[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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    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:]

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    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.
    [The information referred to follows:]

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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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