[Senate Hearing 108-244]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 108-244
 
   THEN AND NOW: AN UPDATE ON THE BUSH ADMINISTRATION'S COMPETITIVE 
                          SOURCING INITIATIVE

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

                                HEARING

                               before the

                  OVERSIGHT OF GOVERNMENT MANAGEMENT,
    THE FEDERAL WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 24, 2003

                               __________

      Printed for the use of the Committee on Governmental Affairs


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                            WASHINGTON : 2004
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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

           Michael D. Bopp, Staff Director and Chief Counsel
     Joyce Rechtschaffen, Minority Staff Director and Chief Counsel
                      Amy B. Newhouse, Chief Clerk

                                 ------                                

   OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE 
                   DISTRICT OF COLUMBIA SUBCOMMITTEE

                  GEORGE V. VOINOVICH, Ohio, Chairman
TED STEVENS, Alaska                  RICHARD J. DURBIN, Illinois
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        FRANK LAUTENBERG, New Jersey
JOHN E. SUNUNU, New Hampshire        MARK PRYOR, Arkansas

                   Andrew Richardson, Staff Director
   Marianne Clifford Upton, Minority Staff Director and Chief Counsel
                      Cynthia Simmons, Chief Clerk




                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Durbin...............................................     1
    Senator Voinovich............................................    12
    Senator Lautenberg...........................................    14
    Senator Akaka................................................    17
    Senator Carper...............................................    52

                               WITNESSES
                        Thursday, July 24, 2003

Angela Styles, Administrator, Office of Federal Procurement 
  Policy, Office of Management and Budget........................    20
Hon. David Walker, Comptroller General, U.S. General Accounting 
  Office.........................................................    23
Jacques Gansler, Ph.D., School of Public Affairs, University of 
  Maryland.......................................................    39
Paul C. Light, Senior Fellow, The Brookings Institution..........    42
Charles Tiefer, Professor of Law, University of Baltimore........    44
Frank Camm, Ph.D., Senior Analyst, RAND..........................    45

                     Alphabetical List of Witnesses

Camm, Frank, Ph.D.:
    Testimony....................................................    45
    Prepared statement...........................................   190
Gansler, Jacques, Ph.D.:
    Testimony....................................................    39
    Prepared statement with an attachment........................    93
Light, Paul C.:
    Testimony....................................................    42
    Prepared statement...........................................   159
Styles, Angela:
    Testimony....................................................    20
    Prepared statement with an attachment........................    57
Tiefer, Charles:
    Testimony....................................................    44
    Prepared statement...........................................   175
Walker, Hon. David:
    Testimony....................................................    23
    Prepared statement...........................................    81

                                Appendix

Letter from Senator Lieberman, dated July 24, 2003, sent to 
  Joshua Bolton..................................................     5
Prepared statements submitted for the Record from:
    Federally Employed Women (FEW)...............................   202
    Colleen M. Kelley, National President, National Treasury 
      Employees Union............................................   207
    Bobby L. Harnage, Sr., National President, American 
      Federation of Government Employes, AFL-CIO.................   215
    William Dougan, President, Forest Service Council, National 
      Federation of Federal Employees, International Assn of 
      Machinists & Aerospace Workers AFL-CIO.....................   243
    Stan Soloway, President, Professional Services Council.......   249
The President's Management Agenda, Executive Office of the 
  President, Office of Management and Budget, Fiscal Year 2002...   259
Questions and Responses for the Record from:
    David M. Walker, Comptroller General of the United States....   274
    Administrator Styles.........................................   278


