If the committee would be interested, I brought half a
    dozen copies of a resolution that our Labor-Management Council
    adopted on competitive sourcing which commits both labor and
    management to pursuing competitive sourcing in a way that
    ensures employee rights and provides best value to the
    taxpayer. So if the committee is interested, we can provide
    that for you.
        The Department's guidance for developing the fiscal year
    2004 competitive sourcing plan requested that each bureau
    reflect on the Department's strategic human capital management
    plan and its implementation plan. The guidance further asks the
    bureaus to consider for competitive sourcing functions areas
    where we have high projected attrition rates, significant skill
    imbalances, recurring performance challenges, or chronic skills
    shortages.
        Bureaus were also asked to consider studying functions
    where a significant amount of contracting was already taking
    place in other bureaus, as well as situations where competitive
    sourcing studies were already well under way in other bureaus.
    In both cases, the thought was we could learn from the work and
    experience of others.
        We've invited our bureaus to resubmit their fiscal year
    2004 competitive sourcing plans in light of the new Circular.
    We're also consulting with Angela here about how to handle the
    64 streamlined studies that we already had under way at the
    time the new Circular came out; and we're hopeful that we'll be
    given permission shortly to go ahead with those studies,
    essentially grandfather them under the old Circular.
        In closing, the Department fully supports the new Circular.
    We think that it's a tool to improve the delivery of services
    to the American people. We believe we can conduct the program
    in a way that's fair to our employees.
        I'd be delighted to answer any questions the committee
    might have.
        Mr. Shays. Thank you, Mr. Cameron.
        [The prepared statement of Mr. Cameron follows:]

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        Mr. Shays. What my intention is as Chair is to recognize
    Mr. Ose and then go to Mr. Van Hollen, Ms. Norton and Mr.
    Tierney, and then I'll ask some questions. We'll do the 5-
    minute rule right now and maybe do a second round.
        You have the floor, Mr. Ose.
        Mr. Ose. Thank you, Mr. Chairman.
        Mr. Cameron, it's good to see you again. I know we've
    visited previously on paperwork reduction. I'm still interested
    in that checkoff.
        Mr. Cameron. Actually, I thought I'd see you in Mr.
    Putnam's committee last week. So I did the research. The answer
    is, we're still on track.
        Mr. Ose. Good. Stay there.
        Mr. Walker, thank you for your testimony.
        A couple questions, if I might. I want to preface my
    questions by saying, as I did in my opening statement, that
    subsequent to the November proposed policy change, my staff did
    a lot of work. In fact, we sent out inquiries to 102 different
    Federal agencies. I want to mention that because I want to take
    note of the work that Chris Rich and Brooke Greer did in
    assimilating and compiling these data. We come to this meeting
    today with significant information, and it's a function of
    Chris's and Brooke's good work.
        On page 3 of your testimony--your written statement, Mr.
    Walker, you state, effectively implemented, the new Circular
    should result in increased savings, improved performance and
    greater accountability, regardless of the service providers
    selected.
        The question I have is, has GAO estimated the potential
    dollar savings in the first year, the second year and then
    annually thereafter?
        Mr. Walker. No, we have not. And that would be virtually
    impossible to do, because you have no degree of certainty as to
    how many competitions will occur, what functions they will be.
        I think we can say that, historically, based upon data that
    we've seen in the past, is that there have been significant
    cost savings that have been achieved and inured to the benefit
    of the taxpayer, irrespective of who wins in the past--in other
    words, whether the Federal workers win because of the creation
    of a most efficient organization or whether contractors win--
    but at least initially there have been significant savings that
    have occurred in the past.
        Mr. Ose. OK. So your estimate, if you will, the savings is
    a function of historical trends rather than a prospective look?
        Mr. Walker. That's correct. I mean, we can report on what's
    occurred in the past; and what we can say is that we believe--
    and you said the right words, ``if effectively implemented.''
    Because, you know, we find that there's sometimes a difference
    between design or plan and actual. There is an opportunity for
    additional savings here, no question.
        Mr. Ose. When you think in terms of savings, do you have
    some sense of perhaps the range of percentages that we might
    have in savings?
        Mr. Walker. Historically, the savings have been in the 20
    to 30 percent range with regard to historical competitions, no
    matter who wins the competition. But I think it's important to
    note cost is important, but cost is not everything. We
    obviously are concerned about reliability and quality and other
    issues, too.
        Mr. Ose. Second question. On page 6 of your written
    statement, you mention that GAO has listed contract management
    at NASA, HUD and DOE, Department of Energy as an area of high
    risk, the contract management function. What do you recommend
    to ensure that these three agencies can fairly implement the
    new A-76 Circular without disadvantaging Federal employees
    currently performing commercial functions?
        Mr. Walker. These Federal agencies in particular have met
    the criteria in the contract management area for being deemed
    to be high risk, as noted by GAO's public criteria. There are
    other Federal agencies that have serious challenges in the area
    of contract management.
        Our experience has shown that if for some reason through
    competitive sourcing or other methods the Federal Government
    ends up contracting out certain responsibilities and functions
    to the private sector that it is critically important that they
    maintain an adequate number of qualified, capable Federal
    employees who can manage cost, quality and performance of that
    contractor; and if they do not do that, then the government is
    at risk, the contractor is at risk, and the taxpayers are at
    risk. So I think that if there's going to be more that's going
    to be done by private-sector employees of traditional
    government functions or activities, if you will, then it's
    going to be critically important that capability exist in the
    government to make sure that we don't end up having more high-
    risk areas or we exacerbate the ones that we already have.
        Mr. Ose. Mr. Chairman, at some point or another I hope we
    do talk about the training necessary for contract officers
    under this scenario, because this is, as Mr. Walker is
    suggesting, a very critical piece to the successful
    implementation.
        Ms. Styles, on page 11 of your written statement, you
    state, ``our taxpayers simply cannot afford--nor should they be
    asked to support--a system that operates at an unnecessarily
    high cost because many of its commercial activities are
    performed by agencies without the benefit of competition.''
        Has OMB estimated the potential dollar savings in the first
    year, second year or thereafter?
        Ms. Styles. No, we have not. What we have done is created a
    system within the Circular for collecting that information.
        One of the problems in the past has been that the
    information has been difficult to collect and not consistently
    collected. We have requirements in the Circular for consistent
    collection governmentwide for the creation of baselines for an
    understanding not only of what we project the cost savings to
    be but to ensure that we are actually achieving the cost
    savings that we project into the future.
        Mr. Ose. Thank you, Mr. Chairman.
        Mr. Shays. Thank you. I thank the gentleman.
        Mr. Van Hollen.
        Mr. Van Hollen. Thank you, Mr. Chairman.
        I thank all the witnesses.
        Let me just understand one thing, because I represent the
    8th Congressional District in Maryland. It obviously has a lot
    of Federal employees, and I've visited a lot of Federal
    agencies. In talking to the head of a lot those Federal
    agencies, some of them have provided assurances to their
    employees that they will not lose employment as a result of
    this. They may be shifted around to different positions and
    that kind of thing.
        My question is, is that realistic? How are we going to
    achieve the kind of cost savings that we're talking about if no
    one is laid off? I have concerns that despite promises or
    assurances that we're going to see large layoffs----
        My question, I guess, Ms. Styles, is best addressed to you.
    What kind of assurances can you provide to the Federal work
    force that people aren't going to be losing jobs?
        Ms. Styles. It's being applied differently at different
    departments and agencies. I think each department and agency
    has a different look at their human capital plan, different
    numbers in terms of retirements. Some of them have more
    flexibility than others to move employees to open positions, to
    retrain them. Many of the people are also at retirement age,
    end up retiring and go to work for a Federal contractor. We
    work with each department and agency on their plan to see how
    they address it with their work force to ensure that the
    relevant laws are followed, where agencies have no RIF goals in
    place, that they aren't setting forth a goal that they can't
    follow through on. Other agencies have not set that goal
    because they don't believe that they have available positions
    or that they're going to be able to retrain or move people
    around in their organizations. So it varies a great deal from
    agency to agency.
        Mr. Van Hollen. Yes.
        Mr. Cameron. Mr. Van Hollen, perhaps I can help in terms of
    the Interior Department context.
        Over the next 5 years, roughly 20 percent of our employees
    are eligible to retire. We are studying under competitive
    sourcing about 7 percent of our employees over the next several
    years. We think we'll win most of those competitions, so that
    perhaps leaves you a situation with a couple of percent of
    employees where we have to find other positions in the
    Department, while 20 percent of the folks are eligible to
    retire. So that gives us some optimism.
        Mr. Van Hollen. Yeah.
        Mr. Walker. If I can, Mr. Van Hollen, there's a difference
    between whether or not they still have employment if they want
    employment versus whether they're working for the Federal
    Government. There are many, as you know, that end up going to
    work for the contractors, and so therefore they still have a
    job, but they're not working for the Federal Government. There
    are others who end up voluntarily retiring, early or otherwise,
    and they have decided they don't want to work.
        I think it would be highly unlikely that you're going to
    find a situation where we're going to achieve significant
    savings unless there are some numbers of people who no longer
    work for the Federal Government. They may still be employed.
    There may be some reallocation within the Federal work force
    where we need people and we don't have enough and therefore
    they can be re-employed, but I think there's no question
    there's going to be a decline in Federal employment as a result
    of these competitions.
        Mr. Van Hollen. Have you done any analysis to determine,
    that correlates savings to an anticipated decline in employment
    with the Federal Government?
        Mr. Walker. I think we have to be very careful to make sure
    that the deck is not stacked for a predetermined outcome. What
    competitive sourcing is all about from my standpoint, it is a
    tool. It is a means to an end. It is not an end in and of
    itself. And that, ultimately, is what we want to make sure,
    that we've got the right people doing the work as efficiently
    and effectively and as economically as possible.
        So, to me, I look at this as a sourcing strategy. It could
    be outsourcing, it could be in-sourcing, and in many cases it
    could be co-sourcing, where the functions are performed by a
    combination of contractors and Federal workers. I think we have
    to be very careful not to be predisposed one way or the other.
    It's getting the right answer.
        Mr. Van Hollen. Right. I don't want to lose all my time
    here. I think it's very important we don't stack the deck, too;
    and I'm very concerned that the deck is stacked. For example,
    my understanding is that a private contractor that loses a bid
    or loses his competition has the ability to appeal. Whereas my
    understanding is--and correct me if I'm wrong--whatever Federal
    group--group of Federal employees, if they don't succeed in
    winning the competition and lose the--they don't have the right
    to appeal. Is that right?
        Mr. Walker. It's a matter of who they have the right to
    appeal to. Right now, the Federal workers or representatives of
    the Federal workers do not have a right to appeal to the GAO.
    We, however, have a Federal Register notice out right now
    asking for public comment about whether and under what
    circumstances, representatives of Federal workers should have
    the right to appeal to the GAO in certain circumstances. My
    personal view is, if we want to create a level playing field,
    there are some circumstances in which they ought to have that
    right, and we're looking forward to receiving the results of
    public comment and then being able to make a decision
    thereafter.
        Mr. Van Hollen. Well, no, I would think--I have lots of
    concerns with this whole--some of the--other concerns proposed,
    but the very least it seems to me people should have an equal
    right to appeal a decision that's been made with respect to
    their employment.
        Thank you, Mr. Chairman.
        Chairman Tom Davis [presiding]. Thank you very much.
        Mr. Shays.
        Mr. Shays. Thank you, Mr. Chairman.
        Let me start my questions by saying OMB recently revised
    its competitive sourcing goals to require agencies to begin an
    A-76 competition on 15 percent of the commercial activities by
    2004. The initial goal would have required agencies to compete
    15 percent of all commercial activities by September 2003. So,
    Ms. Styles, what was OMB's rationale for changing its
    competitive sourcing goals?
        Ms. Styles. We actually haven't changed the goals, per se.
        Let me give you a little history on this because this is a
    very confusing area.
        Mr. Shays. Very little.
        Ms. Styles. Very little, but it's important to understand.
