[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
ENTREPRENEURIAL GOVERNMENT RUN AMOK? A REVIEW OF FSS/FTS ORGANIZATIONAL
AND MANAGEMENT CHALLENGES
=======================================================================
HEARING
before the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
OCTOBER 2, 2003
__________
Serial No. 108-80
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2004
90-749 PDF
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota ------
MARSHA BLACKBURN, Tennessee BERNARD SANDERS, Vermont
(Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Philip M. Schiliro, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on October 2, 2003.................................. 1
Statement of:
Perry, Stephen, Administrator, General Services
Administration, accompanied by Sandy Bates, Commissioner of
the Federal Technology Service, and Donna Bennett,
Commissioner of the Federal Supply Service................. 10
Woods, William T., Director, Acquisition and Sourcing
Management, U.S. General Accounting Office; Larry Allen,
executive vice president, Coalition for Government
Procurement; and Donald E. Scott, senior vice president,
EDS, Inc. on behalf of Information Technology Association
of America................................................. 46
Letters, statements, etc., submitted for the record by:
Allen, Larry, executive vice president, Coalition for
Government Procurement, prepared statement of.............. 63
Clay, Hon. Wm. Lacy, a Representative in Congress from the
State of Missouri, prepared statement of................... 8
Davis, Chairman Tom, a Representative in Congress from the
State of Virginia, prepared statement of................... 4
Perry, Stephen, Administrator, General Services
Administration, prepared statement of...................... 16
Scott, Donald E., senior vice president, EDS, Inc. on behalf
of Information Technology Association of America, prepared
statement of............................................... 74
Waxman, Hon. Henry A., a Representative in Congress from the
State of California, prepared statement of................. 80
Woods, William T., Director, Acquisition and Sourcing
Management, U.S. General Accounting Office, prepared
statement of............................................... 49
ENTREPRENEURIAL GOVERNMENT RUN AMOK? A REVIEW OF FSS/FTS ORGANIZATIONAL
AND MANAGEMENT CHALLENGES
----------
THURSDAY, OCTOBER 2, 2003
House of Representatives,
Committee on Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 11:13 a.m., in
room 2154, Rayburn House Office Building, Hon. Tom Davis of
Virginia (chairman of the committee) presiding.
Present: Representatives Tom Davis of Virginia, Souder,
Ose, Lewis of Kentucky, Murphy, Maloney, Cummings, Mr. Davis of
Illinois, Tierney, Clay, Watson, and Norton.
Staff present: Peter Sirh, staff director; Melissa Wojciak,
deputy staff director; Ellen Brown, legislative director and
senior policy counsel; John Hunter, counsel; Teddy Kidd,
professional staff member; Jennifer Safavian, chief counsel for
oversight and investigations; Robert Borden, counsel/
parliamentarian; John Brosnan, GAO detailee; Teresa Austin,
chief clerk; Brien Beattie, deputy clerk; Karen Lightfoot,
minority communications director/senior policy advisor;
Michelle Ash, minority counsel; Mark Stephenson and Tania
Shand, minority professional staff members; Earley Green,
minority chief clerk; Jean Gosa, minority assistant clerk; and
Cecelia Morton, minority office manager.
Chairman Tom Davis. The committee will come to order. Good
morning, I want to welcome everybody to today's oversight
hearing on the General Services Administration's ongoing
efforts to restructure the organization of the Federal Supply
Service and the Federal Technology Service, and the impact of
recent GSA Inspector General investigations of FTS contract
management. We will also touch upon GSA's plans for a new
Governmentwide telecommunications program.
The hearing today will build on the information on
structural and management challenges faced by the two services
developed in a hearing held last Congress by my Subcommittee on
Technology and Procurement Policy, and supplemented by the
General Accounting Office in work performed for the
subcommittee. Also key are recent revelations of mismanagement
in FTS contracting surfaced by the GSA IG in a study of FSS/FTS
organizational issues performed by Accenture last year for the
General Services Administration.
Through various revolving funds, GSA buys products and
services from the private sector. It resells them to Federal
agencies. FSS and FTS, which do a combined $30 billion in
business each year, both fit within this model but take
different approaches to filling agency customers' needs. The
Federal Supply Service, through its Schedules program, provides
Government agencies with the opportunity to quickly purchase
needed products and services including, of course, IT. Customer
agencies deal directly with vendors under their FSS contracts.
Used properly, the Schedules have proved to be an invaluable
tool for Federal contracting officers.
FTS, operating through GSA's Special Information Technology
Fund, offers Federal agencies a range of IT and
telecommunication services through varied contract vehicles it
has traditionally managed and the Schedules. FTS views itself
as a ``value added'' reseller of telecommunications and IT. FTS
offers consulting and extensive contract management solutions
to assist Federal agencies in complex acquisitions that require
indepth technical knowledge. FTS seems to have been the primary
source of GSA's recent management challenges.
The overlapping and redundant nature of the current
structure has raised questions related to the relationship
between these services. As a result of last year's hearing, GAO
work and the Accenture report, the Technology and Procurement
Policy Subcommittee found that overlaps existed between FSS and
FTS in a number of areas, including information technology
sales and marketing and IT contracting offerings. Administrator
Perry, to his credit, has embarked upon a realignment effort in
an attempt to coordinate the range of services provided to
agencies. As a part of this effort, GSA has recently announced
the result of a review of its IT contract vehicles. As I
understand it, a number of those contracts will not be
continued and those that remain will, for the most part, be
managed by the Federal Supply Service.
Notwithstanding these efforts, there have been disturbing
revelations of what may well be a pattern of contract
mismanagement throughout the FTS. The GSA IG reported
inappropriate contracting practices and misuse of the
information technology funds by FTS officials at GSA's
Bremerton, WA, office. I also understand that the IG will soon
release another report documenting further contracting
irregularities by FTS officials in other GSA regions. I believe
that the problems are extensive and could involve acquisitions
valued up to $100 million. The committee is closely following
this unfolding story. We have to be ready to remedy the
situation if allegations of wide-spread abuse and mismanagement
at FTS prove to be true. Consequently, the committee intends to
explore alternatives, including legislative solutions, to the
current FSS/FTS structure that would lead to better management
oversight of contracting activities.
I am keenly interested in hearing GSA's plan to remedy
these growing difficulties and in exploring the relationship of
these instances of mismanagement to the underlying structural
issues. Finally, in addition to all this, GSA will soon issue a
Request for Information seeking input for a next generation
Governmentwide telecommunications program. This program is
slated to be run by FTS. While we have yet to see the details
of the GSA's telecom proposal, as the specifics unfold, the
committee plans to address issues concerning the appropriate
location for this program and whether there is a need for it at
all.
In closing, I want to emphasize that the committee will
continue to follow these events. I will not hesitate to propose
whatever solutions are needed to resolve GSA's structural and
management challenges, but I look forward to the
recommendations and working with Commissioner Perry in doing
this. We have to be able to assure the American taxpayers that
GSA provides best value as a supplier of IT products and
services to the Federal Government. If this requires that we
mandate permanent reorganization, we will do what we need to
do.
But let us start today by hearing what the witnesses have
to say. I want to welcome all the witnesses to today's hearing.
I look forward to their testimony. Is there anyone else that
wishes to make an opening statement this morning?
[The prepared statement of Chairman Tom Davis follows:]
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Mr. Clay. Mr. Chairman.
Chairman Tom Davis. Yes, Mr. Clay?
Mr. Clay. Yes, Mr. Chairman, the GSA is the parent
organization of the Federal Supply System and the Federal
Technology Service. Both systems have functioned remarkably
well since their creation. The FSS alone has operated since
1949 and, combined, they do more than $30 billion in business
each year. This is a real testimony to the hard work of the
employees and managers at offices and warehouses around the
country. The procurement solutions they provide to Government
through their contractors have been invaluable. However,
lately, something has gone awry with these two systems, and
that is what brings us here today, to examine the issues of
waste, fraud and abuse.
Recently, I was reading a report issued by the GSA
Inspector General's Office. I was astonished to learn that they
found FTS funds were co-mingled. There has been abuse and
misuse of the Small Business Administration 8(a) Contractor
Program; improper coding procedures; duplication and overall
inefficiency between FTS and FSS. These situations are
unfortunate and are reflective of a troubled agency.
Mismanagement on this scale is simply not acceptable. Finally,
it is imperative that our constituents have confidence in the
Government's ability to be fair and open in its procurement
process.
I look forward to hearing from today's witnesses, and I ask
unanimous consent to submit my statement into the record. Thank
you, Mr. Chairman.
[The prepared statement of Hon. Wm. Lacy Clay follows:]
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Chairman Tom Davis. Thank you very much. Are there any
other opening statements?
[No response.]
Chairman Tom Davis. Well, Members can have 5 legislative
days to submit opening statements for the record. There is no
vote, yet; we anticipate it momentarily, but let us move ahead
with the hearing.