   THEN AND NOW: AN UPDATE ON THE BUSH ADMINISTRATION'S COMPETITIVE 
                          SOURCING INITIATIVE

                              ----------                              


                        THURSDAY, JULY 24, 2003

                                       U.S. Senate,
            Oversight of Government Management, the Federal
            Workforce, and the District of Columbia Subcommittee,  
                          of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:43 a.m., in 
room SD-342, Dirksen Senate Office Building, Senator George V. 
Voinovich (Chairman of the Subcommittee) presiding.
    Present: Senators Voinovich, Akaka, Durbin, Carper, and 
Lautenberg.
    Senator Voinovich. I would like to welcome everyone here to 
the Subcommittee on the Oversight of Government Management, the 
Federal Workforce, and the District of Columbia's hearing to 
discuss the past, present and future of the Bush 
Administration's competitive sourcing agenda.
    Senator Durbin has indicated to me that he is in the midst 
of a markup in the Judiciary Committee, and I would like to 
accommodate him and give him an opportunity to make his opening 
statement before I make my statement as Chairman of the 
Subcommittee.
    Any objection to that Senator Lautenberg?
    Senator Lautenberg. Not really. [Laughter.]
    Senator Voinovich. Senator Durbin.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Thanks for the vote of confidence, Mr. 
Chairman, and my colleague, Senator Lautenberg.
    Thank you all for joining us today, and thanks for 
convening this morning's hearing to examine the complex and 
controversial topic of competitive sourcing initiative being 
advanced by the administration.
    I want to thank the Chairman for his willingness to hold 
this first Senate hearing on this topic since the publication 
of the rewritten OMB Circular A-76 in May. I have heard from a 
lot of my constituents who are proud Federal public servants, 
dedicated to their chosen professions, who expressed their 
growing apprehension about what the administration's plans 
might do to their jobs.
    Federal employees are concerned that agencies are 
conducting competitions simply to meet quotas, not because 
there are valid reasons to believe the private sector could do 
the work more efficiently.
    Federal employees are concerned under the rewritten rules 
the definition of what is inherently governmental has evolved 
into a stringent test that is specified under Federal law by 
adding inappropriate modifiers or conditions, and they are 
concerned as well that even when A-76 competitions are 
adequately performed, careful analysis cannot establish that 
decisions have been beneficial and cost-effective. They are 
concerned that outsourcing decisions will not be based on merit 
or cost savings, but on OMB mandates, and because of the 
unprecedented magnitude of OMB's quotas, the variability of the 
agency's to fulfill their missions will be put at risk.
    Numerous questions need to be asked and answered. Do the 
agencies have the resources to carry out fair and equitable 
competition? Have Federal agencies lost the capability to 
effectively perform their missions due to over outsourcing? How 
will current competitive sourcing quotas affect capabilities, 
and how are we going to monitor this to make sure that the 
private sector is doing the job and doing it well?
    Mr. Chairman, I note you have raised the issue of human 
capital implications. If there is one issue that has been the 
hallmark of your Senate career, it is your dedication to 
professionalism and improving the Federal workforce. It strikes 
me that it will be just about as formidable as the perils of 
Sisyphus to make any headway in tackling the human capital 
challenge by trying to recruit and retain the best and 
brightest Federal workforce, when in the same breath, these 
Federal workers are being told, ``Oh, by the way, over the next 
few years, one out of four jobs could disappear into the 
private sector. How are you going to maintain morale and 
interest in aspiring to Federal service with that hanging over 
the Federal workforce.''
    It is no wonder there is real concern about morale among 
the Federal workforce. How can we possibly expect peak 
performance when those we entrust with meeting missions on the 
front line are consumed with concerns about whether their 
career is at stake on any given day because of an OMB order.
    This is a real Catch-22. In an effort to meet these quotas, 
Federal agencies may not have the personnel in place to even 
handle the competitions.
    I would like to make the rest of this statement part of the 
record, Mr. Chairman, and thank you of raising this issue.
    [The prepared statement of Senator Durbin follows:]
              PREPARED OPENING STATEMENT OF SENATOR DURBIN
    Thank you, Mr. Chairman, for convening this morning's hearing to 
examine the complex and controversial topic of the Competitive Sourcing 
Initiative being advanced by the Administration.
    I applaud your willingness to hold this first Senate hearing on 
this subject since the publication of the rewritten OMB Circular A-76 
in May. I also appreciated your interest and participation in a similar 
hearing I chaired in March 2002 on the issue of ``Who's Doing Work for 
the Government?: Monitoring, Accountability and Competition in the 
Federal and Service Contract Workforce.''
    I have heard from many of my constituents who are proud Frderal 
public servants dedicated to their chosen professions but who express 
their growing apprehension about what this Administration's plans for 
competing jobs may do to their livelihoods.
    Federal employees are concerned that agencies are conducting 
competitions simply to meet quotas, not because these are valid reasons 