        We came out at the beginning of the administration and said
    a 15 percent governmentwide goal over a period of 2 years. We
    asked the agencies to generally presume that 15 percent was
    going to be appropriate for them. We developed, tailored
    individual plans for each department and agency based on their
    mission and needs. We are not going to have more than four or
    five agencies that actually compete 15 percent of their
    commercial activities before the end of this fiscal year,
    mainly because we realize it's going to take a long time to
    implement and put that infrastructure in place and we want it
    done right.
        I set a personal goal. We went out with a----
        Mr. Shays. I think you've answered the question.
        Mr. Grone and Mr. Cameron, will your agencies be able to
    meet the goal of initiating competitions for 15 percent of your
    agencies, commercial positions by July 2004?
        Mr. Cameron. At Interior, yes.
        Mr. Grone. Mr. Shays, based on where we are now in the
    context of our competitions, as of June 1st of this year we're
    looking at the 15 percent target.
        Mr. Shays. Ms. Styles, what will happen to agencies that
    don't meet this goal?
        Ms. Styles. We'll continue to work with them to make sure
    that they have the infrastructure in place. We have agencies
    that won't meet it until 2007. We're trying to make this
    rational and appropriate for each----
        Mr. Shays. So you're just working with them?
        Ms. Styles. Yes.
        Mr. Shays. For the last several decades the basic
    government policy or principle has been to rely on the private
    sector for needed commercial services. This principle has been
    in Circular A-76 for many years. Why isn't this policy or
    principle included in the revised Circular?
        Ms. Styles. Because for a number of years we had a
    situation where we were inconsistent. We said that we wanted to
    rely--that the private sector was presumed to provide
    commercial services cheaper and better than the public sector.
    At the same time, we had a process for determining who was the
    better sector, public or private. We wanted to tell people that
    we were actually committed to determining whether the public
    sector or the private sector was better to provide these
    services to our citizens. We didn't want to presume that one
    sector was necessarily better than the other in our policy
    statement, which is why we removed it.
        Mr. Shays. What kind of questions have agencies had for OMB
    regarding the new A-76 process? How has OMB ensured that it has
    given consistent guidance to these agencies?
        Ms. Styles. We've had a number of questions, but fewer than
    I would expect, because we spent a considerable amount of time
    between the release of the draft and the final Circular working
    with every department and agency to make sure that they could
    implement this Circular. We have had two primary questions, one
    dealing with direct conversions, when direct conversions
    actually end so they can't actually do any more direct
    conversions, and the other one is the application of the
    minimum cost differential for ongoing streamlined cost
    comparisons.
        Mr. Shays. According to the General Accounting Office, A-76
    competitions performed by the Department of Defense take an
    average of 25 months--that blows me away--to compete. The new
    Circular requires agencies to compete in A-76 competition in 12
    months. So what specific change, Ms. Styles, in the new
    Circular will assist the agency in meeting the 12-month
    deadline?
        I'm tempted to ask--let me ask Mr. Walker. Why does it take
    25 months?
        Mr. Walker. It's a very complex process, and I think the
    bottom line is it can, must and should be expedited, but in
    order to be able to hit the kind of timeframes that are
    proposed in the new Circular, you're going to end up having to
    provide enough financial and technical support resources to the
    Federal workers to be able to compete effectively.
        I also would note that I believe that 12-month timeframe is
    a guideline, and it's not hard and fast, but it is ambitious.
    There's no question about it.
        Mr. Shays. Let me ask you then, Mr. Walker, what would be
    some of the risks associated with having agencies complete the
    competitions in 12 months, as opposed to taking----
        Mr. Walker. Well, I think the real key is that there's no
    question there are opportunities to streamline and simplify
    this, but I think the real key is going to be what type of
    financial and technical support resources are going to be made
    available in order for people to be able to do this while still
    doing their regular job.
        I mean, after all, people have a mission. I mean, they've
    got to perform; and to a great extent we're asking employees to
    be able to do things that they may or may not have the
    expertise. So they're going to need some technical support in
    order to try to help compete effectively in and financial
    resources to back that up.
        Mr. Shays. Thank you very much.
        Mr. Walker. If that doesn't happen, then, A, we might not
    get the right answer; or, B, it may be perceived to be unfair,
    which could have an adverse morale impact, etc., just beyond
    the affected workers.
        Chairman Tom Davis. Thank you very much, Mr. Walker.
        We have votes going on, but we're going to continue
    questioning for a few minutes. We've three votes, but I'll go
    to Mr. Waxman.
        Mr. Waxman. Thank you, Mr. Chairman.
        I appreciate the testimony that the witnesses have given.
        Rather than asking questions, I want to state my own
    feelings about this matter.
        Today's hearing is looking at the OMB revised Circular A-
    76, which was released about 2 weeks ago, on May 29. A-76
    governs the processes through which Federal agencies decide
    whether to privatize responsibilities currently being performed
    by government employees. And I've said this before: This
    administration has virtually declared war on Federal employees.
    It's stripped hundreds of thousands of Federal employees of
    basic rights such as the right to appeal, unfair treatment and
    the right to bargain collectively. It has opposed modest cost-
    of-living increases for rank-and file employees at the very
    same time that it has supported large cash bonuses for
    political employees.
        The administration's most direct assault on Federal
    employees is the effort to terminate Federal jobs and hire
    private companies to perform this same work. The President's
    Management Agenda includes a Competitive Sourcing Initiative
    which would impose privatization quotes on agencies, requiring
    them to allow private contractors to bid for hundreds of
    thousands of jobs currently being performed by Federal
    employees.
        I'm not opposed to hiring private companies to perform jobs
    currently being filled by government employees if the private
    companies can do the work more efficiently and at a lower cost.
    In fact, I believe we owe it to the taxpayers to ensure
    government functions are performed as cost-effectively as
    possible, but I am opposed to the privatizing at any cost
    ideology that seems to drive this administration.
        We know that Federal employees can often do the work
    performed by large contractors like Halliburton at a much lower
    cost than the contractor, but this administration doesn't seem
    to care. It continues to shower favorite companies like
    Halliburton, who, incidentally, happens to be a large campaign
    contributor, with massive contracts at enormous expense to the
    taxpayer.
        If you want another example of the dangers of
    privatization, just look at the Energy Department. Literally
    billions of dollars of taxpayers' money has been squandered on
    private companies at places like Hanford and Paducah.
        This is the context in which we have to review the new A-76
    process. I'm not opposed to reasonable changes to streamline
    the process by which agencies decide whether public or private
    employees can best provide certain services, but I've heard
    concerns from employee representatives that the new A-76
    process simply goes too far. It makes little sense to force
    agencies to engage in A-76 competitions at the expense of
    important program priorities, but this is exactly what seems to
    be happening. For example, the National Park Service says that
    the costs of running some of these competitions are so large
    that they could lead to cutbacks in seasonal hiring.
        I'm also concerned that the administration may have
    overstepped its authority by redefining the term ``inherently
    governmental.'' These are activities that must be performed by
    governmental personnel. Although the definition is codified in
    statute, the administration has ignored the statutory language
    and adopted an overly narrow new definition.
        Clearly, these are important issues but complicated issues;
    and I think the witnesses that we're hearing from today will
    help us shed some light on them and work through them; and
    rather than ask any questions of these specific witnesses, I
    wanted to set out my views and hope that we can examine these
    issues together.
        Chairman Tom Davis. Thank you very much, Mr. Waxman.
        Let me take just a few minutes, and then what we'll do is
    recess. I know other Members are going to want to ask questions
    of this panel, but our problem is our second panel. We have
    some representatives that have to be out of here by 11:45, I
    believe, and I want to give them ample time as well. With the
    recess, we'll try to move this expeditiously.
        One of the things this committee centers on is the
    interconnection between a strong government work force and an
    efficient procurement process; and I think we need to be
    careful in all of--in that in creating a very strong
    contracting work force and looking at short-term, you know,
    efficiencies that we can get out that we don't destroy morale
    of Federal employees who every 3 or 4 or 5 years wonder if
    their job is going to be up for competition and they may be out
    on the street. That is a fundamental issue that we need to look
    at, because we may in fact be getting efficiencies over the
    short term in terms of the way we do some things, but do we
    destroy the morale and our ability to hire and retain good
    people if we hire them, bring them into government and every
    few years put them up for grabs again just like a contractor?
        Let me ask, Mr. Walker, is that a realistic concern? And,
    if so, how do we address that in this context?
        Mr. Walker. I think you have to be concerned about this.
    The fact of the matter is, is that you do want to get the best
    deal. Cost is important, but cost is not everything. It's easy
    to be able to quantify the cost associated with the public-
    private competition. It's very difficult to be able to quantify
    the cost to the taxpayer due to decreased productivity, due to
    an adverse impact on morale, if there's a perception that these
    things aren't done fairly.
        So I think the key is the panel tried to come up with a set
    of principles that were unanimously adopted to try to help
    achieve that balance and also some supplemental
    recommendations. Because you do have to be concerned about the
    hidden cost, and this hidden cost is, if you don't do it right
    or you don't do it in a way that is perceived to be fair, you
    can have an adverse productivity impact and there is a cost
    associated with that.
        Chairman Tom Davis. Right.
        Anyone else want to address that issue? Anyone else see an
    issue there?
        Mr. Cameron. Well, Mr. Chairman. I'll defer to----
        Ms. Styles. No, I think we're very cognizant of the morale
    issues. It's a very serious consideration. If you look at past
    history of the Department of Defense where the competition is
    run well, where you've got people that are allowed to compete
    in the Federal work force, where it's a fair and level playing
    field, it is a morale boost to the employees particularly when
    they win, and they win more than 50 percent of the time. When
    it's a fair and level playing field and they understand the
    contractor has proven that they can win this and do this more
    efficiently, I think the Federal work force accepts that and
    people are more willing to come--in terms of recruitment people
    are more willing to come to a Federal Government that is
    innovative and creative and a place that they believe that they
    can learn from experiences of the Federal Government.
        But I also think that some of the departments here probably
    have some greater insight than I do into this.
        Mr. Cameron. If I could, Mr. Chairman, I would add morale
    is as much a communications issue as it is anything else, and
    it's a real challenge to constantly communicate with our
    employees what we're trying to do and what we're not trying to
    do. Competitive sourcing is all about increasing value for the
    customer, helping those very dedicated people accomplish their
    mission more effectively.
        If you've been in the Federal service for 20 years in a
    career capacity, you went through the first Clinton
    administration's downsizing exercise, where 10 percent of the
    employees were let go. We went in the early Reagan
    administration through an outsourcing experience. So,
    unfortunately, the history that most Federal employees have had
    is very different from what we're trying to accomplish through
    competitive sourcing. So communications are a challenge.
        Another way to look at is, frankly, a relatively small
    fraction of our employees are likely to be involved in
    competitive sourcing over quite a few years. At Interior, less
    than half of our FTEs are commercial in nature. The White House
    has said that over the long run, with no deadline on it, only
    half of those jobs will be studied under competitive sourcing.
    So a relatively small fraction of our employees will ever be
    involved in a competitive sourcing study, and yet they're all
    worried about it.
        Chairman Tom Davis. Does that hurt recruiting, too? I mean,
    it used to be one of the things you get with the Federal
    Government is you would get some kind of tenure to an extent,
    something--a guarantee you didn't get in the private sector;
    and that was the tradeoff for not having the stock options and
    some of the bonuses you could get in the private sector. It
    seems with this you're taking that away, to some extent.
        Mr. Cameron. Our biggest problem with recruiting, quite
    frankly, is it takes us 4 months to make an offer to somebody,
    whereas the private sector can make an offer in 4 weeks or 4
    days. So I think that's, frankly, more of a challenge at the
    recruiting end.
        Mr. Grone. Mr. Chairman, if I might, I second everything
    that Ms. Styles said with regard to DOD. But the key piece for
    us and the key part of the reform of the Circular in this
    record I believe is the emphasis on best value, where we're
    able to make within certain parameters the ability to trade or
    weigh cost considerations against other performance
    considerations; and it's something I think that can be very
    helpful in this regard to--it's not just simply a cost driver,
    but it is also efficiency and performance and cost all taken
    together. That's why for us the ability to use best value in
    this regard in combination with the other tools is so
    critically important.