Our first witness is Steve Perry, the Administrator of the
General Services Administration. Mr. Perry, you are accompanied
by Sandy Bates, who is the Commissioner of the Federal
Technology Service. Welcome, Sandy; you have been here before;
and Donna Bennett, the Commissioner of the Federal Supply
Service, so welcome.
It is the policy of this committee that all witnesses be
sworn before they testify. Would you rise with me and raise
your right hands.
[Witnesses sworn.]
Chairman Tom Davis. Please be seated. Your entire statement
is in the record, Mr. Perry. If you can, try to take 5 minutes.
You know how the buttons work. But whatever you need, on this
important issue, we want to give you time to amplify; thank you
and welcome.
STATEMENT OF STEPHEN PERRY, ADMINISTRATOR, GENERAL SERVICES
ADMINISTRATION, ACCOMPANIED BY SANDY BATES, COMMISSIONER OF THE
FEDERAL TECHNOLOGY SERVICE, AND DONNA BENNETT, COMMISSIONER OF
THE FEDERAL SUPPLY SERVICE
Mr. Perry. Good morning Mr. Chairman and members of the
committee. Thank you for the opportunity to testify today on
behalf of the GSA with respect to our overall operations. At
previous meetings of this committee, you have provided us with
the opportunity to talk about the procedures we have
established to improve the performance of GSA in terms of
providing best value services, not only to our GSA customer
agencies but, indeed, to the American taxpayers. This applies,
obviously, to all parts of our agency: the Public Building
Service, the Federal Supply Service, the Federal Technology
Service, our Office of Governmentwide Policy and all other
areas of GSA. Since the last time that the committee conducted
an oversight hearing, GSA has undertaken many of the steps
necessary to improve our operations; and as you point out, we
have confronted new challenges since we last met, and I am
pleased to have this opportunity to review them with you.
As requested in your invitation letter, I will be
discussing three general areas. First, the changes we have made
to improve the overall operations of our Federal Technology
Service and Federal Supply Service by realigning and
consolidating some functions within those two services. Second,
I want to talk about the incidences that we have uncovered
regarding cases where we have failed to follow proper
contracting procedures, as required by the Federal Technology
Services Information Technology Fund. And then third, to talk a
little bit about the process that we are using to develop an
acquisition strategy for the replacement of the expiring FTS
2001 telecommunications contract.
The first subject then is the initiative to improve the
performance of our Federal Technology Service and our Federal
Supply Service by realigning, combining and consolidating some
of those functions. This initiative began, in part, because of
GSA's agency-wide performance improvement program. But also,
Mr. Chairman, this initiative began, in part, because you and
members of this committee suggested at a previous hearing that
we needed to review concerns expressed that GSA's process for
enabling agencies to acquire information technology products
and services seemed to have some areas of non-value adding
duplication between our two services, in terms of what was
available from Federal Technology and Federal Supply.
We have, in fact, established an FTS/FSS review study
committee as a result of those discussions. That committee was
to review whether the organizational structure and the
functions of the Federal Supply and the Federal Technology
Service could be enhanced to ensure that best value services
were being provided to agencies and to the American taxpayers.
It was determined that overlaps and non-value adding,
duplicative functions did, in fact, exist between FTS and FSS
and that this appeared to be creating inefficiencies and
confusion among our customer agencies and industry partners.
FSS and FTS have jointly developed and implemented a
performance improvement plan to fix that situation.
First, in December 2002, the Commissioners of FSS and FTS
and I announced that we would combine and realign certain
functions in FSS and FTS, and that GSA's Office of Performance
Improvement would provide oversight to the performance
improvement process in order to assure that the changes would
be implemented prudently but expeditiously. Of the most
significant changes that were among our proposals, one was to
consolidate the development and administration of all
contracting vehicles into FSS. Second, to establish a Contract
Vehicle Review Board to review and rationalize current
contracts and to look at any future contracts. Third, to
consolidate all marketing activities of FSS and FTS into FSS.
And fourth, to respond to customer agency unmet requirements
for the acquisition of certain professional services by having
FTS begin to provide assisted acquisition service in that area.
I am pleased to announce, Mr. Chairman and report to the
members of the committee, that each of those changes have been
implemented and are now fully operational. I have information
and will be discussing during the question and answer session a
lot of the specific details pertaining to that.
In the interest of time, and because I think it is a very
important subject, I want to move to the next general topic
that your invitation letter asked us to address. That next
general topic is the cases that we have uncovered at GSA where
we have failed to follow proper contracting procedures, as
required by the Federal Technology Services Information
Technology Fund. I will start with a bit of background.
The Federal Technology Service's IT Solutions Business Line
acquires IT products and services for other Federal agencies.
Unlike the Federal Supply Services's approach of providing
contracting vehicles for agency contracting officers to use,
the Federal Technology Service's IT Solution Business Line has
contracting officers who actually do the contracting on behalf
of the customer agencies. The IT Solutions Business Line has
Client Support Centers in each GSA region. FTS central office
management provides policy guidance and general oversight to
all CSCs or all Client Service Centers. For day-to-day
operations, however, the Client Service Centers in the regions
report directly to the GSA regional management, with dotted
line reporting relationships to the FTS central management.
With this organizational structure, obviously, achieving
the desired results requires the FTS central office management
and our GSA regional management to cooperate in a partnership,
or matrix-type, of management operation. FTS enters into formal
reimbursable agreements with its clients to provide IT products
and services. FTS uses the Information Technology Fund, and IT
and telecommunications costs are, in effect, run through that
fund. We pay the vendors and then we bill the agencies for
reimbursement. Part of the internal control system to ensure
the proper use of the IT fund is that the management team
request the GSA Inspector General to include in his annual
audit regular reviews and audits of the CSC, Client Support
Center, funds. FTS central office management requested the GSA
Inspector General to include in its annual audit plan the audit
of all FTS Client Support Centers; the IG agreed to do so.
Before the audits began for this audit cycle, the Regional
Administrator in Region 10 in the State of Washington
discovered contracting irregularities, which caused him to
request the GSA Inspector General to begin the audit of that
CSC in that region as the first audit to start this annual
cycle. The IG's findings from that review resulted in the
issuance of an alert in March 2003 that identified the
contracting irregularities in Region 10's IT Solution Office in
Bremerton, WA. The contracting improprieties were in two
categories. First, the improper use of the Information
Technology Fund to acquire non-IT products and services. And
second, the improper use of the 8(a) contracting vehicles for
small business, including splitting procurements and the misuse
of the subcontracting.
Region 10 and its FTS central office officials have worked
together to undertake corrective actions and resolve the
problems and prevent their reoccurrence. Thus far, Region 10
and the central office have done the following things. First of
all, each of the associates of the Bremerton office have been
reassigned. All of the associates who were in that office are
now under the direct supervision of managers in the Auburn, WA
regional office headquarters facility. In May 2003, that re-
assignment was accomplished. In addition, we have implemented
new and refresher training courses for contracting and
appropriate people to make sure that they are up-to-date with
respect to the procedures and the requirements of the law and
regulations. Further, we have restructured the Region 10
organization into teams in which network services, IT solutions
and acquisition associates work together to assure a higher
quality of work in their application and implementation of task
order procedures. Fourth, we have assigned a Chief of
Acquisitions responsible for oversight of acquisitions and for
developing internal control procedures and/or statements of
objectives for FTS work to be performed in Region 10. The
management team there, assisted by the IG, is gathering
detailed information regarding the actions of individual
associates. Using that information, Mr. Chairman and members of
the committee, management will reach determinations regarding
appropriate disciplinary and personnel actions that will
follow.
I can tell you that on behalf of all of the associates at
GSA, these items that were uncovered were very, very disturbing
to us. It is not consistent with the way in which most of the
people at GSA operate, and certainly not consistent with the
direction we have received from the President or the direction
that the GSA management team has, in general, given to our
associates. Region 10, which is headquartered in the State of
Washington, I have talked about that audit. But in addition to
that audit, the GSA IG is currently conducting audits of the
Client Support Centers with the largest volume of transactions.
That includes our Region 4 based in Atlanta, Region 6 in Kansas
City and Region 9 in California. Subsequently, each other
region will have an audit of its client support center.
FTS has also begun to implement a series of actions and
initiatives designed to improve acquisitions quality and
integrity across the service. First, we have reiterated the
policies and procedures that are already in place. On September
23rd of this year, the FTS Commissioner issued a memorandum
that reiterated the applicable regulations and policies issued
and/or pertaining to FTS over the past few years. This
memorandum strongly admonishes all FTS activities to
scrupulously adhere to the letter and spirit of all pertinent
guidance, including the Federal Acquisitions Regulation and the
December 6, 2001 memorandum to all IT solutions associates
directly, which talked about how to grow the business
responsibly.