to believe that the private sector could do the work more effectively.
    Federal employees are concerned that under the rewritten rules, the 
definition of what is an ``inherently governmental'' function has been 
morphed with a more stringent test than specified under Federal law by 
adding inappropriate modifiers or conditions.
    Federal employees are concerned that even when A-76 competitions 
are adequately performed, careful analysis cannot establish that 
decisions have been beneficial and cost-effective.
    Federal employees are concerned that outsourcing ``decisions'' will 
not be made based on merit or cost savings, but on OMB's mandates and 
the lack of agency familiarity with the A-76 process.
    And because of the unprecedented magnitude of OMB's quotas, the 
very ability of agencies to fulfill their missions will be put at risk 
and tens to hundreds of thousands of civil servants will be displaced.
    Numerous questions need to be asked and answered. Are OMB's quotas 
justified by considered research and sound analysis, and are they 
consistent with the mission of the agencies? Are internal agency quotas 
so jusitified?
    Do the agencies have the resources to carry out fair and equitable 
competitions? Have Federal agencies lost the capability to effectively 
perform their missions due to over-outsourcing? How will current 
competitive sourcing quotas affect their capabilities?
    How are we monitoring and evaluating the costs and the quality of 
services being performed in the private sector under contract with the 
Federal Government? Do the current rules and practices ensure that in-
house talent gets a fair opportunity to compete for their jobs?
    Mr. Chairman, I note that you have raised the issue of human 
capital implications of this effort. It strikes me that it will be just 
about as formidable as the perils of Sisyphus to make any headway in 
tackling the ``human capital'' challenge by trying to recruit and 
retain the best and brightest to the Federal workforce when in the very 
next breath they're being told that, ``oh, by the way, over the next 
few years one out of every four jobs could potentially disappear into 
the private sector.''
    It's no wonder there's angst and anguish capturing headlines like 
this one from June 10th's edition of The Washington Post: ``Cuts Sap 
Morale of Parks Employees'' with the subhead of ``Many Fear Losing Jobs 
to Outsourcing.''
    How can we possibly expect peak performance when those whom we 
entrust with meeting agency missions on the front line are consumed 
with concerns about the continuation of their careers? At what point do 
efforts to study whether to privatize become counterproductive and 
disruptive to government operations?
    It also strikes me that we have a Catch-22. In an effort to meet 
these quotas, Federal agencies may not have the personnel in place to 
even handle the competitions. As they bump up against what are now even 
tighter deadlines, they may end up just directly concerting the work to 
the private sector or using streamlined processes that may not provide 
essential protections.
    We really don't have a trove of solid, agency-by-agency information 
about the costs and performance of work that is being performed for the 
government under contract. I have long been interested in whether we 
have a good system (or any system at all) to measure and account for 
these costs, determine if there are savings, and oversee the work that 
is being done with Federal funds.
    It's been my impression that some of my colleagues have been just 
hidebound to outsource, without regard to either the price tag or the 
performance. Their motivation is to reduce the size of the Federal 
workforce--at any cost.
    When I have suggested amendments--arguing that we had to save 
money, they rejected them. They told me that's not the point--we have 
to turn some lights out in some Federal buildings. I'd like to know 
whether that's still driving the outsourcing fervor.
    During the last Congress, joined by over two dozen colleagues, I 
introduced legislation to try to get a better handle on this situation. 
I am putting the finishing touches on similar legislation to be 
introduced shortly. Mr. Chairman, I'd like to share a draft with you 
with the hope that you could join me in making this a bipartisan 
effort.
    The TRAC Act would require Federal agencies to track the costs and 
savings from contracting out. It also calls for a comparative study of 
wages and benefits, conducted by the Office of Personnel Management and 
the Department of Labor to get better information. GAO has indicated 
that since contractors have no oblication to furnish the necessary 
data, it is difficult to assess this. The bill provides a reasonable 
opportunity for Federal agencies to make substantial progress in 
carrying out the tracking requirements before enforcement remedies like 
suspension of further outsourcing would be invoked.
    I am concerned that decisions to shift work to the private sector 
be made fairly, not arbitrarily; that public-private competition is 
fostered; and that we have a reliable system in place to track costs 
and performance of work being performed with Federal funds by the 
private sector under these contracts. In sessence, real accountability 
and true transparency.
    I also hope that we can get an answer to another important question 
about whether OMB is paying any attention to a Congressional directive 
prohibiting the use of arbitrary numerical quotas in its push to 
privatize work performed by Federal employees. I'm referring to Section 
647 of Division J of the FY03 Omnibus Appropriations (P.L. 108-7) 
signed into law on February 20 of this year. Specifically, bill 
language stated that