        Chairman Tom Davis. OK. I've got to go over and vote on the
    floor, as does Mr. Tierney, as I know he has some questions. I
    am going to allow Ms. Norton to ask questions and chair the
    meeting and recess at the conclusion of your questions, and
    we'll come back and we'll resume with you and then move to the
    next panel. But I want to get our next panel on because they
    have to be gone at a certain time and make sure they have their
    say and we get some questions from them.
        So I'm going to hand the gavel--this kind of breaks
    precedent--to Ms. Norton. I know she won't abuse it; and if she
    takes over 5 minutes, nobody's here to stop her. So there you
    go.
        Ms. Norton [presiding]. Tom and I are such good friends
    that he thinks that I won't seize the gavel and keep it, and
    that's why he gives it to me. One of these days it's going to
    be a revolution, however, in this House.
        I think it's my time to ask questions.
        During the last administration was the first large decline
    in Federal employees in generations, and it was huge. It didn't
    cause a lot of acrimony. It was done with buyouts. It was done
    with the cooperation with the representatives of the workers.
    It was done with fairness; and during the time it was done, it
    seemed to be the way to proceed. It meant that you could
    downsize your government without upheavals.
        Then there developed great controversy because government
    employees complained that they found they were now sitting with
    contracting employees, raising questions about whether there
    had in fact been downsizing; and I would like to question you
    about the substitution of contracting employees for Federal
    employees when the government is told that it has--it is indeed
    reducing costs for government employees. Of course, the last
    time we heard the government pays for contracting employees the
    same way it pays for civil servants.
        First, I want to know whether you have evidence that there
    have been employees from contractors who replaced people who
    were bought out.
        Ms. Styles. Certainly. I can tell you under the old
    Circular process, the one we changed, there was a direct
    conversion process. So one particular employee in a smaller
    function, you could actually directly convert that work to the
    private sector. So in some respects I think you could say that
    person was simply replaced by a contractor-employee with little
    or no documentation for why that choice was made, which is why
    we have gotten rid of that process.
        Mr. Walker. I think it is important to note that the
    primary cost savings can occur because of process improvements,
    because of leveraging of technology, or because of being able
    to have individuals who are doing work on a just-in-time and
    as-needed basis, rather than a full-time basis where you may
    not have the need. So, in fact, even when Federal workers win
    the competition, their wages aren't cut. What happens is they
    end up improving the processes. They end up leveraging
    technology more so that they can do more with, in many cases,
    fewer people. So, yes, there are circumstances even with--
    through competitive sourcing where you end up having contract
    individuals doing basically the same job that----
        Ms. Norton. You do understand that the agencies were
    forbidden to downsize and then later replace the downsized
    employees with government employees.
        Mr. Walker. That's with regard to the buyouts and the early
    outs or whatever.
        Ms. Norton. Yes, after the buyouts.
        Mr. Walker. I understand that. And, as you know, Ms.
    Norton, that while you're correct in saying that the biggest
    downsizing, you know, that we've had was during the 1990's and
    a lot of it was through buyouts and early outs, a lot of it was
    also through reductions in force. I can tell you GAO was
    downsized 40 percent, and most of it was due to reductions in
    force. And the way those rules work they mortgage the future.
        Ms. Norton. Well, yes, the point is the GAO probably needs
    to know how much we have grown in contracting employees since
    we downsized and laid off government employees. This kind of
    seesaws when we then report to the public that there are far
    fewer government employees does not in fact give a correct
    picture of what a government employee is. When are we going to
    tell the public that a government employee, in this day and
    age, where there is massive privatization, includes people who
    are contracted and people who are civil servants, and wouldn't
    that be the fair way to inform the public, who pays the taxes
    for both?
        Ms. Styles. We do have extensive public data available on
    the contracts that each department and agency has, and we
    actually look at those as we determine what's appropriate in
    competitive sourcing for a particular department and agency.
        HUD, for example, you can see a clear trend of decline in
    employees and an increase of contract dollars going out the
    door, and you also see them being on the high-risk list for
    contract management. That's an agency that we have to be very
    cautious in our approach to competitive sourcing because of the
    trends you see there.
        Ms. Norton. Tightly managed government employees,
    contracting employees not held to the same standards; and that,
    of course, begins to bother people when you consider that it's
    taxpayers' money we're talking about. Somehow I would like----
        You know, the Supreme Court has once again declared that
    quotas should never be used. I'm a former chair of the Equal
    Employment Opportunity Commission, did affirmative action,
    always without quotas, have never believed in quotas even to
    make up for past discrimination unless you find a case of
    deliberate discrimination. The courts have been--of course,
    sanction quotas; and the theory is the correct one, that if you
    use a quota or an absolute number of any kind you will be
    inclined not to judge on the basis of qualifications.
        Now, when it comes to privatization we're looking for
    efficiency. For the life of me, I'd like to have you explain to
    me, particularly in this anti-quota Congress, and as the
    Supreme Court has decried quotas for reasons that I think most
    people would agree, why--how you could justify the quotas that
    you now have for privatization.
        Ms. Styles. We don't have privatization quotas.
        Ms. Norton. You have to elaborate on that.
        Ms. Styles. We set some goals.
        Ms. Norton. So you now reduce the quotas to goals, and what
    does that mean?
        Ms. Styles. We never have had quotas. We have never had
    quotas for privatization. We've asked agencies to build an
    infrastructure for public-private competition being agnostic as
    to who wins, to put these up for competition, not to privatize
    these, not to outsource them, to actually build an
    infrastructure at their agency that recognizes the management
    efficiencies that can be created by a public-private
    competition.
        We've sat down with 26 major departments and agencies over
    2\1/2\ years. We've developed detailed, tailored plans for the
    departments and agencies that we adjust every quarter. It
    recognizes their mission needs and what's appropriate for their
    agency in terms public-private competition.
        Some agencies will have more competitions than others in
    the near term. Some agencies have been able to build
    infrastructure faster than others. Some agencies will move
    forward.
        We still have in place aggregate governmentwide goals, that
    we would like to see 15 percent aggregate governmentwide
    competed, but that is not arbitrary. It's not a quota. We work
    with each department and agency to determine what is
    appropriate for them over a short period and over a long
    period.
        Ms. Norton. Mr. Walker.
        Mr. Walker. When the administration first came in. They had
    certain goals, 15 percent and 50 percent targets.
        Ms. Norton. You know good and well they were absolute
    numbers. And she's testified, and we all saw them. You know,
    you're before a committee where you have been sworn. We all saw
    those absolute numbers. They were absolute percentages. I don't
    know what you have now, but the way in which to be truthful to
    this committee is to say, well, we did have absolute numbers, a
    15 percent quota; we don't have them now.
        That's all right. I've heard you. Let me hear Mr. Walker.
        Mr. Walker. Let me try to--my opinion--as you know, I work
    for GAO, not the administration.
        Ms. Norton. I understand that perfectly.
        Mr. Walker. And so, therefore, I believe at least my
    perspective is--in this is the administration had 15 percent
    and 50 percent goals. They weren't quotas. They were perceived
    to be quotas. Some viewed them that way. They were arbitrary.
    They came out of the campaign. They were not considered
    numbers.
        Quotas are inappropriate. Period. Goals are inappropriate
    if they're arbitrary. Goals may be appropriate if they're a
    result of a considered process and, you know, a reasoned
    approach. So, in reality, what's happened is that they modified
    how they're approaching this now and are approaching it in a
    different manner than they were before.
        Ms. Norton. I think that would have been a truthful answer.
        Mr. Grone. Ms. Norton, if I may.
        Ms. Norton. Yes.
        Mr. Grone. From a DOD perspective, if I could put some of
    this in the context of what our experience has been in the last
    3 years with regard to the agenda as we've worked it through
    with OMB--you referred to them as quotas. We concur that it was
    a considered process. It's not a quota. There were goals.
        But the way in which they were managed is that those goals
    were built off of inventories that identified which functions
    were to be inherently governmental and which were commercial, a
    rigorous process outlined by statute to develop an inventory
    that laid out what were the positions and what bins in which
    they should be put.
        Over the last 3 years, as we have gone through our
    exercises to get to compete, over 71,000 FTEs in this process,
    we generated a savings number of roughly five--nearly $5\1/2\
    billion as a result of that.
        I went back and asked the staff, put those in appropriate
    bins for me--contract, in-house, FTEs--as a number, just a
    discrete competition. What we found just in this 3-year
    pattern--and it's not necessarily elaborative of the whole
    Federal Government or what will be in the future--but what we
    saw was that, over this 3-year period, for the positions that
    we had competed as discrete numbers of the competition, 70
    percent of those were won by the in-house work forces.
        The MEO looked at from the perspective of FTEs. It was 60
    percent were won by the in-house MEO. In terms of the savings,
    when the contractor wins, it resulted in 47 percent savings,
    real money, to help the Department of Defense meet its mission
    needs; when the in-house won, it was 27 percent savings; and in
    the overall aggregate, it was 40 percent over this 3-year
    period for us.
        So whether one wants to look at them as goals or however
    one wants to look at them, these are real targets based on a
    considered discussion of what the inventory ought to look like,
    a process that we went through, fairly rigorously, that yielded
    real savings and real efficiencies. The processes in the
    reforms that have been put into place by OMB will allow us to
    buildupon these successes to consider performance of both the
    in-house and the contract in the future that provides
    incentives for both the contract and the in-house work force to
    continue to improve efficiency over time, and that's to the
    benefit of all.
        So, from the perspective of the Department of Defense,
    that's why we believe so firmly that this process is going to
    yield us a good result and that it is based on a considered
    evaluation of what ought to be the essential functions that
    ought to be competed, not that we have a target that you must
    outsource a certain number of people or a certain amount of
    functions, but that they be subject to the rigors of
    competition and that then gives us the best result.
        Ms. Norton. I think Mr. Cameron wanted to say something
    before we----
        Mr. Cameron. Yes, very briefly. Whether one calls these
    numbers--goals or targets or quotas or something else--I do
    think it's important to focus on what they represent, and what
    they represent are studies that need to happen. There's no
    preconceived notion on anyone's part what the outcomes of these
    studies might be. So these are not numbers that represent
    privatization goals or privatization targets. They are
    management goals for getting a number of analyses done; and the
    numbers, the results of those analyses will speak for
    themselves in terms of what's best for the employee, what's
    best for the customer, what's best for the taxpayer.
        So thanks.
        Ms. Norton. Yes. The reason that the distinction has come
    to be very important legally, and it is very important
    managerially. If a manager thinks that if he really makes the
    15 percent privatization his own rating will be better than if
    he makes 10 percent, he is perhaps more likely to press it.
        You're speaking to somebody who, unlike you, had to use
    numbers under the inspection of the Supreme Court of the United
    States and who successfully used them and indeed--so that you
    do not find me saying that numbers are inappropriate. I don't
    think that you can know whether you have succeeded if you don't
    measure and if you don't set some kind of goal.
        The need to be careful when dealing with--forgive the
    word--bureaucrats or managers or people who are on the Federal
    work force who do, unlike contractors, get measured, get
    evaluated by everything they do, the fact is this
    administration put out this number. These numbers caused huge
    consternation throughout the work force. The managers weren't
    trained as to how to handle these numbers.
        So there really is a difference between--in the United
    States, people still don't understand the difference between
    goals and quotas. They see a number, and that's what it's
    supposed to be. It is a very delicate concept.
        You see what we do when we have, quote, numbers or goals
    for parking tickets in my district. I mean, you will send
    people out of their skulls, even if the government or the
    District of Columbia, overcrowded with cars from throughout the
    region and the District of Columbia, says, look, you all are
    not doing your job if you don't bring in what--you've got to be
    careful about telling them what to bring in and how to go about
    doing it and how that you'll then authorize them so that the
    number, which is the only absolute thing up there, doesn't take
    control.
        So, you know, I found Ms. Styles' answer absolutely
    ingenuous. It seems to me you have to have a sensitivity for
    what numbers can mean to a manager or a supervisor, and then
    you go forward. You admit you used numbers. They are perfectly
    valuable to use. But then you show the kind of sensitivity for
    what you have to do to make sure that they don't run away with
    the whole process.