Second, as part of the FTS 2004 annual financial audit, the
GSA Chief Financial Officer will ensure that financial auditors
review the FTS control environment and risk assessment, and
that proper control activities are in place. In addition, to
ensure a sound system of internal controls, program performance
will be routinely analyzed, assessed, and evaluated by
management. Taken together, this is intended to provide
reasonable assurance of a fully effective and efficient
internal control program within FTS.
Third, FTS has implemented an additional legal review
requirement to ensure sound legal regulatory and contractual
principles. GSA's Office of General Counsel will review all FTS
new contract awards over $5 million. All FTS actions that will
result in the awards of blanket purchase agreements against the
FSS Multiple Awards Schedules, regardless of dollar value, will
also be reviewed. And all FTS actions that will result in the
issuance of a task delivery order that contains leasing
provisions, regardless of dollar value, will be reviewed. All
FTS actions that will result in the issuance of task delivery
orders under existing vehicles--GWACs, MVI, FSS Multiple Award
Schedule--in excess of $5 million will be reviewed. All of
those reviews will be done by our General Counsel's Office.
In addition to the matters set forth above, GSA associates
are encouraged to seek legal advice from assigned counsel on
any matter they deem appropriate. We have always had an open
door policy and have encouraged associates to be forthright if
they suspect that there are any actions that are inappropriate
going on in their respective areas. Associates are also
encouraged to keep legal counsel involved in the progress of
major acquisition matters, and to seek advice on such issues as
to whether a procurement is appropriate for an SBA 8(a)
procurement, and whether a procurement constitutes information
technology or non-information technology. FTS is developing a
series of detailed acquisition improvement plans for each
regional and national CSC. Each improvement plan will specify
required actions, methods, and results in such areas as the
oversight of pre-award and post-award activities and the
conduct of acquisition activities by associates with
appropriate levels of experience and expertise.
Last, FTS IT Solutions is strengthening its long-term
strategic goals, the statement of its annual performance goals
and its performance measures to ensure the linkage of FTS
measures to GSA vision, values, and goals; and to make sure
that the goals and measures are not in any shape or form
contributing to the driving of any kind of inappropriate
contracting behavior. In addition, the intent is to ensure a
balanced approach between linking performance with customer
satisfaction, associate satisfaction and the quality of
business results. In the next 2 months, the FTS Commissioner
will solicit an independent review of contract and management
operations to evaluate compliance with procurement laws and
regulations and internal GSA policies and procedures.
Mr. Chairman, let me assure you that we take this audit
report finding very seriously. While I said at the outset that
we actually were conducting a performance improvement process
which was looking for those kinds irregularities, we did not
expect to find them, or at least we hoped that we would not
find them, and actually we have. This failure to follow proper
contracting procedures is totally inconsistent, as I said, with
the President's direction and with GSA values and goals.
Now, Mr. Chairman, I will talk briefly then about the next
general subject, which is the telecommunications services
replacement of the expiring contract. As you know, FTS is
responsible for ensuring that Federal agencies have access to
affordable telecommunications services and solutions which meet
agency mission requirements. FTS works very closely with this
committee, with the agencies and with the entire community of
stakeholders to leverage the Federal community's buying power.
Throughout the tumultuous period that has characterized the
telecommunications deregulation, and despite the difficult
industry environment that we face today, our acquisition
strategies have served us well in FTS 2001. We contend that has
successfully provided the state-of-the-art services that
agencies need at very low prices; and we have also been able to
provide competitive access to new technologies. Also, FTS 2001
achieved the objective established by this committee of
ensuring the best practice, service and price for the
Government, while maximizing competition in acquiring those
services. Although FTS 2001 contracts are not mandatory,
agencies have remained with FTS because we have managed the
program to their satisfaction and have made continuous
improvements during the life of the contracts. Mr. Chairman, as
FTS 2001 and its related acquisition programs begin to approach
expiration, we have begun our process of developing an
acquisition strategy for the replacement contract.
Building on the experience that we gained in competing FTS
2001, we have established four primary goals for the new
contract. First, we must assure continuity of current
telecommunication services and solutions for our customers. FTS
2001 provides telecommunications services to tens of thousands
of locations, and Government users depend upon FTS 2001 for
uninterrupted service to perform their missions. Second, we
must provide best value for all services and solutions by
attracting the most innovative and highest quality services
from industry at the best possible prices. Third, we must
respond to the changing marketplace by providing access to a
broader range of services and providers than on the previous
FTS telecommunications contract. Finally, we seek to offer
expanded opportunities for small businesses. We believe it
would be possible for FTS to provide these opportunities to
compete as both primes and as subcontractors.
Again, I want to thank you for the opportunity to comment
on these very important subjects. Now Sandy Bates, Donna
Bennett and I would look forward to any questions that you or
members of the committee may have.
[The prepared statement of Mr. Perry follows:]
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Chairman Tom Davis. Thank you very much.
GSA's Inspector General obviously found that, in the
Bremerton regional office, certain employees were rewarded for
increasing revenues for that office from, as I understand it,
$53 million in 1998 to $522 million in 2002, which was a huge
increase. Also, the Inspector General referenced 2 percent fees
being paid to clients. I guess my questions are, did any FTS
employees in the Bremerton office receive incentives for sales?
I will do one at a time, but I have a series of questions about
that.
Mr. Perry. We have an incentive program that rewards
associates for good performance and for accomplishments. It is
correct that in FTS IT Solutions, one of the factors that is
taken into account is the volume of sales; customer
satisfaction is another; coming up with innovative solutions is
another. But among the aspects taken into account is also
compliance with the procedures. So while it would be the case
that if someone did something to generate additional sales and
there could potentially be a financial benefit resulting from
it, that same person would be in jeopardy of losing the entire
incentive if they were determined to have violated the
procedures in doing so.
Then, last, I will add to that question that, as we have
looked at the gross numbers with respect to bonuses issued in
the years of 2000, 2001, and 2002, we see that actually as
sales were growing at the pace that you mentioned, the FTS
bonuses for FTS as a whole, and for specifically Region 10,
which includes Bremerton, those bonus amounts were going down
in each of those successive years. The total bonus amount went
down and the average bonus amount went down. Although we have
not completed the review, we think it is in part because of the
fact that we have taken a deliberate effort to not have sales
be the overarching issue with respect to bonus awards. It is
more to be derived based upon the achievement of specific
identified goals in each business unit's business plan.
Chairman Tom Davis. So it is not like a sales commission.
It is just one of several factors that are weighted in your
views?
Mr. Perry. That is right. It is not like sales commission.
Chairman Tom Davis. What is the bonus incentive structure
for FTS employees? Can you describe to me how you would
describe how an FTS employee would get bonuses at the end of
the year?
Mr. Perry. Sandy, would you take that question, please?
Chairman Tom Davis. Sandy, obviously there are a number of
factors. Could you try to give us a feel for it?
Ms. Bates. There are a number of factors. First, though, it
is not a formula. It is not something that you can fit in ``x''
percent for this or ``x'' percent for that.
Chairman Tom Davis. So it is subjective, to some extent.
Ms. Bates. It is subjective.
Chairman Tom Davis. You understand what I am trying to do?
Ms. Bates. Sure.
Chairman Tom Davis. I have to ask this. One of the
allegations here is that somehow, because they could get
bonuses if they could shift these sales there and that was an
incentive for them to cheat.
Ms. Bates. You know, as Mr. Perry said, that certainly is
one area. As we get further into this and into our review, we
may find instances where too much emphasis was placed on
getting new customers and retaining old customers at the
expense of other priorities.
Chairman Tom Davis. Right.
Ms. Bates. But it is subjective, although I think FTS has
put out policies that try and make the whole award environment
consistent with guidelines across the service, so that we are
all working within the same framework. But as you know, anytime
there is subjectivity involved, there is room for variance.
Chairman Tom Davis. But the bonus incentive program for FTS
employees includes incentives for sales and customer
satisfaction. I think Mr. Perry talked about those. What are
the other factors?
Ms. Bates. Coming up with the innovative solutions,
following the rules and regulations, working as a team, being
on the FTS team. I would also like to point out that while we
are using the term ``bonus'' and ``incentive plan'', that is
not the same as industry uses those words. These are rewards
based on performance. I think sometimes it is not an incentive
plan like the industry would have that would say, ``the more
you sell or sell a certain product.'' It would be incentive
directly for that.
Chairman Tom Davis. Having come out of industry, I can tell
you that the sales are No. 1. Customer satisfaction and obeying
the rules, generally, are secondary. [Laughter.]
Ms. Bates. Well, that is something that I believe FTS
faces. Mr. Perry referenced in his testimony a policy statement
and a general guiding principle that we have of growing the
business responsibly. We recognize first and foremost that we
are a Government agency and we have to perform as such.
However, we also want to employ the best business practices of
industry, and that can be a delicate balance. But this is
something we are striving for.
Chairman Tom Davis. But you understand why we are asking
this, and why we have to ask it, and why you have to ask it.