      L``[N]one of the funds made available in this Act may be used by 
an agency of the executive branch to establish, apply, or enforce any 
numerical goal, target, or quota for subjecting the employees of the 
executive agency to public-private competitions or for concerting such 
employees or the work performed by such employees to private contractor 
performance under the Office of Management and Budget Circular A-76 or 
any other administrative regulation, directive, or policy unless the 
goal, target, or quota is based on considered research and sound 
analysis of past activities and is consistent with the stated mission 
of the executive agency.'' (emphasis added)

and conference report language provided that:

      L``If any goals, targets, or quotas are established following 
`considered research and sound analysis' under the terms of this 
provision, the conferees direct the Office of Management and Budget to 
provide a report to the Committees on Appropriations no later than 30 
days following the announcement of those goals, targets, or quotas, 
specifically detailing the research and sound analysis that was used in 
reaching the decision.''

    I would like to note for the record that this morning, our full 
Committee's Ranking Member, Senator Joe Lieberman, is sending a letter 
to OMB Director Joshua Bolten seeking answers to vital questions about 
the Administration's compliance with this particular provision and the 
reporting responsibilities. I ask unanimous consent that a copy of 
Senator Lieberman's letter be made a part of the record of this 
proceeding, and that the record be left open to permit inclusion of the 
Administration's response.
    Mr. Chairman, I think today's hearing will be an opportunity to 
probe these and other issues. I thank you again for scheduling it and 
welcome our distinguished witnesses.

    Senator Durbin. I believe that we need to get to the bottom 
of this. If the goal here is to outsource, to save the 
taxpayers money, and to provide better services, then this 
conversation is an important one.
    If the goal is simply the elimination of the Federal 
workforce and reduction of that workforce, then, frankly, I 
think it is wrong-headed. It is going to destroy the morale of 
many of those who were involved in the workforce today.
    I would like to note for the record this morning our full 
Committee Ranking Member, Senator Lieberman, is sending a 
letter to OMB Director Josh Bolten seeking answers to vital 
questions about the administration's compliance with the 
appropriation provision and reporting responsibilities, and I 
ask unanimous consent that a copy of Senator Lieberman's letter 
be made part of the record, and the record be left open for an 
inclusion of the administration's response.
    Senator Voinovich. Without objection.
    [The letter of Senator Lieberman follows:]
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    Senator Durbin. Thank you very much, Mr. Chairman.