        Mr. Walker, I wish you would get back to this committee
    with any clarification you could give us on a statistic that
    has come from a credible source. Doctor Paul Light, who is a
    senior fellow at the Brookings Institution, estimated--now this
    figure goes back to 1999. We're in 2003. But he said that in
    1999 the government had a contract work force of 5.6 million
    employees, compared to 1.9 Federal employees.
        To me, that means a shadow work force has taken over the
    Federal Government; and until we know--and it can be perfectly
    legitimate. The only question is we ought to know what the real
    number is. Until we know, and we ought to know, if that's what
    we're doing, then we ought to do it consciously, and we ought
    to know we're doing it.
        So I would ask you to get back to the chairman and the
    ranking member with any--I'm not asking you to do a study,
    understand--but with any information you could give to us as of
    2003. What is the best estimate you can give us of the contract
    work force--remember, 5.6 million is what Dr. Paul Light says--
    and what is the best estimate of the civil service work force
    of the United States at this time.
        Mr. Walker. We'll do what we can.
        As you know, Paul Light is on one of my advisory boards.
    I'm very familiar with his work.
        I think one of the things we have to be careful of is to
    make sure that we're getting the right answer, and one of the
    things we have to be careful of is not to have arbitrary goals
    or not to have any quotas with regard to FTEs. I mean, that's
    part of the problem. And there have been situations in the past
    where either the executive branch or, frankly, the Congress has
    set limits on what that should be, which may end up pushing
    certain decisions that may not make sense for the taxpayer. So
    I think it goes both ways. It's not only with regard to what
    should be done by contractors but whether or not there's the
    flexibility to be able to hire Federal workers in circumstances
    where that is in the interest of the taxpayer and the country.
        Thank you.
        Ms. Norton. Thank you.
        Before I recess this matter, I want to indicate that, in
    talking about contracting employees controversy they have done,
    this has not been a Republican or a Democratic matter. The
    contracting work force has grown inexorably through Democratic
    and Republican administrations. It may have grown more during
    the last 8 years of a Democratic administration than any other
    administration.
        So this is not a--it doesn't--somebody must believe that
    contracting is better for the Federal Government, because it is
    a bipartisan matter now. And no one would believe that you
    could ever turn the Federal Government or, for that matter,
    most local governments around to go all the way back to civil-
    service-dominated work forces. That really isn't the question.
        The question is--and you move us perhaps somewhat toward
    this goal. The question is understanding what we're doing,
    being forehanded about what we're doing, not making the
    assumptions that have been routinely made that a contracting
    worker, one, will cost you less.
        GAO did a study some years ago that showed that was not the
    case in a number of agencies, one, that a contracting employee
    will cost you less; and, by the way, nobody even cared whether
    the contractor or the contracting employee was as efficient.
    That was beside the point.
        So the drive has been to drive down the cost of government
    and the assumption and I--and the operating word here is
    assumption--is that you were saving the government money that
    way. When you grow the way we've grown, it is your burden to
    show both that you improve efficiency and that you save the
    government money, and I hope we're on course to do that now.
        I want to thank this panel. I found it a very enlightened
    panel, and I know I speak for the entire committee when I say I
    appreciate the work you have done to prepare this testimony.
        We are in recess.
        I am told by staff that there was a member who still had
    questions for this panel. Could I ask the full members of this
    panel to stay? Therefore, catch whoever is trying to get out of
    the door. There was a member who was promised that he would be
    able to ask questions.
        So we're in recess.
        I thought the chairman wanted to change panels, but I am
    informed that there is a Member that is on his way back from
    voting who actually has questions of this panel. So please
    remain. I mean, you don't have to sit in those chairs, but
    don't leave--your panel isn't over yet.
        [Recess.]
        Chairman Tom Davis [presiding]. The panel will take their
    seats.
        I'm going to recognize the gentleman from Massachusetts for
    questions, Mr. Tierney.
        Mr. Tierney. Thank you, Mr. Chairman.
        I want to associate myself with the remarks of the ranking
    member, Mr. Waxman, and some of the concerns the chairman made
    earlier. I don't want to re-cover old ground, but I am
    concerned with some of the exercise of discretion that seems to
    be left. I am wondering if some of you might be able to talk to
    me a little bit about the change in definition from the active
    governing being a discretionary exercise of government
    authority to now propose a substantial discretionary exercise
    and what was the reason for that change and what do you think
    the impact of that change will be.
        Ms. Styles. If I can start, because I personally made
    that--reviewed that decision. If you go back and you look at
    the policy of the executive branch since at least 1992, it has
    said substantial exercise of discretion in our policy letter
    92-1. Within the same policy letter, which--this policy letter
    defined how an agency would determine whether something was
    inherently governmental or commercial. Within the same policy
    letter that said substantial exercise of discretion, there was
    another statement in there that said exercises of discretion.
    There was an apparent conflict on its face within this policy
    letter, and we discuss it extensively in the preamble to the
    final A-76 Circular because it was raised in the comments which
    caused me to actually go back and look at the FAIR Act to look
    at our policy letter and to look at what we had finally written
    into the final Circular. Based on that, we decided to use the
    standard substantial exercise of discretion that had been there
    since at least 1992.
        Mr. Tierney. Come again on that. You used the standard--the
    last sentence you made, I am not sure I entirely heard it. The
    standard----
        Ms. Styles. The standard for determining if something is
    inherently governmental or not.
        Mr. Tierney. And you put substantial in there.
        Ms. Styles. No, we did not. We retained the standard, the
    substantial exercise of discretion, that had been in our policy
    since at least 1992, if not before.
        Mr. Tierney. My concern is that, besides being sort of a
    bean-counting exercise of this whole thing, where it gets
    incredibly complex, costly or whatever, is that there is a lot
    of individual discretion or the exercise of judgment that's
    down there that's just ripe for abuse or error.
        I look particularly at the incident of the Affiliated
    Computer Services case within the Department of Defense where
    the problem was that an error was made. It was a human error
    that was made, as opposed to process; and then the OMB
    suggested the remedy for that was that the agency should
    consider allowing the employees to go through the process
    again. The problem is, by the time they discovered the error
    there were no more employees.
        So, in an instance like that, who then is going to be able
    to remedy it and who's going to be able to then put together a
    proposal for what the cost of the employee would be to compete
    with the others. Has anybody thought about how do we avoid
    other situations like that?
        Ms. Styles. Yes, we thought about that extensively in our
    rewrite of the Circular.
        The old Circular was so complex I think there was a lot of
    room for human error. And that's what that was. It was human
    error, and I think it was very unfortunate.
        What we wanted to do--you could write 500 more pages of
    Circular and still have that human error occur. The DOD IG
    missed it three separate times when they looked at it, which
    meant the Circular was too complex, too hard to understand. We
    really tried to go back and avoid human error by having a
    Circular that was easier to understand, that was transparent to
    you, to the public, and to us and held the agencies accountable
    for the decision they made.
        I can't promise you that errors won't happen under the new
    Circular, but, hopefully, by it being easier to read and
    understand and streamlined, transparent, very public about the
    decisions we're making and why we made them that we will avoid
    these in the future.
        Mr. Tierney. Well, I think it gets back a little bit to Mr.
    Walker's point earlier that, in order for us to be sure of
    that, then the employees have to have the opportunity, they
    have to have the resources, the expertise and the funding.
        Mr. Walker, are you comfortable within this recommended
    policy, that those things exist? To make sure that we root out
    those errors.
        Mr. Walker. I think it's unclear as to whether or not the
    financial and technical resources are going to be available. I
    think it's critically important that they be available in order
    to be able to hit the expedited timeframes in order for this be
    to be perceived to be fair.
        In that regard, Mr. Tierney, one of the things that I would
    suggest is the administration has put forward a several hundred
    million dollar fund that originally was proposed for
    performance-based compensation. I would respectfully suggest
    that most Federal agencies aren't in a position to effectively
    adopt that yet, and Congress should give consideration to using
    that fund to be made available to agencies who make a business
    case to either compete effectively in public-private
    competitions and also to try to create high-performing
    organizations in the vast majority of government that will
    never be subject to public-private competitions. I think that's
    something Congress needs to seriously consider; and we're
    encouraging OMB to do that, too.
        Mr. Tierney. Thank you. That's an excellent recommendation,
    and I hope we look into that.
        Mr. Chairman, one last question, just generally, is I'm
    looking at the IRS situation in particular and looking at the
    fact that this competition--some of that work obviously might
    be outsourced, and besides the question about whether or not
    they're dealing with a collection of moneys and transfers of
    money and things of that nature, what about the risk that we
    stand of not only having that outsourced to somebody in this
    country, a company over there, but outsourced--the work
    outsourced to another country so we are actually taking the
    jobs elsewhere? What are we doing to guard against that?
        Ms. Styles. Our procurement system--unless it's a national
    security procurement, the general rules of our procurement
    system which we try to follow in public-private competition are
    not, in most instances, going to look to where the work is
    performed. It's going to be looking at whether it is performed
    and what the cost is.
        Mr. Tierney. That's why I point that out. We are in a
    serious crisis in this country of our jobs being exported just
    for a race to the bottom. You know, the idea of anything can be
    done cheaper if you just send it over. With technology today, I
    think we've got to be very, very careful about that; and,
    hopefully, we can do something in the context of this
    legislation and others about protecting against that.
        One of the reasons why I really hesitate to even put this
    process in place is at least we know the jobs now are where
    they're at, and we've got to--how many lost jobs, you know,
    like millions of the lost jobs out there that we're not doing a
    very good job of recapturing at the moment, and I think we
    ought to protect that.
        Chairman Tom Davis. The gentleman's time has expired.
        There may be other questions for this panel. I have some. I
    may do it later.
        But I want to get to the next panel simply because we have
    some key members of that panel that have to be out of here at
    11:45. So, if there is no objection, let me thank all of you
    for coming. Appreciate all of your efforts and, you know, we
    will be--this is just the beginning of a dialog on this. We'll
    move to the next panel. Thank you very much.
        We have Bobby Harnage, national president, American Federal
    of Government Employees; Colleen Kelley, president of the
    National Treasury Employees Union; Donald Dilks, the president
    of the DDD Co. located in Landover, MD, who is here on behalf
    of the Contract Services Association; and Stan Soloway,
    president of the Professional Services Council.
        It's our policy all witnesses be sworn in before you
    testify. So I am going to ask you to rise with me and raise
    your right hands.
        [Witnesses sworn.]
        Chairman Tom Davis. Thank you.
        I'm going to give the Chair over to Mrs. Davis for about 5
    or 10 minutes. I will be back for questions. I've read the
    testimony so--and I've got to work with Mr. Waxman on something
    we're doing this afternoon. But I will be back in time for
    questions.
        We'll start, Mr. Harnage, with you. I understand you have
    to be--leave at 11:45, is that correct? OK. You know the rules.
        So thank you very much for being with us. I know this is an
    important issue to all of you, and it is an important issue to
    us.
        Mrs. Jo Ann Davis of Virginia [presiding]. Mr. Harnage, we
    can begin with you.

       STATEMENTS OF BOBBY L. HARNAGE, SR., NATIONAL PRESIDENT,
     AMERICAN FEDERAL OF GOVERNMENT EMPLOYEES; COLLEEN M. KELLEY,
     PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION; DAVID D. DILKS,
      PRESIDENT, DDD CO., LANDOVER, MD, ON BEHALF OF THE CONTRACT
         SERVICES ASSOCIATION OF AMERICA; AND STAN Z. SOLOWAY,
                PRESIDENT, PROFESSIONAL SERVICES COUNCIL

        Mr. Harnage. Thank you, Madam Chairman.
        My name is Bobby Harnage, and I'm the national president of
    the American Federal of Government Employees, representing some
    600,000 workers who serve the American people across the Nation
    and around the world. I want to thank you for the opportunity
    to appear this morning on the hearing on the new OMB Circular
    A-76.
        This is a political agenda driven by campaign contributions
    and has nothing to do with better government or a more
    efficient or more effective government. The entire process is
    for the benefit of the contractors; and where there is a
    conflict, taxpayers come in last every time. I will leave the
    details to my written statement for the record.