Ms. Bates. Absolutely.
Chairman Tom Davis. Because in point of fact, these things
can get out of kilter when you send this out.
Ms. Bates. Yes, sir.
Chairman Tom Davis. We will be interested to get the
results when they come in. What you are telling me is
interesting; the fact that the bonus structure in that region
did not writhe as a result of this, or at least it does not
appear to have.
Let me ask a couple more questions. Is there any idea what
action will be taken against the individuals who knowingly
violated the program? And would it matter if they had benefited
from it on a bonus structure, versus if they did not benefit,
or is it too early to make that decision until we have gotten
all the facts?
Ms. Bates. It is really too early to make that decision. We
have teams in place consisting of representatives from the
region, obviously, our chief people in the Office of General
Counsel, looking at the specifics around each case. Then we
will take that and marry it against the standard personnel
procedures dealing with this. So it is too early to tell. It
could run the gamut.
Chairman Tom Davis. Part of the problem is, we try to
encourage our managers to be innovative and to try new things
and so on. If they step outside and then they get slapped down,
it encourages people to stay within the box and not be
innovative, and that is a tough balance. But I think in this
case, just from the facts that we have been able to see so far,
they were clearly outside the bounds.
Ms. Bates. I agree with you. The cases that the Inspector
General cited in Bremerton, and some that may come up in other
regions, were far outside the box and were extreme examples;
not of a hairline question of judgment, but that it went
outside. But we, as you pointed out, certainly do not want to
return to a time in our life where innovation is discouraged
and acceptable risk is discouraged. What we need to do is to
have a responsible approach to our business.
Chairman Tom Davis. In fact, just if you asked my
philosophy on it, I am always willing to put up with a few
people making mistakes out there and maybe stepping over the
line, in a willingness to be innovative and try to do the kind
of things we ask Government to do. That is kind of the price
you pay by encouraging that, and we all need to understand that
things happen. But I think in this case, let us wait until the
report is finally in, as there may be other things involved.
I just have a couple more questions. Do you think that the
current structure of the FTS regional offices are too
independent to provide the kind of oversight by GSA that
appears to be necessary in the wake of the IG findings? And do
you think GSA should implement more direct headquarters
oversight and management, rather than continuing to rely on the
FTS to reform the system, or is it too early?
Mr. Perry. I do not think that our current organizational
structure is wrong. I think that what we need to continue to
work on perfecting is this balance between having a central
organization that can look for opportunities to leverage our
synergies across the organization and, in some instances, meet
our customer needs on a global basis from a central office
perspective. But as you know, a great deal of our customer
needs have to be met regionally or at the local level. A great
example of that would be, the facilities that they work in are
obviously at the local level. We would sub-optimize if we were
to somehow consolidate the process of providing their local
services too much.
What we have struggled to do, and I think we are making
great progress on, as a matter of fact, is to move from an old
model, which was ``siloed,'' in terms of central office versus
regional office, to make that a cooperating, collaborating
team. There are two things that need to happen in order that
can be done. One is that we need to be on the same page with
respect to what our goals are. When there is no disagreement as
to what it is we are supposed to be achieving for our customer
agencies and for the American taxpayer, then the disconnects
between the central office and the regional office begin to
disappear. Then second, we also need to have a strong teamwork
approach to our work, so that central office people and
regional office people are, in fact, working collaboratively
toward those same goals; we are achieving that. I think, and
this is told to me by veterans of GSA who have been around for
many years, that the collaborative working relationship between
the management of our regions and the management of our central
office operations are as close as they have ever been, or at
least as close as they have ever seen it. I think that is very,
very encouraging, and I think we ought to continue to pursue
that, as opposed to making an organizational change which would
have at its end a reduction in our ability to serve the
customer.
Chairman Tom Davis. Thank you, my time is up; questions?
Ms. Norton. Thank you, Mr. Chairman. I thank you, Mr Perry,
for your work and especially your work with us here in the
District of Columbia.
I have some questions. I can understand that as IT has
become more pervasive, there would be confusion between FSS and
FTS, and there would be a need for realignment, some merging,
and that you are, of course, in the process of doing that. I
would be particularly concerned that apparently some contracts
were providing the same services through the same contractors,
and there were under-used contracts, which I understand now are
being allowed to expire or to merge. Of course, I am interested
in that, because I am interested in how this confusion may have
had an effect on who gets contracts and who understands how you
become a supplier or a provider. I was pleased to hear you say
that you understood that part of what needs to be done is to
expand the pool of providers and suppliers, and especially
among small businesses.
I have a question about the GSA Schedule. I am a fan of the
Schedule. I had pressed the District of Columbia, which had the
most complicated procurement procedures known to the universe,
to adopt a similar system. Indeed, for awhile there, the
District was using for some of its services your own Schedule.
I have, however, received a fair number of complaints about the
difficulty of learning how to get on the Schedule. I wonder if
you could summarize in a few minutes how, if one is a small
business and one has never been on the Schedule before, could
you summarize how a small business goes about getting on the
GSA Schedule, including issues like size, experience and
procedures? If you cannot summarize it, you can imagine the
position I am put in, when they come and say, ``how in the hell
do you get on this thing?''
Mr. Perry. Well, I will summarize it, and I will talk a
little bit about some of the things we are trying to do. The
objective of the paperwork that we have small businesses fill
out, in the event that they are attempting to get on GSA's
Schedule, I think is a worthwhile objective. But we have gone
too far in terms of how complicated it is, and we have some
steps in place to minimize that. Of course, the objective is to
make sure that we know enough about the business' track record
in the particular commodity area that they are interested in
selling to the Government. So we ask them to explain, ``what is
your business; who are some of your customers; what kind of
services have you provided; who are some of the people in your
organization; what is their background; what are their
credentials; how can they indicate what abilities they have in
this arena.'' There are questions also about financials,
including their tax returns and their business financials, so
that we can see to what extent they appear to be a financially
viable organization. So the questions are of that nature, so
that when we say to another Federal agency, ``this organization
has a GSA Schedule contract,'' we are, in effect, saying that
we have reviewed their financial wherewithal and their
wherewithal to accomplish the business line that they are in,
successfully enough that they can meet your needs, oftentimes
on a national basis.
Given that requirement, the question then becomes, ``are we
asking questions that go beyond that, or is there a way to
streamline and make more simple the whole process?'' Donna and
her team have answered that question, and the answer to that
question is yes. We are putting this in place, and actually it
is October 1, so it should have happened by now. We had planned
for October 1 to begin the implementation; that is, the
businesses should begin to see the implementation of this
effort to streamline the process and actually go to an online
process. I would hasten to add, the reason I add the point
about online is, a lot of the small businesses become
discouraged with this application process, not just because it
is a 100 page application, but more so because, after they
submit the application, the time that is spent in going back
and forth and making corrections is what uses up most of the
time that gets involved in the process. By moving to an online
approach, we believe those questions can be asked back and
forth between GSA and the small business much more quickly.
Another thing that we are doing in all regions is that, in
most regions, they have a weekly meeting which is open to any
small business to attend. The subject matter of that weekly
meeting is how to get on the GSA Schedule. We take each of the
small businesses or their representatives through the tutorial.
We also have that tutorial online. So if you go to GSA.gov, one
of the questions on the main screen is, ``how to do business
with the Government.'' Then they can click on that and be led
through this process of how to get on the Schedule.
So I agree with you, and every time I have attended a small
business workshop, the No. 1 question that people ask is, why
does it take so long? I emphasize, that is partly because of
the application, which we are streamlining; but that is only a
part of it. The biggest part, I think, is the time that is
spent when they send something in, and then we send up a
request for additional information or clarification, and then
they send that back. That timeframe back and forth takes so
much time. Some of that is going to be addressed with the
online system. If I may, I would like to ask Donna to elaborate
on that answer, if she will.
Ms. Bennett. That was pretty thorough. There are a couple
of things that I would add to that. One is that we made a
couple of process improvements before we even got to the
electronic solutions to this problem. One of them involves the
initial screening of offers as they come in, so that a business
that submits an offer does not wait for weeks to find out
whether or not they provided the right information. Our goal
for ourselves is to actually go back within 3 days of receiving
that and say either, ``your package looks pretty good and it is
now in the queue,'' or to let them know up front if we think
there may be defects or deficiencies in it so that they have a
chance to correct that.
I think that the only other point that I would add to what
the Administrator cited, unless you would like more detail, is
that, of course, all of the Schedule solicitations are posted
on FedBizOps.Org on a continuous basis, so the information is
constantly out there. We do find that the training classes that
we offer on a periodic basis, and particularly in the IT
Center, are extremely helpful to the small businesses that
attend them. The final thing that we are doing is putting more
resources into the IT Center to speed up the processes. So we
have reallocated some of our existing resources, and I have
authorized the hiring of more, so that we can do things more
quickly.