        However, I would like to take my time to at least list the
    12 most significant concerns AFGE has about the new A-76:
        It would aggressively emphasize a second-rate competition
    process that makes the Most Efficient Organization optional as
    well as impractical and eliminates a requirement that
    contractors at least promise appreciable savings before work is
    contracted out.
        It would, if a recent Department of Defense Inspector
    General's report is to be believed, significantly overcharge
    Federal employee bids for overhead. In fact, it would double-
    charge Federal employee bids for some indirect personnel costs,
    while not charging contractors for indirect labor costs
    incurred by agencies through contract administration.
        It would do nothing to prevent contracting out from being
    done to undercut workers in their pay and their benefits and
    continue to turn back the clock on the diversity of the Federal
    work force.
        It would introduce a controversial and subjective best-
    value process that is as unnecessary as it is vulnerable to
    anti-Federal-employee bias.
        It would impose absolute competition requirements on
    Federal employees for acquiring and retaining existing work--
    but not for contractors.
        It would hold Federal employees absolutely accountable for
    failure through recompetition--but not contractors.
        Contractors--but not Federal employees and their union
    representatives--would have standing before the General
    Accounting Office and the Court of Federal Claims.
        It would further narrow the definition of ``inherently
    governmental.''
        It would, with the privatization quotas, emphasize
    privatization at the expense of all other methods to improve
    efficiency.
        It would not ensure that Federal employees could finally
    compete for new work and contractor work.
        It would not require anything new with respect to tracking
    the cost and quality of work performed by contractors.
        And it would hold Federal employees, in almost all cases,
    to 5-year contracts--but not contractors--and allow
    contractors--but not Federal employees--to win contracts on the
    basis of how much time they spend, instead of what they
    actually accomplish.
        Those are the 12 main parts of the OMB Circular A-76 that
    we find most objectionable. I thank you for the time to appear
    before this committee today and for this committee holding this
    hearing and look forward to answering your questions.
        Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Harnage.
        [The prepared statement of Mr. Harnage follows:]

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        Mrs. Jo Ann Davis of Virginia. Ms. Kelley.
        Ms. Kelley. Thank you. Mrs. Davis and members of the
    committee, I want to thank all of you very much for giving me
    the opportunity to share NTEU's views on the OMB rewrite of A-
    76 on behalf of the 150,000 Federal employees represented by
    NTEU.
        NTEU strongly opposes OMB's quota-driven campaign to
    privatize more than 850,000 Federal jobs. Committee members
    should not be misled by OMB rhetoric that the new A-76 will
    improve the use of public-private competitions. Under the A-76
    revisions, more Federal jobs will be put up for grabs to the
    private sector.
        Last week, NTEU filed a lawsuit charging that OMB has
    illegally overridden Congress on the sensitive issue of
    determining whether a function is inherently governmental. The
    A-76 revisions require Federal agencies to apply a
    substantially more restrictive definition of inherently
    governmental functions than is now contained in the FAIR Act.
    This change would have an adverse impact on large numbers of
    Federal employees. In fact, we have already heard from the IRS
    that their FAIR Act inventory of Federal jobs eligible for
    privatization will nearly double next year.
        NTEU believes the A-76 revisions are unfair to Federal
    employees and will deprive taxpayers of the benefits of true
    public-private competition. For example, the revisions do not
    make one single meaningful change to improve oversight of
    contractors and better track their performance. The new A-76
    continues to disregard the need for agencies to determine how
    much the contractors work cost the taxpayers, whether the
    contractors are delivering the services they promised within
    the timeframes promised, and whether the services are being
    delivered at an acceptable level of quality.
        OMB and this committee are well aware of the case of Mellon
    Bank, a contractor hired by the IRS that lost, shredded or
    removed 70,000 taxpayer checks and tax returns worth $1.2
    billion in revenue to the U.S. Treasury. Yet the new A-76 would
    not prevent a Mellon Bank type of contracting fraud from
    happening again.
        I was pleased that the new Circular would eliminate the use
    of direct conversions. However, within days of the release of
    the revised Circular, we started hearing complaints from
    agencies about the new direct conversion rules; and now it is
    unclear what action, if any, OMB will take to stop agencies
    from either bypassing the new rules altogether or seeking
    waivers to continue with the direct conversions.
        Another loophole for agencies to circumvent OMB's stated
    goal for competition is the so-called streamlined competition
    process. Streamlined studies under the rewrite are nothing more
    than sugar-coated direct conversions in which Federal jobs are
    transferred to contractors without first giving Federal
    employees an opportunity to put forward a competitive proposal.
    The new streamlined rules emphasize speed in privatizing
    Federal jobs at the expense of quality and costs. Because of
    the rigid 90-day timeframe under the streamlined study,
    agencies have absolutely no incentive to reorganize their own
    employees in a way that will deliver higher quality services to
    the taxpayers at a lower cost.
        It is no coincidence that at the same time OMB was revising
    A-76 and enforcing its privatization quotas, the IRS was
    developing a proposal to privatize tax collection functions.
    This is even further evidence of the aggressive push to
    privatize government activities with or without competition
    whether or not they are inherently governmental and whether or
    not they save money.
        Even under the new A-76, tax collection is inherently
    governmental and would require legislation before it could be
    privatized. Under this latest scheme the IRS wants to privatize
    these activities without first conducting a public-private
    competition. According to the Joint Committee on Taxation, this
    privatization proposal would bring in less than $1 billion over
    10 years at a cost of over $200 million. The IRS could bring in
    that amount in 1 year with just over $30 million in additional
    in-house enforcement resources. IRS employees can do the work
    for 15 percent of the cost of the contractors, but the
    administration still wants to contract it out.
        It is hard to believe that the A-76 process is supposed to
    be about competition. But even if agencies actually do conduct
    a competition, the new A-76 tilts the playing field heavily in
    favor of contractors.
        While OMB has gone to great pains to include every
    potential cost of Federal employee performance of the work, the
    new A-76 arbitrarily excludes legitimate costs of doing
    business with contractors. NTEU is also concerned that the new
    A-76 encourages agencies to move away from cost-based
    competitions to more subjective analysis that will lead to more
    outsourcing at a higher cost to the taxpayers. The new A-76
    would allow contracting officers to award contracts to a bidder
    that comes in with a more expensive bid than other bidders.
    Introducing this tradeoff called best value into public-private
    competitions would make fair comparisons between bids even more
    difficult.
        The new A-76 does nothing to advance the principles of
    increasing taxpayer value and leveling the playing field for
    Federal employees. I therefore urge this committee to block the
    implementation of the revised A-76 until these countless
    problems can be resolved. Thank you.
        Mrs. Jo Ann Davis of Virginia. Thank you, Ms. Kelley.
        [The prepared statement of Ms. Kelley follows:]

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        Mrs. Jo Ann Davis of Virginia. Mr. Dilks.
        Mr. Dilks. Thank you, Mrs. Davis and members of the
    committee.
        My name is Donald Dilks. I am the CEO of DDD Co. My company
    has been providing a wide variety of logistical services to
    government and industry for over 23 years. We currently furnish
    many of the mail processing services to government agencies in
    Washington, DC, including the mail digitization services for
    the House of Representatives.
        I also serve as chairman of the Contract Services
    Association of America, which represents over 400 contractors
    providing various services to the Federal Government.
        Thank you for the opportunity to be here today and share my
    perspective on the revisions to Circular A-76 which were
    released last month by the Office of Management and Budget. In
    general, we believe the revisions represent an improvement in
    the competitive sourcing process and should increase private
    sector competitions for government services, which is good for
    the taxpayer.
        CSA has worked with and on Circular A-76 since the
    Association's founding in 1965, when there was very little
    industry interest. Now, public-private competitions are a much-
    discussed issue and key to agency performance.
        Some comments on the recommendations included in the
    revision: Much of the revisions are based on the
    recommendations made by the Blue Ribbon Commercial Activities
    Panel.
        I believe the revisions will improve the process in the
    following areas: The FAIR Act inventories. The revisions spell
    out how agencies should develop their annual inventories and
    require them to include the inherently government activities as
    well. The revision also allows challenges to the applicability
    of the Reason Codes that have been used to protect functions
    from competitions. These changes will enhance agency
    accountability.
        The timeframe. Shortening the time for competitions will
    facilitate the involvement of more competition, especially
    small businesses. It is more reflective of a FAR-based process.
    The evaluation process will be fairer by treating the public
    sector proposals like private sector bids and by evaluating all
    proposals, both public and private, under the same set of
    rules, a system based on Federal Acquisition Regulations that
    is most familiar to government procurement officials.
        For the first time, many public sector employees will be
    allowed to make offers based on best value and therefore
    encourage innovation from those who are most familiar with the
    work, the government employees themselves.
        Accountability. The revisions enhance the accountability
    associated with competitive sourcing. The FAR-type approach
    offers a procurement process that is more transparent than the
    old A-76 approach. Competition officials and individuals
    participating in the process must comply with procurement
    integrity, ethics and standards of conduct rules.
        Most important, if the public sector wins the competition,
    its proposal will be treated like a contract. This means that
    the government officials will monitor the cost and service
    performance levels of the public sector's most efficient
    organization.
        Some recommendations that were not included and some other
    concerns: The policy statement. We are concerned that the
    longstanding government policy statement related to reliance on
    the private sector for needed commercial services have been
    eliminated. We urge that this statement be included in the
    transmittal memo.
        Elimination of the direct conversions. This direct
    conversion process increases agency flexibility to ensure it is
    receiving the best value to meet its mission needs and meet
    their small business goals.
        We recognize the intent of the streamlined process and hope
    that agencies will indeed avail themselves of this process. We
    do applaud the elimination of the differential in the
    streamlined process.
        Concerning the Inter-Service Support Agreements, the
    proposed November 2002, revisions included an important
    modification related to the Inter-Service Support Agreements.
    Unfortunately, this section was eliminated from the final
    revisions.
        We are concerned that the Inter-Service Agreements among
    Federal agencies as well as the military services are used as a
    means to avoid outsourcing and privatization. We do not believe
    these should be exempt from the competition.
        Some other issues: The proposed revisions are silent on
    protest rights. We believe that both parties, the agency and
    the company, bidding under the same set of rules, should have
    the appeal rights.
        In terms of the Performance-Based Services Acquisition, the
    proposed revision stated that a Performance Work Statement that
    is developed in a standard competition shall be performance-
    based with measurable performance thresholds and may encourage
    innovations. This specific statement was not included in the
    revisions. We assume the contracting office will continue to
    encourage and move to greater use of performance-based
    contracts.
        Finally, the small business considerations issues such as
    small business set-asides, minority business preference
    programs, HUBZones, Native American preferences, disabled-
    veteran and women-owned business preferences are not addressed.
        In summary, it is too early to tell whether CSA members and
    other private sector firms will jump back into the A-76
    competitions. It is important to recognize that shifting to a
    FAR-type process is not a cure for all the problems facing
    competitive sourcing.
        Significant issues remain. Cost comparisons between public
    and private sector bids will continue to demand careful
    scrutiny and fairness. Improvement is also needed in developing
    quality statements of work, the heart of the solicitation.
    Also, all competitors need to be insured equal access to
    relevant information, including workload data, in order to make
    credible proposals. And there needs to be continued high-level
    agency support, along with an ongoing dialog between the agency
    and OMB.
        While the new rules are easier to navigate and there
    appears to be a greater clarity and consistency as well as
    enhanced accountability, implementation remains key where, as
    we have so often seen happen in the past, good intentions will
    go down the drain. Fairly implementing this for public-private
    competitions will be a challenge filled with nuances and
    potential pitfalls, but we stand ready to aggressively work
    with Congress and the administration to ensure the goals of the
    A-76 revisions are fully achieved. We believe it is the right
    thing to do.
        Thank you.
        Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Dilks.
        [The prepared statement of Mr. Dilks follows:]

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        Mrs. Jo Ann Davis of Virginia. Mr. Soloway.
        Mr. Soloway. Mrs. Davis, members of the committee thank you
    for the opportunity to testify today. The Professional Services
    Council greatly appreciates your continued leadership in this
    important area.
        Today, across the Nation and around the world, hundreds of
    thousands of hard-working Americans are busy supporting the
    many and varied missions of virtually every government agency.
    They are public employees, private sector employees, employees
    of non-profits and of universities. Despite the hyperbolic
    rhetoric to the contrary, the truth is that this diverse work
    force, public and private, has repeatedly demonstrated its
    collective commitment to service, to excellence and to the
    Nation; and it's in the context of that reality that I would
    like to address the principal focus of this hearing.
        The revisions to A-76 seek to bring the process into closer
    alignment with the unanimously agreed-to, common-sense
    principles recommended by the Commercial Activities Panel on
    which I was privileged to serve. Those sourcing principles can
    be summed up as follows: First, sourcing must be viewed as a
    strategic process and not one governed by arbitrary goals or,
    for that matter, arbitrary limitations. Second, sourcing policy
    must be founded on the tenet of equal rights and equal
    responsibilities for all bidders, public and private.
        The question before the committee today is whether the
    revisions to A-76 achieve those goals. To that, my short answer
    is that the revisions represent a significant and important
    step forward. At the same time, there remain some very
    important areas in which improvement is still needed. Let me
    just mention a few specifics.
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        Mr. Soloway. First, as you know, the CAP unanimously
    recommended that the government consider both cost and quality
    factors in its sourcing decisions, otherwise known as best
    value contracting. Until the A-76 revisions were released on
    May 29, only procurements conducted under A-76, less than 2
    percent of all Federal procurement, were prohibited from
    exercising this common-sense buying strategy. Thus, we applaud
    the creation of a modified form of best value within the
    construct of A-76.
        However, under the new Circular, the authority for best
    value is limited principally to information technology, new
    work or already contracted work. Why does the authority stop
    there? Do we really want to return to the old low-bid mentality
    of the past? If existing contracts performed by the private
    sector can be competed under best value criteria, why does the
    same not apply to work currently performed by the government?
        Additionally, even when best value techniques are permitted
    under the new Circular, cost must represent at least 50 percent
    of the source selection evaluation. However, it is easy to
    conceive of circumstances in which cost, even if it is the
    single most important evaluation factor, will not and cannot
    account for 50 percent of the selection, given the range of
    other factors that also need to be considered. This arbitrary
    requirement thus limits the government's ability to make smart
    business decisions.
        We are also concerned that, under the Circular, the past
    performance of only one party, the government, may not be
    considered. This prohibition makes leveling the competitive
    playing field very difficult and, more importantly,
    significantly disadvantages the source selection process and
    the agency.
        Among its most notable improvements, the revised A-76
    requires all bidders, public or private, to respond to the same
    solicitation, submit their bids within the same timeframe, be
    evaluated on most of the same criteria and enter into a binding
    agreement under which performance will be monitored and the
    work subjected to continual competitive pressures. This
    reflects a critical commitment to fairness and accountability
    of the very kind unanimously recommended by the Commercial
    Activities Panel.
        In the area of appeals and protests, the Circular
    authorizes administrative appeals from three parties, all of
    whom had similar appellate rights under the old A-76--the
    affected contractors, the government, and the affected Federal
    work force through its elected representative.
        The significant question now being asked is whether protest
    rights at the GAO--beyond the agency level appeal--should be
    extended to the government or the Federal work force or both.
    Under the new Circular, we think it is possible that the GAO
    could determine that an agency tender official qualifies for
    standing to protest before the GAO.
        As this committee well knows, standing is derived from the
    Competition in Contracting Act and is limited for good reason
    to those individuals with the authority to sign and certify a
    bid and to sign and be liable for performance under a contract.
    For the most part, the revised A-76 places on the government
    most of the rights and responsibilities shouldered by other
    bidders. There are many complex legal issues associated with a
    government-filed protest, but it is an issue worth exploring
    further.
        On the other hand, it is inconceivable as a matter of
    equity or law that Federal employees as individuals or through
    their elected representatives would be or should be granted
    standing. While it is true that companies have the standing to
    protest, neither their work force nor their unions have such
    standing. Although all employees, public or private, are
    affected by decisions made in a competition, they do not have
    the legal or financial liability for the bids submitted or for
    post-award performance. This is true of individuals and of
    unions, be they public or private.
        There are also a number of areas of the Circular that we
    believe merit further and immediate action by OMB.
        First, it's important that the costing methodologies be
    substantially revised. For example, the revised A-76 requires
    that a cost-realism analysis be conducted on both public and
    private bids, and we certainly support that. At the same time,
    the cost manual, the use of which is required for government
    MEOs, is designed to create only a cost model of the government
    MEO. There is a vast difference, however, between cost modeling
    and cost realism. A model reflects what things should cost.
    Cost realism is geared to what they really will cost. This is a
    continuing weakness of the process that must be addressed
    without delay.
        The revisions also delete all coverage of the large,
    complex and largely hidden web of activities known as
    Interagency Support Service Agreements [ISSAS]. While OMB has
    stated its intent to address this issue through separate
    policymaking, we see no reason that new ISSAs should not be
    subject to competition, as was required under the 1996
    revisions to the Circular.
        Finally, the revised Circular makes no mention of waivers
    at all. In those cases where a public-private competition does
    not make sense from the perspective of cost, technical skills,
    technology, mission or the agency's ability to adequately
    recruit, retain, support and reward a work force, a waiver is
    the right answer. In such cases, there should be a requirement
    that interests of the work force be made a significant source
    selection factor, but for the reasons I mentioned earlier, we
    believe the Circular should clearly articulate a policy
    permitting waivers and appropriate circumstances.
        Ms. Davis, members of the committee, we believe OMB has
    done a good job of making significant improvements to the A-76
    process. We hope the revisions that OMB has made will lead to
    robust competition and, even more importantly, to outcomes that
    are in the best interest of the government. I look forward to
    answering any questions you might have and thank you again for
    the opportunity to appear.
        Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Soloway.
        [The prepared statement of Mr. Soloway follows:]

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        Mrs. Jo Ann Davis of Virginia. I understand Ms. Kelley and
    Mr. Harnage have to leave at 11:45, so I'm going to begin with
    the gentleman from Tennessee. Mr. Cooper, do you have any
    questions?
        Mr. Cooper. Thank you, Madam Chair.
        To an outsider, the inherently governmental distinction
    looks pretty confusing and arbitrary; and I almost wonder if it
    wouldn't be simpler just to say that you could privatize pretty
    much whatever any private company wanted to bid on. Because the
    standards seem to shift over time; and it's hard for me to see,
    as an outsider, a clear dividing line. Are there clear dividing
    lines, especially when you're talking about narrowing the
    standard?
        Ms. Kelley. I believe there are very specific lines. Part
    of the problem now is that there's an area of work I think most
    people would agree is inherently governmental, there is an area
    that everyone would agree may be designated commercial
    appropriate, and then there's this gray area. In NTEU's view,
    the A-76 rewrite has increased the number of jobs that will be
    moved to commercial and I think ill-advisedly. Some could argue
    that it also widens the area of the gray designation because
    NTEU would believe those in the gray area are inherently
    governmental, and others I'm sure on the panel would think
    those in the gray area should be commercial. But I think there
    are definitely jobs in the Federal sector that should be done
    only by government employees; and there is disagreement today
    over what that definition is.
        Mr. Soloway. Mr. Cooper, the question is a good one, and I
    agree with Colleen's point that there are clearly positions
    that must be performed by Federal employees. OMB policy letter
    92-1, which was issued in 1992, lays out a pretty good
    framework for what that is and what those jobs are.
        Very often, what happens in this debate though, is we move
    away from understanding what the functions really are. The
    example I'll use is the recent amendment that was considered in
    the Senate relative to air traffic control. I may or may not
    agree, but one could argue that air traffic controllers
    themselves, given the role they play, are inherently
    governmental. Some people believe that, and, as I said, I am
    not going to debate that point.
        But what that amendment encompassed was virtually all of
    the support underneath air traffic control--the technical
    support, the systems and so forth--that support activity is not
    in and of itself, in our view, inherently governmental. In
    fact, most of the technology supporting that is commercially
    driven. That was why FAA was given special authority a number
    of years ago to change its procurement practices, because it
    was having trouble accessing commercial technology.
        So you have to be very careful when you talk about a tax
    collection function being inherently governmental. There are
    elements and pieces to it. One piece may be inherently
    governmental, and another piece may not.
        Mr. Tierney, to the question you asked earlier about giving
    discretion to government managers and government employees to
    make these decisions, I think it's inevitable you have to give
    some of that discretion and have some faith that government
    employees and government managers will show good sense in
    making those distinctions that need to be made.
        Mr. Cooper. It's sounding again like it's whatever private
    companies may want to bid on. I would, for example, have
    thought that military service would be an inherently
    governmental function, not Civil Service, but, if the Pentagon
    is requesting $200 million so that they can essentially train
    foreign troops to preserve peacekeeping and other functions
    that ordinarily our troops would perform.
        So it is amazing, the reach of these definitions. And I
    agree that's not Civil Service, but it is a change in what an
    ordinary American would have thought.
        I am worried about the inherent disadvantage. As I
    understand it, there is an automatic 12 percent overhead rate
    applied to any in-house bid, at least within DOD; and that
    seems like an arbitrary and unfair number. Why is 12 percent
    automatically the overhead rate that's applied?
        Mr. Soloway. To deal with the overhead issue one has to go
    back to the history of the Circular a little bit. If you will
    bear with me, back during the early to mid-1990's OMB was
    looking at this very issue of overhead and how overhead was
    being accounted for on the public side. Obviously, in a private
    sector bid you have to account for all of it in your bids; and
    OMB found that the average overhead, and this was particularly
    at DOD because that was the only place that A-76 competitions
    were taking place, that the average factor being figured in was
    somewhere between 1.5 and 2.5 percent. Anybody who's ever run a
    business or an organization knows that when you're running an
    organization 1.5 or 2.5 percent overhead is a bit beyond the
    pale and virtually impossible.
        So OMB went to DOD and then asked a number of folks in
    industry using the government definition of overhead, because
    it is different for a government organization than it is for a
    company, what should this number be. There were a variety of
    inputs brought to OMB's attention, ranging from the low single
    digits, which I don't think many business people would agree is
    realistic, to more robust numbers in the mid 20 percent range.
        Many company overhead factors are 25, 30, 35 percent, even
    good companies. It is a reality of doing business, and to think
    that you can operate a government entity at a 1.5 or 2 percent
    overhead is clearly not accurate. But because of the way the
    budget and costing models work and systems work in government,
    you don't have full accounting for your total overhead. You
    don't really know what all of those different lines of cost
    are.
        So OMB actually came up with a compromise at 12 percent.
    It's not an arbitrary number. Is it absolutely right? It's
    probably too low, in my view. But it's there to be a reasonable
    estimate of what those costs are because we don't have the
    financial systems to give an accurate presentation and, we have
    a history where the numbers being used were absurdly low.
        Mr. Harnage. Mr. Cooper, I would like to respond to that,
    too, if I may.
        You know, it is an arbitrary number, even for DOD; and if
    you read the Department of Defense Inspector General, the 12
    percent overhead rate he states is ``unsupportable, a major
    cost issue that can affect numerous competitive sourcing
    decisions. Unless a supportable rate is developed or an
    alternative method is calculated at a fair and reasonable rate,
    the results of future competition will be questionable.'' The
    Inspector General of DOD says this is an arbitrary number and
    it's not supportable.
        Mrs. Jo Ann Davis of Virginia. The gentleman's time has
    expired.
        The gentleman from Maryland, Mr. Ruppersberger.
        Mr. Ruppersberger. Yes. Really, this was a question that I
    probably should have asked for the first panel, but I am going
    to throw it out, and if you don't want to answer that's fine.
        Setting aside whether or not the idea of outsourcing to the
    private sector is a good idea for a minute, I would like to ask
    a question about the A-76 process and the intent behind the
    process. The contracts from this process tend to be large-
    dollar-volume contracts which essentially cut small businesses
    out of the bidding process; and these contracts may be $30 to
    $50 million annually and inherently are set up--in my opinion,
    they're set up for large businesses.