Ms. Norton. The timeliness of this hearing, on October 2nd,
pleases me to no end. I understand that Chairman Davis has been
doing procurement fairs around the country on this very issue.
He has offered, as I understand it, to do one with me here in
the District of Columbia. I would very much appreciate the
opportunity to do that.
Mr. Perry. Well, we would be honored to do that. I know
that GSA puts on a great show, and we would be happy to work
with you on that.
Ms. Norton. I would very much appreciate that. Mr.
Chairman, could I ask one question?
Chairman Tom Davis. Sure.
Ms. Norton. This is about another issue that has plagued
small businesses. The Congressional Black Caucus was
particularly concerned about it, and we have a tri-caucus
meeting of the Black Caucus, the Hispanic Caucus and the Asian
Caucus. All the small businesses, frankly, in the United States
have raised this question, and I really do not know what the
answer is. It has to do with bundling. Years ago, of course,
bundling became the fashion. Now you can imagine that if you
bundle contracts together, a small business may be read out of
the process altogether. I would like to know the status of
bundling; how small businesses can continue to do business with
the Government if there is pervasive bundling of contracts
which, in effect, make the contract a very large contract,
which sets it up for not a small business, but a medium size or
larger business. I am asking what the effect is of bundling on
the ability of small businesses to compete for Federal
Government business.
Mr. Perry. Well, your point is certainly correct; that the
general result that could occur from a bundling of items that
were previously purchased separately and are now being added
together could be to make it more difficult for small
businesses to compete on that level.
Ms. Norton. Just let me say, Mr. Perry, so you do not
misunderstand me, I am a great devotee of efficient Government.
I believe those of us who believe in Government have the
preeminent responsibility to make it proficient. Some of my
friends on the other side of the aisle, not including the
chairman, do not believe in Government at all. [Laughter.]
So to see it become inefficient does not really much
matter.
Chairman Tom Davis. Will the gentlelady yield?
Ms. Norton. Always to the chairman.
Chairman Tom Davis. The bundling issue is a difficult issue
because when the ground rules change, your marketing strategies
need to change. One thing we have found is that Government is a
poor integrator of services. When the Government would pick
different small businesses together and give them to an
integrator, it generally did not work as well when Government
tried to put it together. So they pick a large integrator, who
then picks their small business partners. One of the problems
that this committee has uncovered is that, many times, the
percentages that are envisioned in the original contract,
whether it was 8(a) or small business, are not well enforced.
Of course, the pieces that go with that generally are not as
advantageous to small business as you had before.
We are, as we speak, working on language in the Defense
Authorization Bill to try to correct some of that. We are
interested in working with you on that. But one thing I am
concerned about is that Government is not a good integrator;
and that is why we bundle things together, to allow the prime
to basically pick its partners and its teammates on these
issues, because it seems to work more efficiently. But in the
process, we do not want to sacrifice. It may mean for some of
these smaller companies that they have to market the larger
companies, instead of the Government directly; that is my
understanding. I would be interested in what the Commissioner
has to say.
Mr. Perry. Well, I can cite a couple of examples where we
have tried to achieve the best of both worlds, because we are
after the efficiency, and at the same time, we are after the
benefits that derive to our economy by encouraging the growth
and development of small businesses. An example would be our
Connections contract. We have done this when FPS was a part of
GSA, and a number of our security guard contracts. We have done
it, or we are doing it, or are contemplating doing it in our
real estate brokerage contracts. That is where we, first of
all, incorporate into the specifications that the large
integrator company that is going to be the prime on the project
will commit at the time of submitting the proposal, to
achieving a percentage of small business involvement. The
statutory requirement that Congress mandates is 23 percent, so
often we start with that number. But our actual achievement, in
terms of small business purchases at GSA, is over 40 percent.
It was 42 percent last year. It probably will be 44 percent of
our total spending this year. So we put the 23 in, but where we
believe we can go higher, we attempt to go higher.
Then, Mr. Chairman, we have been addressing the point that
you make; that is that the prime contractor will agree that the
monitoring of actually achieving what was specified in the bid
proposal will be something that GSA will do. That makes it
real, as opposed to being able to submit a bid and then never
live up to it. Our intent is that they will submit a bid, and
if they are the winning proposer, then they will submit
information indicating that they do, in fact, have ``x''
percent of small businesses involved. As I say, we have some
contracts in place where those specifications are in there.
Chairman Tom Davis. There obviously is still an issue, if
you look at it from the perspective of the small business or
the 8(a) business; that is, many times, without the Government
involved, the percentage or the piece that you are likely to
get from the large contractor is not as advantageous a piece or
as lucrative a piece as you might have been able to negotiate
with the Government. But that is another issue.
Ms. Norton. Well, of course, if there is real
accountability from the GSA through to the contractor and to
the sub, and this is not just window dressing, it could work.
Chairman Tom Davis. Right, well, I think we may need to
work on some legislative language to ensure that. I would add
this; that although this has not been a priority of mine in
terms of the procurement, I recognize that it is a priority to
a large number of Members, and I think this is going to have to
be addressed. We recognize Ms. Norton, that you, Mr. Danny
Davis and many other Members have raised this as their top
legislative procurement priority. I think if we can address
this issue we can probably do away with other mischief in the
procurement process that is being aimed at directly. So this is
something we look forward to working with you on. It is an
important issue to a lot of contractors in this region,
particularly in your jurisdiction, and we will be discussing it
more, so thank you very much.
Mr. Murphy.
Mr. Murphy. Thank you, Mr. Chairman.
Could someone explain to me what Millennia, Millennia Lite,
and Answer are?
Ms. Bates. Good morning, they are governmentwide contracts
for IT services. They are Multiple Award Contracts where you
have multiple companies that were successful offerors in each
of those contracts.
Mr. Murphy. Just in plain English, what are they? What do
they do? I do not need all the ``gibber-jabber.''
Chairman Tom Davis. Well, you are asking her to put
Government contracts language in plain English?
Mr. Murphy. Yes. [Laughter.]
Or do we have to hire a new agency to do that?
Ms. Bates. I could do it, I believe. They are contracts
that provide IT services and equipment.
Mr. Murphy. Now let me make reference here to some of my
background in psychology. It caught my attention about a
company called Titan Corp. and a $229 million contract to
provide some mental health services, EAP services. Of course,
Titan has nothing to do with that, from what I understand. They
provide communications and combat systems to the military. In
recognition of that, they then sub to Ceridian Corp., which is
well known for its leadership in the payroll processing
industry, which has no experience also in dealing with these
kinds of things. Then it says something about a solicitation
issued to Millennia Lite vendors as part of this, too. I am
wondering, since this is through FTS, how a company that has
nothing to do with providing mental health services and does
information technology work is involved in a contract like
that?
Mr. Perry. Let me start that question and see if anybody
has more detail than I. That contract, as I understand it,
includes putting an Employee Assistance Program in place for
members of the military that will be an online system; so that
any eligible party or family member who has an issue would be
able to go to this online system and, while I do not know
exactly how it works, use that online system to be able to find
someone in the Employee Assistance Program who could provide
assistance. So some portion of that contract was to develop the
online, computer-based system, and that is where the
information technology part comes in.
When we have contracts of that type, many contracts have
some component of putting in place an information technology
system and some component of something else; maybe professional
engineering services or whatever. What we have to do is, to
look at the specifics of the contract and only use the IT Fund
as a means of making the procurement if it is predominantly IT.
So that would be the question that would have to be raised as
to whether this is predominantly putting in an online system.
Mr. Murphy. So this does not necessarily include EAP
services for employees. It is just the computer system network
so that they can connect with someone?
Ms. Bates. Yes, sir, that is the overwhelmingly predominant
requirement for that.
Mr. Murphy. And having worked with military families, I
certainly understand the incredible value of having people
being able to contact someone. But I also know that on bases,
there are computers, there are people there. If you just take
the number of military personnel and divide it by $229 million,
that is a heck of a lot of money per person to cover this; and
it is by a company that does not do EAP work. They had to sub
out to another company, who also does not do EAP work, who I am
assuming got somebody else to do it. If this is all a computer
system where people can log on and talk to someone who is an
EAP person, it just does not seem to make a lot of sense to me.
I am wondering if this is along the same lines as doing IT work
to build buildings, which is part of the whole scandal that
kicked this off anyway.
Mr. Perry. Well, what we could do, and we would be happy to
do, since we do not have that level of detail, is maybe get
back to you specifically on that.
Mr. Murphy. That would be great.
Mr. Perry. I could tell you though what our intent would
be, or what would be a proper contract. The only thing that
would be a proper contract would be if this was predominantly
an information technology system and not predominantly medical
services. But I would be happy to provide a specific answer to
you on the Titan question.
Mr. Murphy. I appreciate that, because just looking at it
from what little information I have, this looks like a $400
hammer to me.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you very much.
Let me ask a couple more questions of this panel. It looks
like, by the way, that the 11:15 vote is going to be a little
later. They voiced the rule and we are going to have a final
vote, it says, around noon or 12:30. They have moved it now.