        In my Maryland 2nd Congressional District, Fort Meade,
    which is an Army base, has been outsourcing much of its work to
    small businesses; and, as a result of these changes, those
    small businesses in my district are telling me that they no
    longer are able to compete because--with the large businesses.
    So my question really is, what is being done to ensure that the
    small businesses won't be pushed out of the process and how can
    we be sure that small businesses' percentages are built into
    contracts or actually fulfilled?
        Mr. Dilks. I would like to respond to that, Mr.
    Ruppersberger.
        Mr. Ruppersberger. Sure.
        Mr. Dilks. Having been a small business----
        Mr. Ruppersberger. I wanted to ask the question of the
    Department of Defense, but that's fine.
        Mr. Dilks. Well, I can tell you one of the major reasons we
    have not seen a lot of small business participation in the A-76
    studies in the past is because the process is never ending. In
    my view the timeframe change that is now part of the new
    Circular will see a significant improvement in the
    participation of small businesses, because now not only do they
    view the playing field as being more level, they view that
    their investment and bid and proposal cost, which is very
    limited in the small business, will see a more immediate
    return. So I think this revised Circular will benefit the small
    businesses in many ways.
        Mr. Ruppsersberger. Why do you think they would be
    concerned or complaining then? We are getting some calls from
    the small businesses that really deal with that Army base. Why
    would they have concern? Do you have an idea?
        Mr. Dilks. I really--in my view--I mean, small businesses
    have always had an opportunity to team up with other companies
    on large procurements.
        Mr. Ruppersberger. Well, it's usually as a subcontractor.
        Yes.
        Mr. Soloway. I think there is another point here. I think
    Don's point about the timeframes being a real disadvantage to
    small business historically and the nature of the process has
    caused a lot of small businesses to stay out of the process.
        On the other hand, and DOD has some very good numbers on
    this. It would be worth asking them for them. There is a very
    substantial percentage of A-76 competitions in the past that
    have gone to small business. I think the revision--one of the
    ironic and probably unintended consequences of it is it will
    harm small business. To the extent that direct conversions are
    now eliminated entirely and for under 65 employees, which is
    principally the area that small businesses can be competitive,
    you can no longer do a direct conversion and you're back into
    the public-private competition environment. That was an area in
    the old Circular where I believe it was under 50 or 60
    employees you could actually have a robust private sector
    competition. It was an area where small business participated
    very extensively. You get up into the 100, 150, 200 employee
    range, obviously it becomes much more difficult for a small
    business.
        So one of the difficulties with the new Circular is in the
    push to guarantee that we are always going to have public-
    private competition, even where it doesn't necessarily make
    sense. We are disadvantaging small business by eliminating that
    category that they're most competitive in.
        Mr. Ruppersberger. OK. Thanks.
        Chairman Tom Davis. Thank you.
        Let me just ask--I know you have to go. Can I just ask a
    couple of questions of you?
        Let me--Mr. Harnage and Mrs. Kelley, thanks a lot for being
    here, because I think you have more members that could be
    adversely affected by this than anyone else. I appreciate your
    being here, and I just want to tell you we have great
    sensitivity. Is this a better Circular than the old Circular?
        Ms. Kelley. Not in NTEU's view, no. We believe that the
    problems I identified in my testimony make it worse, and we are
    asking that this committee block implementation of the new A-76
    and go back to the old unless these issues are addressed.
        Chairman Tom Davis. Because the old one was horrendous,
    too. We agree with that, don't we?
        Mr. Harnage. I don't believe it's better. One of the things
    that amazes me the most is the practical--for all practical
    purposes, the elimination of most efficient organization. For
    years we've pushed the privatization issue on the basis that
    competition saves money; and in this morning's testimony, there
    was some reference to a 20 to 30 percent savings. That's only--
    the 30 percent is only in the case of it being privatized, 20
    percent of the competition.
        That's the reason AFGE has supported competition throughout
    these years. But if you eliminate the MEO, you're eliminating
    that 20 percent savings. So why would you eliminate that?
        I know the contractor community thinks it's only fair that
    they compete against what you're doing today. But we recognize
    there efficiencies in government. Why should we privatize those
    inefficiencies, then let the contractor eliminate them and have
    a windfall profit at the taxpayers' expense? It makes
    absolutely no sense.
        You know, there are several issues in this that, as I said
    in my opening statement, you know, this is driven. This is a
    political agenda. It's not about saving money. It's about
    moving money to the private sector. There is nothing in this A-
    76 that gives us any more accountability, and we have been
    trying to get that accountability now for years, where we have
    projected these savings. Let's go back and determine whether or
    not we did, in fact, save those; and, if we didn't, let's don't
    repeat that mistake.
        Chairman Tom Davis. Well, let me tell you my agenda. And,
    again, it's not a political agenda. It's one that wants to
    bring more efficiency to government, and competitive sourcing I
    think helps the government come in and do their job better. I
    think we all agree that's a very positive thing.
        I expressed concern earlier that one of my concerns is when
    you do this on a repetitive basis you kind of wear down the
    Federal work force and people just kind of hang it up and say,
    you know, I don't have the job stability here I was getting for
    some of the reduced benefits or whatever. And that's an issue
    as well. Now, both the NTEU and the AFGE were included in the
    Commercial Activities Panel and agreed with the sourcing
    principles that developed. What's the primary differences
    between those principles and the updated Circular? Could you
    characterize that quickly, the differences?
        Ms. Kelley. Well, while I supported the principles, I did
    not submit or support the underlying recommendations, one of
    which was the one-step approach, which is being called tradeoff
    or best value.
        Also, one of the things that I did support was the concept
    of the high-performing organizations so that the Federal
    agencies were encouraged and supported and funded to create
    these high-performing organizations, and there's nothing in the
    new Circular that does that. That piece of it is totally
    eliminated.
        Chairman Tom Davis. For both of you, that's just a huge
    issue, is that fair to say?
        Mr. Harnage. That's a very large issue. Even though it was
    a unanimous decision on the principles, on the report itself,
    the supermajority was all of the appointees of the
    administration and the contractor community, none of the
    academians or the----
        Chairman Tom Davis. Well the devil's always in the details,
    I think.
        Mr. Harnage. Yes. But, you know, what it looks like to me
    is they picked out the part that--not only that the Commercial
    Activities Panel rejected, they put into this new A-76, but
    they picked out the parts that most favored the contractors in
    the recommendations and left out those that most favored the
    taxpayers and the Federal employees. You know, this package is
    totally objectionable. They could have done a much better job
    had it been less influenced.
        Chairman Tom Davis. I don't know if you have done this, but
    I would ask each of you, as you look at that current thing, if
    you want to come back with some specific recommendations as to
    how you would write it that would be helpful to us, just so we
    could get it and compare.
        Mr. Harnage. I'd be glad to do that. My question is, Mr.
    Chairman, is I'm more than willing to do that, but I'm a little
    confused. What is the intent of this committee and handling
    this information?
        Chairman Tom Davis. Well, we're an oversight committee. We
    can also legislate. I mean, we have authority. The legislative
    process is a very burdensome process, as you know, because we
    would have to not only move a bill through, we have to get it
    signed into law. I don't think there is a reason to be real
    optimistic about that from where you sit, given the current
    alignments; and I'm just being candid. However, I think we can
    influence the regulatory process.
        Mr. Harnage. We've had that conversation before.
        Chairman Tom Davis. We can influence it in a fairly
    significant way, and I am happy to do that. And if it means
    legislation--but I want to just get a fair understanding of
    everything. Because I don't think there is any question
    competitive sourcing is a management tool that should be
    utilized and can be utilized and has been helpful in many
    instances.
        You know, I'm trying to be sensitive to do this in an
    appropriate way; and I think in many ways--I mean, I think Ms.
    Styles has taken a good stab at it. I'm just--we sit here, and
    we would hope to have more consensus, and when you don't get
    consensus on an issue like this, it causes me some concern.
        We have a vote on. I have more questions. I know you two
    have to leave, am I correct? Both of you? Are there any other
    questions at this point? Mr. Tierney. Let me give Mr. Tierney a
    couple of questions for you. Then if you can wait I would like
    to come back and ask you some questions after the vote, and we
    can have more of a conversation, if that's OK. Mr. Tierney.
        Mr. Tierney. Thank you, Mr. Chairman.
        I want to thank all the witnesses for being here, being
    helpful.
        I don't want to hold you up, Mr. Harnage and Ms. Kelley,
    but, I mean, I have obvious concerns about this.
        We want any process to be fair. I think it has been
    remarkable that both the organized labor as well as the
    business community have wanted to move this process forward,
    but I have questions about the details. For it to be fair, it
    can't be arbitrary; and for there to be a lack of arbitrariness
    you have to take out some of the subjective aspects of it.
        I keep looking at the current proposal and just see a lot
    of subjectivity all the way around, and that causes me great
    alarm and great concern. We have, I think, an abominable record
    of supervising contractors, private contractors--the Department
    of Energy, the Environmental Protection Agency and on down the
    line. So extending out to more private contractors without
    first improving our ability to supervise them should be a
    concern to us.
        Let me talk about this best value. That seems to be the
    most subjective of all of the aspects on this. Mr. Harnage, Ms.
    Kelley, do you have concerns about that? What are they and how
    do we address them?
        Mr. Harnage. The best value?
        Mr. Tierney. The best value.
        Mr. Harnage. Yes, I do have, because it's such a subjective
    decision.
        Under the old 76, if the statement of work requested a
    certain, you know, job be done and the contractor was competing
    for that, the contractor could go to the contracting officer
    and say, I know you asked for A, but I would like to provide
    you B. It is a little more costly, but it is a better product,
    be more efficient, so it would be a savings in the long run.
        The government official could say, I like that, then would
    go back to the in-house and say, can you do this, and if you
    can, what would it cost?
        You're looking after the taxpayer. You're keeping apples to
    apples, not apples to oranges.
        Under this new situation, the government official can say,
    I like that. You've got it. Not necessarily a savings to the
    taxpayer and not necessary bells and whistles that you really
    need, but that individual likes it. And with this conflict of
    interest, this revolving door that we have, particularly in
    DOD, that's extremely dangerous.
        Mr. Tierney. Ms. Kelley.
        Ms. Kelley. I would also add that Federal employees have
    many ideas on how to do things better. They have a lot of ideas
    that are innovative and creative, but most agencies don't have
    systems, a process funding, or management structures in place
    to support that innovation and creativity from ever being put
    to work or ever being funded and allowed to actually put forth
    these new ideas. So, in that instance, I think that the agency
    should be not only encouraged but supported and funded to be
    able to do that.
        On the issue that you mentioned, also, Mr. Tierney, about
    the accountability issue of the contract management, this new
    rewrite, OMB suggests and requires, I guess directs each agency
    to create a program office to monitor or to implement the
    competitive sourcing agenda. I wish they had directed each
    agency to put in place a program office that would monitor and
    hold accountable all of the contracts that are out there so
    that real decisions can be made about whether that work can and
    should be done by Federal employees or by contractors and when
    it should be brought back inside. There is no such system in
    place that mandates or requires that; and, as we have heard
    from GAO and others, most agencies just don't do it.
        Mr. Tierney. I have limited time, so I want to just cover
    one other thing, Mr. Harnage, that you mentioned in some of
    your summary, was the adverse impact you believed would be the
    very diversity in the Federal work force. Would you just expand
    on that comment?
        Mr. Harnage. Well, except, you know, in most cases the
    privatization--the vast majority of the privatization that has
    taken place, driven by either the quotas or the A-76, has most
    impact on minorities--minorities and women. That's where that
    comes from. If you look at the Federal work force and the
    people that are affected and the ones that wind up leaving, as
    opposed to those staying, it has a larger impact on the
    minority community.
        Mr. Tierney. Mr. Dilks, you mention in your remarks that
    you thought it would be fair to treat the public like the
    private in terms of these bids. But I have some concerns about
    the fact that the contractors don't seem to be being held to
    absolute competition requirements for requiring and retaining
    existing work. Would you be amenable to having those--the A-76
    changed to make sure the contractors as well as public
    employees were held to recompetition requirements?