What role have contractors, operating under small business
programs, played in reported abuses?
Mr. Perry. Well, part of what was reported in the IG's
alert was that there were cases where 8(a) contracts were
split. In other words, there is a $3 million limit below which,
if there is a compelling need, a contracting officer can make
the decision to, in effect, do what would be called a sole
source to an 8(a) small business under that limitation.
However, if the customer requirement is $5 million, and if that
gets broken into two separate contracts of $2.5 million apiece,
then that is inappropriate. You should not split the contracts
up in order to make them fit below the threshold. Now one could
argue that if the customer agency, the military or whoever it
was--given all that we have gone through with the aftermath of
September 11 and the war on terror and so forth--you could
contrive an argument that says this was an urgent item or
somebody believed it was an urgent item, and so for the speed,
they broke it into two pieces. But that, just prima facie,
should not happen.
The other cases that we are beginning to hear about, and do
not have many details on, are what I called subcontracting
abuse. That is where you would use the 8(a) process and process
a contract with a small business, and then have that small
business hire a more competent subcontractor to really do the
work, in which case that would be a ``pass-through.'' That,
obviously, is also inappropriate. So those are the two examples
that we have heard of the IG is investigating.
Chairman Tom Davis. Do you have any idea how long these
abuses have been going on?
Mr. Perry. The time period for this audit is 2000 to 2002.
There have been previous audits in previous years that did not
reveal these same things, or we do not know whether they did
not find them or did not look for them, or that they did not
exist. So at least in the 8(a) area, I am not aware of any
information that we have that shows, in the previous year--
2000--that those kinds of abuses were found. But the IG may
explore that, and we may know more about that soon.
Chairman Tom Davis. I have a million other questions that I
would like to ask but we had a good conversation yesterday. I
do not need to put everything on the record in terms of how the
agency is going.
I want to just say again how comfortable I feel with you at
the helm over there. I think you are doing a great job. Not
everything goes perfectly with an agency of your size. I think
you are acting quickly to remedy problems as they are
identified; and as you note, in this case, they were pre-
existing, to some extent, before you even got there. I think
that is important to note.
But I have to ask a couple of questions. Do you think that
a future telecommunications program could be based on the use
of various Schedule contracts that agencies could use to
acquire telecommunications services? Also, from either Ms.
Bennett or Ms. Bates, if you have any thoughts on that, as
well. I know we are getting ready to look at the next wave, and
I just wondered if any thought is given to that.
Mr. Perry. Well, I will start, and then I will ask both
Sandy and Donna to comment on it, if they care to. But your
point is one that we have explicitly incorporated, or will
explicitly incorporate, into the Request for Information
document that will be circulated, because we have asked
ourselves that question--whether it would serve customer
agencies' needs. In some instances, they obviously will need
the assisted acquisition service that FTS provides. There may
be some instances where they believe that they do not, and we
would want to look into providing them with other contracting
opportunities. Today, we believe that sometimes what they do
is, to use contracting vehicles which exist outside of GSA
because they can do that, if they elect to, as opposed to using
FTS. We think that the Multiple Award Schedules are the most
efficient contracting vehicles that could be put in place. So
if some agency was going to use an option other than the
assisted service of FTS, our view is that the likely next most
efficient way to go would be the GSA Multiple Award Schedule.
Sandy or Donna.
Ms. Bates. First off, I think Mr. Perry covered, in his
opening statement, the four things that we are looking for that
will serve as the checklist. We need to have continuity for our
current customers. People are very much reliant--and agencies'
missions are reliant--on this basic infrastructure. We also
need to have something in place that provides best value.
The third is, we also need to take a look at, and make sure
that we address, the changing market. No one knows better than
you and the people in this room that the telecommunications
landscape is far from settled and continues to change every
day. We cannot even predict, not necessarily technology, but
the business landscape. The fourth is, we need to expand the
opportunity for small business. Given that, and where we are
today in releasing a Request for Information very shortly, to
really signal the beginning of the formal dialog with this
committee, members of other committees, the industry, our
customers, and other stakeholders, to truly determine which is
the best strategy. I think we have to examine all of that
against our criteria and let the chips fall where they may. A
Schedule contract approach should be considered seriously; the
multiple award, IDIQ, the whole range. But I think some things
remain clear: that we have a strong track record of leveraging
the Government's buying power and also setting the bar for
industry. Our customers, I am pleased to report, are still with
us, in terms of saying, ``GSA, we want you to do this for us
and put in place something we can use,'' and to give it, as
Steve Perry referenced not too long ago in talking about small
business, the GSA seal of approval of really getting the best
terms and conditions, price and best value and allowing
flexibility. So it is all of those attributes, and it is a long
list, but it is something we must do and we will do.
Chairman Tom Davis. Great, thank you very much.
Ms. Bennett, you do not need to say anything on this, if
you do not want to.
Ms. Bennett. I would simply add, we look forward to being
part of the process.
Chairman Tom Davis. Well, thank you; I could spend the
whole day asking questions. But we have had some good
conversations and we will continue to do that, and we have
another panel to hear from.
I want to thank all of you for being here. I appreciate
your input on this. We will obviously continue to stay in touch
with you on this. I will just declare a 2-minute recess as you
exit, and we will move our next panel up to the microphones.
Thank you very much, Commissioner Perry.
[Recess.]
Chairman Tom Davis. All right, if we could get the
witnesses up to the table. Just stand behind your name, because
I have to swear you in.
We have William Woods, the Director of Acquisition and
Sourcing Management at the U.S. General Accounting Office;
Larry Allen, executive vice president for the Coalition for
Government Procurement; and Don Scott, the senior vice
president of Electronic Data Systems, testifying on behalf of
the ITAA. Thank you very much for being here. It is the policy
of the committee that we swear witnesses in.
[Witnesses sworn.]
Chairman Tom Davis. Thank you, we try to keep it to 5
minutes. We gave Commissioner Perry a few more minutes. He was
under the gun on some issues and he wanted to lay it out. We
have lights in front of you. It will be green for 4 minutes,
yellow for 1, and then when it is red, if you could move to
summary. Mr. Woods, we will start with you and move straight on
down. Again, thank you for being with us.
STATEMENTS OF WILLIAM T. WOODS, DIRECTOR, ACQUISITION AND
SOURCING MANAGEMENT, U.S. GENERAL ACCOUNTING OFFICE; LARRY
ALLEN, EXECUTIVE VICE PRESIDENT, COALITION FOR GOVERNMENT
PROCUREMENT; AND DONALD E. SCOTT, SENIOR VICE PRESIDENT, EDS,
INC. ON BEHALF OF INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA
Mr. Woods. Thank you, Chairman Davis, it is a pleasure to
be here this afternoon. I appreciate your inviting GAO to
testify at this hearing on the restructuring of GSA's Federal
Technology Service, the Federal Schedule and the Federal Supply
Service. I assume that my entire statement will be part of the
record.
Chairman Tom Davis. It is. Your entire statements are in
the record.
Mr. Woods. I would just like to touch on three basic points
in the time we have available this morning. First, I want to
provide some observations on the restructuring that GSA has
gone through. Second, I want to talk about the incentives that
are in place at the two organizations that we are discussing
here this afternoon. Third, I want to touch on some further
opportunities that we think are available to both of these
organizations to help their customer agencies.
Starting first with our observations on the restructuring,
we testified in April 2002 before the Technology Subcommittee
that you chaired at the time. We and others put on the table a
number of issues regarding the two GSA organizations that we
are talking about here; primarily the potential for duplication
and overlap among a number of the services and functions that
they provide.
Following that hearing, as a result of this and other
committees' urging and GSA initiatives, they undertook a
management study to see how they could realign themselves and
reorganize to eliminate some of this duplication and overlap.
At the request of this committee, we have been, for many
months, monitoring the implementation of that reorganization
plan, and I want to provide just our bottom line, in terms of
work.
We think that the initiatives that Administrator Perry
outlined here this morning are steps in the right direction,
very positive developments. There were definitely some areas of
duplication and overlap, and the steps that have been taken
should, over time at least, go a long way toward eliminating
that duplication and overlap.
We do have some concerns, however, about the third leg of
the plan; that is, the expansion of the activities of the
Federal Technology Service into other areas that are unrelated
to information technology. The first panel covered at some
length the issues that had been uncovered by the GSA Inspector
General. We have seen the alert report. We have not, of course,
seen the draft report, which we understand is still in
development. But having said that, the findings that the IG
uncovered with regard to the Bremerton office are quite
disturbing. We are pleased to see that GSA is equally disturbed
by those findings, and are pleased to see that they have taken
a number of steps to fix that. But having said that, we would
have some reservations about the plan to move the Federal
Technology Service into other areas, given the disturbing
findings that the IG has found and those that are perhaps yet
to come.
Second, in terms of incentives, Mr. Chairman, you were
pursuing a line of questions with Administrator Perry that I
think was right on the mark, in terms of trying to address the
incentives that are at play at GSA. In preparation for this
hearing, I reviewed the annual performance plan for GSA, and I
think they are right on the mark in terms of understanding
their role and mission. Their central mission, of course, as it
has been for many years, is to provide customer agencies with
the goods and services they need to carry out their missions.
That is fundamental, and it is encouraging to see that they
understand that and have taken many positive steps over the
years to fill that mission. When we look, however, at the
performance plans of the Federal Technology Service and the
Federal Supply Service, we see that, at least in some respects,
their performance plans are geared toward increasing revenues.
I think it is absolutely the correct line of thinking to
question to what extent some of the underlying difficulties
that have surfaced are the result of these agencies trying to
push sales volume and not focusing on what we think their core
mission ought to be, which is helping customer agencies
maximize the efficiency of their operation and be able to carry
out their missions. Just an example of the incentive that was
at work, we issued a report in 2002 that took a look at the fee
structure that was in place at FSS and FTS, and we found that
at least with respect to the FSS, their fees were greatly in
excess of their costs. The schema that is supposed to be at
play here is that they are entitled to and, in fact, they are
required to recover their costs in terms of their fee
structure. But the objective is not to derive a profit, if you
will, through the use of these fees. Our report identified a
greatly excessive amount; I think somewhere in the neighborhood
of $150 million over their costs. We are pleased to see that
they have since taken action to reduce the fee that they charge
customer agencies to bring that more in line with actual costs.
The third item that I wanted to touch on, which is
elaborated upon in our statement, is the opportunity that we
see for both of these organizations to help their customer
agencies maximize efficiencies. We think that both of them are
in a position to be able to provide meaningful data and
meaningful analysis to their customer agencies to help them
identify where they are spending their money, with whom they
are spending their money and on what, and to be able to take
that data and that analysis and do what we have termed ``spend
analysis'' to be able to maximize efficiencies and leverage
buying power. We have a recommendation in our statement to that
effect, and we would hope that would be favorably received by
GSA.
With that, let me stop there. I would be pleased to take
your questions.
[The prepared statement of Mr. Woods follows:]
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Chairman Tom Davis. Thank you very much.
Mr. Allen, thanks for being with us.
Mr. Allen. Good morning, Mr. Chairman; I am Larry Allen,
executive vice-president of the Coalition. It is a pleasure to
be here before the committee today and testify on the progress
that GSA has made on integrating the operations of FSS and FTS.
As we previously testified before the Subcommittee on
Technology and Procurement Policy in the 107th Congress, we
believe that the operations of these two services can and
should be better integrated to provide state-of-the-art
service. We have been honored to work with representatives from
both services, as well as officials in the Administrator's
office, since that initial hearing, on a number of projects
designed to do just that.
The Coalition believes that GSA has taken good initial
steps to integrate the operations of FSS and FTS. These steps
include the implementation of several recommendations put forth
in the Accenture report conducted in 2001. As a result, the two
services have begun to work closer together to bring about the
``Team GSA'' result we earlier envisioned. Our testimony today
will highlight several of these changes and make
recommendations on future steps.
One of the key recommendations the Coalition made in its
earlier testimony was the need to eliminate duplicative
contracts that resulted in higher overhead burdens for
contractors and customer confusion. A Contract Review Board was
established by GSA to review current GWAC contracts and the MAS
IT Schedule. The Board reviewed each of these programs and
concluded that there were, in fact, too many contracts
providing the same services. A number of recommendations were
made to allow under-used contracts to expire and merge existing
contracts. Significantly, the Coalition understands that each
of the Review Board's recommendations were unanimous. We are
extremely pleased to see that the recommendations of the Review
Board were released last week and that GSA will implement its
recommendations. We understand that this committee has been
fully briefed on the specific actions to be taken, and we will
not repeat them here. It is important to note, however, that
the Coalition and its members support the Board's recommended
course of action. We also support the continued operation of
the Contract Review Board. We believe that this Board can be an
effective check against future unneeded contract duplication,
and will serve to ensure that customer needs are met by the
most appropriate contracting mechanism. Coalition member
companies believe that the streamlining process, however,
should not stop with the initial round of recommendations.
While it is important to provide the agency, its contractors
and customers time to adjust to the initial recommendations, we
believe that additional action may be possible to further
combine GWACs into unified offerings. The Contract Review Board
should be charged with identifying these opportunities.
Another recommendation that GSA has implemented is the
consolidation of all contract vehicles in FSS. The Coalition
believes that this is a good initial step. In our previous
testimony, we stated that the proliferation of FTS contracts
and the growth of FSS Schedules led many Government customers
to ask, ``will the real GSA please stand up.'' We recommended
that FSS take ownership of all contracts, and they have done
this. Bringing these contracts into FSS, however, is just one
step of what must be a multi-phased process in order to have
the desired effect. In the meantime, FTS has also moved to
enhance the acquisition management services it provides Federal
customers. Perhaps the most significant step in this process is
the creation of the FTS Services Management Office that now
provides acquisition management assistance to agencies buying
professional services. The Coalition's initial interactions
with this office have been very positive. We feel that it is a
good step. The FTS officials in charge of the function have
briefed our members thoroughly on their capabilities, have
sought to participate in upcoming conferences and have been
very responsive to our general questions. We also want to point
out that the two services are even beginning to market
themselves together. Recent GSA advertisements cite both FSS
contracts and the assisted acquisition services offered by FTS.
We believe that these ads are an important symbol of the ``Team
GSA'' concept we have called for, and look forward to this
continued collaboration.
While the Coalition is pleased that GSA has made several
changes to enhance its overall value, we believe that steps
still remain that must be taken. As we mentioned earlier, the
transition of GWAC contracts to FSS was a positive step. In
order to make the transition as effective as possible, however,
the FSS central office must be able to manage those contracts
within the overall context of creating the most effective
contracting offering possible. We believe that the dual
reporting structure inside GSA is sometimes incompatible with
the overall goal of ensuring accountability and minimal program
duplication. We want to emphasize that these concerns are about
the inherent structure itself, not the people who fill the
positions. The Commissioners of each service and all Regional
Administrators whom we have met each carry out their duties
well. Each manager, however, can carry out their duties, while
the agency, as a whole, may still not function at maximum
efficiency. The current dual management structure of GSA is
such that the regional offices report to regional management
and central offices report to central management. It is
currently at the GSA Administrator's office where the two
structures come together.
We recommend that GSA create an additional office to ease
the burden on the Administrator. To do this, we again call for
the creation of an Associate Administrator for Operation, who
will be responsible for integrating the regional and central
operations of each service. The Associate Administrator can
also be a catalyst for identifying remaining duplication within
the Agency formulating plans for eliminating, where it makes
sense, this duplication and taking the ``Team GSA'' concept to
its next logical step. We believe that even a very fine GSA
Administrator, such as Mr. Perry, cannot possibly be everywhere
at once. He and other Administrators are responsible for a wide
variety of agency functions, and additional support in the
agency, we feel, is required in order to integrate its central
and regional operations. In addition to what we believe are
important operational enhancements, the creation of an
Associate Administrator for Operation may also be a necessity
brought about by personnel realities. We have already seen the
retirement of several senior leaders in GSA in just the past 3
years, and more are likely on the way.
Eliminating disparate agency organizational structures and
better integrating overall agency operations may not,
therefore, be merely a recommended management change. It may
become an operational imperative in order for GSA to continue
to meet the many challenges it is given. In conclusion, the
Coalition believes that GSA has begun making significant
improvements to the operations of FSS and FTS. We are pleased
to have been part of this process, and look forward to
continuing our working relationship with the agency and with
this committee.
[The prepared statement of Mr. Allen follows:]
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Chairman Tom Davis. Thank you very much.
Mr. Scott.
Mr. Scott. Mr. Chairman, I am Don Scott, senior vice-
president of government solutions at EDS. I thank you for
inviting me here today to testify on behalf of ITAA. As you may
know, the majority of ITAA's 400 member firms provide computer
software and information technology services to the Federal
Government, and it is with great pleasure that I represent
them.
For nearly three decades, ITAA has been very active in
legislation and regulations pertaining to Government
procurement. Through ITAA's Procurement Policy Committee, and
especially its Federal Supply Service Subcommittee, we have
worked closely with officials at GSA, its Federal Supply
Service and Federal Technology Service. ITAA monitors both the
FSS and FTS programs and meets frequently with its senior
officials. The GSA Schedules and other Governmentwide
Acquisition Contracts are vitally important to ITAA since their
member firms provide billions of dollars annually of software
and computer services to Government customers.