        Mr. Dilks. We are held to recompetitions. Our contracts are
    recompeted at the end of their terms. That's been the process
    as long as I have been in the business. We're already held to
    that.
        Mr. Tierney. I read these to back off of that a little bit.
    You don't read that at all.
        Mr. Dilks. No, sir, not at all.
        Mr. Tierney. Well, we'll go back and read it again.
        Ms. Kelley. If I could just----
        Mr. Tierney. Sure.
        Ms. Kelley. And this is really a question, I guess, to
    clarify my understanding. Any recompetition occurs private to
    private. Federal employees never have the opportunity again to
    be in that process.
        Mr. Dilks. Is that your question?
        Mr. Tierney. That's what I meant by backing off. Thank you
    for translating it for me.
        Mr. Dilks. I am not speaking for my members, but, speaking
    for my own company, I have no problem with recompetition of
    work that's been contracted to me.
        Mr. Tierney. Of course, the problem with that is, once
    you're in there, the employees are gone and who actually puts
    together that bid then becomes a problem. We'll have to work
    out some structure on that. Because, otherwise, once it's out
    the door, it's out the door; and if we are losing money and
    it's not working well, we are sort of in tough shape with that
    situation.
        Mr. Soloway. That's at the point when you recompete it
    amongst other companies. That's the same decision process a
    company goes through.
        Mr. Tierney. That's where we are. If there isn't a job
    that's needs to be done well by private, we've just lost the
    public aspect of it and we're done. As much as I think that
    there are appropriate situations, I think there are some
    inappropriate situations; and if you move to one of those and
    you don't have any way to recover, you're in deep soup. That's
    the problem there, is once you're out the door to private
    contractors for up to 5 years or whatever and then you want to
    rebid, if it's only contractor to contractor you've lost the
    opportunity to have what might be the better process on that.
        I yield back the balance of my time.
        Chairman Tom Davis. Thank you very much. I just have a few
    more questions.
        Mr. Harnage. Mr. Chairman, if I might.
        Chairman Tom Davis. Yes, you're dismissed.
        Mr. Harnage. I just wanted to say thank you very much for
    this opportunity. I apologize for having to leave. We will get
    you that information you requested, and I'll be more than glad
    to meet with any member of the committee that might like to
    meet personally.
        Chairman Tom Davis. Thank you.
        Let me ask, we don't--we recessed. I heard the bells go
    off. The new Circular permits interested parties, including
    employee representatives, to appeal adverse A-76 decisions to
    the contracting agency, but the Circular doesn't address the
    issue of the standing of Federal employees to protest before
    the GAO or the Federal courts. What is your view on whether the
    Federal employees themselves should have standing to challenge
    A-76 determination?
        Mr. Soloway. First of all, Mr. Chairman, the Circular can't
    address that issue because it's not within the purview of an
    administrative policy. It's actually a legal question and would
    probably require statutory changes. So I don't believe the
    Circular even can address the protest at GAO that's actually
    GAO's discretion as to who they grant standing to.
        But, as I said in my testimony, the issue that really has
    to be examined here is who has standing before GAO or the
    courts. That standing is derived from the Competition in
    Contracting Act and has traditionally, for good reason, been
    limited to those who have the authority to sign and certify to
    a bid and to have the liability legally and financially for
    performance under a contract.
        In the case of Don Dilk's company, Don Dilks as the CEO of
    his company has standing under that standard. His employees and
    his unions do not have standing because they don't have that
    liability and that responsibility.
        In the case of the revised Circular, as I said in my
    testimony, I think it's conceivable that GAO will for the first
    time determine that the government is actually being asked to
    behave like a bidder. There is an official with authority and
    certification responsibility; and, therefore, that official and
    the government agency may then get standing at GAO, but this is
    up to GAO.
        However, to extend that beyond the agency tender official
    to either the union or to individuals would be, as a matter of
    equity and law, totally inconceivable. It's entirely contrary
    to the whole concept of standing and the whole purpose of the
    protest process.
        Chairman Tom Davis. Mr. Dilks and Mr. Soloway, what really
    influences a company's decision to engage in competition?
    Because there's a cost to that. When you go after one of these,
    there is a cost. You have to, you know, put forward your
    proposal and the like. Does the revised process encourage
    companies? Is this more of an incentive for you to get
    involved?
        Mr. Dilks. Mr. Chairman, it will be for our company. There
    are many factors, obviously, in determining when we are going
    to bid on competitive procurement. The most important one, in
    many cases, for my firm is what is the likelihood that we can
    be successful on the competition and provide high--as high or
    higher quality of work than any of our competition. That's
    usually the driving factor. And part of that factor is can we
    win the competition.
        In the past, quite honestly, my company has always put A-76
    competitions at the very bottom of the level of priorities
    because of the fact that there's never any certainty that there
    will ever, in fact, be an award. With this revised Circular I
    think that for the first time we have a real fair playing
    field, and I will be much more interested in pursuing those
    opportunities where they might exist.
        Mr. Soloway. Mr. Chairman, I can't speak for a company, but
    I can tell you that the jury is still out on the question, and
    there are a couple of key issues that play into this. No. 1 is
    the limited application of best value. Despite Mr. Harnage's
    comments to the contrary, best value really is where cost and
    quality come together; and throughout the Federal procurement
    system cost and quality has become, by the dictate of this
    committee and others in Congress, sort of the standard by which
    we want to buy products and services. The limited application
    of best value, particularly as you move into more sophisticated
    technology requirements, really becomes an issue for companies
    to look at whether or not they can propose the kinds of
    innovative solutions that can be successful.
        So I think that the jury is still out on the whole
    question. I think it is clearly an improvement. The question is
    whether we have gone far enough and there are a number of other
    issues that need to be addressed.
        Chairman Tom Davis. How often do Federal employees that are
    displaced end up with a contractor after an A-76?
        Mr. Soloway. Historically, it's been, a very high
    percentage. The last numbers I saw were somewhere about 60
    percent or so. As Scott Cameron said on the earlier panel, in
    Interior's experience they have not had a single employee who
    has been involuntarily separated as a result of the process.
        One of the weaknesses of the process, ironically, to turn
    the question a little bit, is that in the push to mandate
    public-private competition and to not lay out and articulate a
    process for waivers we're avoiding or skirting opportunities to
    actually advantage the employees through competitive
    outsourcing while still advantaging the government.
        The examples I'd suggest the committee look at are the
    National Security Agency's Groundbreaker contract and the
    Army's Wholesale Logistics Modernization initiative. In both of
    those cases, the interest of the employees was first and
    foremost in the source selection. In neither of those cases was
    A-76 conducted. The employees were made a major asset in the
    process; and the companies were basically told, if you want to
    do this business for us, you've got to think about our
    employees and tell us what you're going to do to make them
    whole and take care of them. And the results were
    extraordinary.
        You can't do that when you're competing against that
    employee base, for obvious business reasons. But in many cases
    where the A-76 competition makes no sense, those are options
    that we ought to be looking at if our principal concern is the
    employees.
        Chairman Tom Davis. OK. Mr. Soloway, you testified that you
    have concerns with Federal employee groups being exempt from
    having past performance used as a selection criteria in the
    first round of A-76 competition. How would you measure a
    Federal employee's past performance? How does the government
    assess its own past performance?
        Mr. Soloway. It's a very difficult question and I raised it
    in the testimony because I think it's one of the areas we're
    going to have to be very cognizant of as we go forward.
        It is by a matter of policy, in many cases, practiced
    throughout the government that past performance is sometimes
    25, 30, 40 percent, even 50 percent of a source selection
    decision for very good reason. As this committee has said over
    the years, it's often the best indicator of success or failure
    in the future. So to eliminate only one party from being
    considered under their past performance makes it very difficult
    to have a true best value level playing field.
        I think the government needs to develop an internal system
    for measuring activity level performance, not just agencywide
    report cards, something beyond ad hoc reference checks and
    phone calls, to actually build a performance data base. Now,
    that's going to take some time. The second time around, if an
    MEO does win an A-76 competition, their past performance should
    be easily measured. It should be tied to their binding letter
    of obligation, the performance requirements, the cost
    associated with it and so forth. But I think it is a very
    difficult question.
        There are various things you can do to look at performance.
    You can look at cost growth over time. It's a little bit
    different than you do with the private sector because we now
    have a system in place across the government to measure the
    performance and maintain a data base. But it is a real equity
    issue. It is also an issue for agencies when they are looking
    to likely success or failure.
        Chairman Tom Davis. Let me ask each this. I mean, we go
    through government periodically and reassess can the government
    do this better on the outside. Should the government have a
    program where contracts that are on the outside--every once in
    a while to go reassess those and see if they'd be better off
    taking them in-house?
        Mr. Soloway. There is certainly nothing in the Circular
    that would inhibit or prohibit that. That has always been the
    case under the old Circular and the new Circular. It's called a
    reverse A-76, and the rule just turns around the other way in
    terms of the cost differentials and so forth.
        Chairman Tom Davis. In your experience, has that been
    utilized very much?
        Mr. Soloway. It's been done. It's not common, but it's been
    done.
        And the point that Mr. Tierney was making is a fair one. In
    your days in the private sector if you decided to outsource
    something and you eliminated the infrastructure that supported
    that activity and the outsourcing didn't work, your first and
    most common remedy would be to go recompete it amongst other
    providers. If at the end of that process you really couldn't
    find a provider that was going to provide the quality and cost
    that you really needed, then you go through the process of
    recreating the infrastructure. That limitation is principally
    driven by arbitrary FTE ceilings, and I don't think those
    ceilings ought to be in place to limit your ability to do that.
        One good example of this--and we dealt with this during the
    Commercial Activities Panel--was Indianapolis where, as you
    know, Mayor Goldsmith was very active in competitive sourcing.
        First of all, he actually had strong support from the
    unions there to do a competitive process. Not everything was
    competed. There were decisions made that some things just made
    no sense to be performed by the private sector and other things
    made no sense for the government to continue to perform for
    various reasons. They did find on rare occasions that in some
    cases the market essentially disappeared for the service they
    were buying.
        The example he uses very often is pothole filling. If you
    take a city the size of Indianapolis and you contract out the
    city's need for potholes and filling potholes, you have pretty
    much taken away much of the marketplace because it's a dominant
    piece of business in the city. After a number of years they
    found that the performance was not up to snuff and so they
    worked with their unions to build a competitive bid and bring
    the work back in-house. It's uncommon. It's driven primarily by
    radical changes in the mission or the marketplace. But if it's
    commercial in nature and you've already made the decision that
    the performance by the government or the private sector is not
    the critical decision, it's the best source, you continually
    use that competitive marketplace to find a better supplier.
        Chairman Tom Davis. What we found in Fairfax on trash
    collection is that, first, it was all outsourced. After a while
    we got the county to also do a piece of it, and in the
    outsourced areas the costs dropped because the county, by doing
    a critical piece of it, brought some additional competition. We
    found basically, some price rigging and so on among everybody
    prior to that as they were divvying up the territories and the
    like so----
        Mr. Soloway. As you said, in the case where the market has
    changed and competition doesn't really exist, it can be
    helpful. But in most cases the market is quite robust and just
    adding a government bidder to the process doesn't create the
    competition. It's whether the competition is either there or it
    isn't.
        Mr. Dilks. Mr. Chairman, if I can add to Stan's comments,
    you also need to understand in the service contracting business
    we're challenged by our agencies, our customers every day to
    find less expensive and better ways to perform, so it's an
    ongoing process. In the services business truly you're measured
    every day based on your level of service and your cost. So this
    isn't something that comes up every time the contract's up for
    recompete. This is part of our everyday work performance.
        Chairman Tom Davis. OK. Well, those are the questions I
    have. Anything else you all would like to add? Probably. But
    your total statements are in the record.
        I appreciate your being here. I appreciate both of our
    panels coming here this morning and answering questions. I want
    to thank our staff who worked on this hearing as well.
        So the hearing is adjourned.
        [Whereupon, at 12:15 p.m., the committee was adjourned.]
        [Additional information submitted for the hearing record
    follows:]

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