In ITAA's view, GSA's Federal Supply Service Schedules and
other GWACs supported and reformed by FASA, the Clinger-Cohen
Act, the E-Government Act, and hopefully SARA, have permitted
efficiencies in Government contracting that were unheard of
only a few years ago. The GSA Networx service offerings have
resulted in the most cost-effective telecommunications services
to be found anyplace; they set the bar. Further management
initiatives such as the ones being discussed here today will
likely result in even more effective Government services.
ITAA was very supportive of Administrator Perry's
initiative to study the possible overlap and duplication of
services between FSS and FTS. We shared the views of this
committee and its chairman that GSA's focus should be on
efficiency and effectiveness, and that redundancies between the
two groups should be eliminated. The GWACs support a variety of
service offerings and products. While ITAA believes that
Government customers should have a variety of acquisition
vehicles to choose from, we are also concerned that a
proliferation of GWACs could lead to duplication and overlaps.
This also resulted in increased costs to us in industry. We are
expected to bid on various GWACs, since we did not know which
contract vehicle agencies would decide to use.
While ITAA did not have a position on the relocating of the
GWACs to FSS, we did suggest that the expertise on the GWACs
also be transferred to FSS. We were pleased when this was
agreed to. In preparation for the testimony today, ITAA polled
its member companies for their views on how the restructuring
between FSS and FTS was proceeding. Here are some of our
observations and concerns.
On the Federal Supply Service side, we believe that to
date, the restructuring at FSS has proceeded smoothly, but it
has taken longer than expected. ITAA has had long term concerns
about sufficient resources at FSS for its massive work load.
This relates, of course, to the issue that Congresswoman Norton
raised a while ago. We are still disappointed in the delay
achieving some of the reforms under consideration, including
electronic modification of contracts.
Another long-time concern is the lack of sufficient skilled
contracting officers to handle the negotiation backlog. With
the addition of the cooperative purchasing option for State and
local governments, which ITAA supported, we believe this
workload will continue to grow. We understand that additional
resources are being provided, but additional contracting
efficiency could also help to alleviate the problem.
ITAA has also expressed concern that some State governments
are now requiring vendors to apply for a GSA Schedule contract,
even if they never intend to sell to the Federal Government.
This is currently the situation in California, and we expect to
see this in other States, as well. Due to the climate in the
commercial IT business, many firms that had not sold to the
Federal Government previously have now decided to apply for
Schedule contracts. We continue to hear about the excessive
delays in getting their paperwork processed and approved, and
hope that needed resources and training can soon be provided.
On the FTS side, the ITAA is pleased that FTS' procurement
support services have now been extended to other non-IT
contract vehicles. ITAA is not commenting on the
telecommunications responsibility of FTS, since we do not have
specific positions there. However, we believe we should say
that the convergence of IT in telecommunications should cause
FTS to seriously consider consolidating its IT business with
its network services business. This would also be supportive to
agencies' desires to use total solutions-based contracts. The
ITAA and its members look forward to commenting on the RFI that
was mentioned earlier for the next generation of
telecommunications offerings. This action would also further
the direction toward enterprise solutions in which IT solutions
are aligned with primary business objectives.
ITAA also recommends more attention to reforming its
procurement services, since they are overdue for modernization.
As a retired GSA employee, I would be glad to answer specific
questions during the question period. On the GSA Contract
Review Board, one of the areas of the most intense interest
within ITAA has been the creation and activities of this board.
Many ITAA members have invested and been awarded the GWACs that
were being reviewed by the Board. Again, while ITAA was very
supportive of the goal to avoid duplication of the contracts,
we are also concerned that those contracts where companies had
invested significant resources be continued through advertised
term. ITAA was provided a summary of the recent board decisions
on Monday. Since this is just before the close of the
Government fiscal year, we were not able to get sufficient
responses from our affected members, but believe they are
generally in line with industry expectations.
ITAA members range from the smallest one person firm to the
largest system integrators numbering hundreds of thousands of
employees. We suggest that future GWACs consider the
capabilities also of mid-range companies. We know that you, Mr.
Chairman, and others have been studying the needs of these mid-
sized firms and recognize their importance to healthy
competition in the Federal sector.
In conclusion, Mr. Chairman, we are fortunate to live in a
very interesting time. The American public and taxpayers have
increased expectations for Government performance. As both the
Nation and agencies of the Federal Government adapt to this new
focus, it is particularly important that the Federal Government
have fast, efficient access to IT solutions that best meet
agency requirements. ITAA believes that the GSA has made
serious strides in reforming its FTS and FSS to improve and
enhance their service to agencies. We commend Administrator
Perry for his initiatives, since internal restructuring is
never easy. GSA's governmentwide scope gives it a unique
opportunity to provide significant support to the agendas of
Congress and the administration to eliminate duplication,
promote inter-operability and enhance efficiency and
effectiveness for the taxpayers. IT acquisition and management
are critical to those efforts. ITAA thanks you for this
opportunity to comment, and I would be glad to respond to your
questions.
[The prepared statement of Mr. Scott follows:]
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Chairman Tom Davis. Thank you. I am going to try to finish
the questions, and go over to vote and not hold you. I could
hold you afterwards and we could spend the afternoon, but I
will try to let you go and just ask a couple of questions. Your
entire statements are in the record; we appreciate it. Mr.
Scott, if after you survey your members you want to add
something further, get it to the committee and we will get it
in the record.
Mr. Scott. Yes, sir.
Chairman Tom Davis. I was intrigued by a comment that you
made about studying the needs of the mid-sized firms. Because
my observation has been that, particularly on these GWACs, the
mid-size firms are where you get a lot of innovation, and then
they rise to a certain level and get acquired or die. It is a
very difficult area, and yet some of the best innovations in
the IT area take place at some of these mid-sized companies.
Your company is a giant. You have bought up some of these
companies. You are a great company. But also, just to keep the
process fresh, to keep new innovations going, we want to keep
those firms alive, and not feel that when they get to a certain
level that they have to sell out and cash in. We would like to
keep them going. I do not know the answer to that. I am not
sure if you know the answer to that. But it is something that,
as you say, when we put these Schedules and the GWACs and other
vehicles together, we should be mindful of. Do you agree with
that?
Mr. Scott. I absolutely agree.
Chairman Tom Davis. That is your ITAA hat that is talking,
obviously.
Mr. Scott. Yes, sir; and they get kind of lost, so we have
mentor protege programs and many programs to help these small
businesses. When they graduate from that and move up, then we
do not have anybody particularly focusing on their needs. So I
think that is a very good point. We will love to work with you
all as we go forward as to how we can nurture that.
Chairman Tom Davis. Yes, right now, you are either a small
business or you are EDS.
Mr. Scott. Yes.
Chairman Tom Davis. There is nothing in between. That is
the way the code treats it and the regulations. I am not sure
it should change, but I think we want to just be mindful of
that as we move up. So I appreciate that comment. I know that
you have a lot of balls to balance, representing a large
organization doing that.
Mr. Allen, let me ask you a quick question. I understand
that GSA will soon issue a request for information seeking
input for the next generation of Governmentwide telecom
programs. That is of interest to a lot of your members. Do you
think there ought to be another Governmentwide telecom program
along the FTS 2002 model to be run by FTS, or do you have any
thoughts about a different concept maybe that does not rely on
a centrally managed Multiple Award Contract?
Mr. Allen. I appreciate that question, Mr. Chairman. In
fact, sitting in the hearing room, we were very pleased to hear
the comments of Administrator Perry and Commissioner Bates
along the lines that they are seriously considering Multiple
Award Schedule contracts as a solution set for next generation
telecom. That is a concept that the Coalition and its members
would strongly support. We believe that the time is ripe for
allowing FSS Schedules to have telecom services on them.
Currently, there are products available on the Schedules, but
not so much the services that make the products work. We feel
that adding those services to the Schedules would be good, and
that is why I think we would be generally supportive of the
comments Mr. Perry made earlier, along the lines of giving
agencies the option of the assisted procurement services
available from FTS in the telecom environment; or allowing the
agencies to buy from Schedules themselves, if they have that
capability.
Chairman Tom Davis. Thank you; and Mr. Woods, let me just
ask you a question. Do you think the current structure, based
on two services with separate Commissioners, lends itself to
efficient contract management oversight?
Mr. Woods. Well, I think certainly when you take a look at
their regional structure, I think the point that has been made
earlier about people reporting through two separate chains
definitely causes one to question that structure.
Chairman Tom Davis. Again, I think Commissioner Perry is
trying to address this, and we are going to have ongoing
discussions on that issue.
You have a smorgasbord of things that I would love to talk
to you about; but we have a vote going on, and this one I
cannot miss. I do not want to hold you and keep you so I am
going to adjourn the meeting. Thank you very much for being
here. As I said, your entire statements are in the record. If
you have any subsequent thoughts that you want to react to,
please get them in the record. We will stay in touch with you
and get you back here again.
Thank you all very much.
The hearing is adjourned.
[Whereupon, at 12:48 p.m., the committee was adjourned.]
[The prepared statement of Hon. Henry A. Waxman follows:]
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