            OPENING STATEMENT OF CHAIRMAN VOINOVICH

    Senator Voinovich. Thank you.
    I think everyone realizes that in August 2001, President 
Bush introduced his management agenda, with the goal of 
creating a citizen-centered, results-oriented and market-based 
Federal Government.
    The five governmentwide initiatives of the President's 
management agenda are (1) strategic management of human 
capital, (2) competitive sourcing, (3) improved financial 
performance, (4) expanded electronic government, and (5) budget 
and management performance integration. The administration also 
created an Executive Branch management scorecard to weave a 
results-based management approach into the fabric of Federal 
programs.
    As a former chief executive of the City of Cleveland, and 
the State of Ohio, I applaud President Bush for having the 
foresight to design a strategic, comprehensive and integrated 
plan to reform Federal Government operations. It was long 
overdue.
    The administration did not simply issue a press release 
describing high-minded management goals. Rather, they have 
sought to implement the management agenda vigorously, and it is 
having a positive effect. For example, the Economic Development 
Agency of the Department of Commerce requested a $15-million 
increase over the President's FY 2003 request. OMB recognized 
EDA as an ``effective'' agency, focused on results in internal 
management improvement, therefore increased its budget.
    This type of analysis should be undertaken for every 
agency. It shows somebody is paying attention to whether we are 
getting something done.
    Despite significant turnover in the senior ranks, OMB has 
been able to maintain its focus on improving management. I 
recently met with Clay Johnson, the new Deputy Director for 
Management of OMB. I was impressed by his vision and encouraged 
by his stated willingness to partner with Federal employee 
groups, and that he has been meeting on a regular basis with 
them, which is important to the success of any program in this 
area.
    One of the five pillars of the President's management 
agenda, competitive sourcing, has come under a hail of 
criticism from Federal employees, their unions, and Members of 
Congress of both parties. As far as I know, it is the only 
element of the Management Agenda to generate such opposition. 
Resistance is based, in part, on the administration's goal of 
competing with the private sector the activities of almost one-
quarter of the Federal Government's nonpostal civilian 
workforce.
    To many, these goals seem arbitrary and lack a firm 
analytical basis. The potential job loss feared as a result of 
this initiative is doubtless another major cause for concern, 
particularly among our unions.
    On March 6, 2002, I participated in a Governmental Affairs 
Committee hearing, chaired by Senator Durbin, that examined 
competitive sourcing. During that hearing, I voiced my concerns 
with several aspects of the initiative, many of which I still 
have.
    My chief concern is that the administration's original, 
across-the-board goals failed to take into account the unique 
mission and circumstances at each agency. In other words, 
competitive sourcing goals were not being driven by an agency's 
strategic human capital plan.
    Without proper strategic planning, competitive sourcing 
could be as damaging to the Federal workforce as the Clinton 
Administration's indiscriminate downsizing initiative. OMB is 
now working to establish competitive sourcing goals on an 
agency-by-agency basis. This is a great improvement, and I 
would like to hear more about this shift today.
    Second, I am concerned that senior managers may decline to 
make the necessary investment in their Federal employees, and 
indeed decide to conduct a competition with the private sector. 
OMB must make sure that even when Federal activities are being 
competed, Federal employees are given the professional 
development and empowerment to do the best job they possibly 
can. In other words, we must do everything we can to make sure 
our Federal workforce is competitive; evaluate our agencies and 
recognize here are some wonderful people. With upgrading their 
skills, they can get the job done.
    Third, I am concerned that competitive sourcing may 
dissuade good people from seeking Federal employment. I have 
devoted much time and energy to improving the Federal service 
and have worked with leading public policy experts to examine 
how we can do a better job of attracting new talent to 
government.
    Competitive sourcing could be at variance with this goal. 
Although roughly 75 percent of the Federal workforce would not 
be subject to competition, the knowledge that many Federal jobs 
could shift to the private sector might stifle recruiting 
efforts at a time when the Federal Government needs the right 
people to address our many significant challenges and replace 
the large number of baby boomers who are going to retire this 
decade.
    A student at Harvard's Kennedy School of Government, when I 
was there, mentioned this exact concern, and I am interested to 
learn if OMB has thought of a way to address this possible 
unintended consequence. We do not want young people thinking 
about a career in government and then seeing everything 
compete. They will ask why should I go there and instead 
consider employment and go someplace else.
    Fourth, I am worried about the ability of each Federal 
agency to conduct public-private competitions and the resources 
associated with these efforts. I think Senator Durbin 
referenced that. Until this initiative began, most agencies had 
little experience conducting public-private competitions. 
Additionally, it is my impression that many acquisition offices 
are overworked and understaffed.
    Holding agencies accountable to competition goals before 
they have the capacity to conduct such competition is unfair. 
The government needs a robust acquisition workforce now more 
than ever. Without strong contract oversight, the government 
will be hard-pressed to realize the savings generated by 
competition and ensure that contractors are meeting their 
goals.
    In addition, the need to conduct competitions must not 
cause unplanned cutbacks in other areas of agencies' 
operations. It was reported recently in the Washington Post 
that the National Park Service postponed maintenance in order 
to pay for an 18-month privatization study by consultants. This 
type of trade-off is unacceptable. OMB must provide adequate 
resources for agencies to conduct competitions without putting 
their operations or service at risk.
    Fifth, I have a specific concern regarding the recently 
revised A-76 guidelines. While I support the effort to 
streamline and improve the public-private competition process, 
I am troubled by the requirement that the government's most 
efficient organization is subjected to a recompetition every 5 
years. This may have yet another unintended consequence: 
Federal employees may believe that there is always another job 
competition just around the corner, which could weaken morale. 
I ask OMB to reconsider this provision.
    Finally, the tremendous anxiety this initiative has caused 
Federal employees lies partly, I believe, in the failure of OMB 
to fully explain the purpose of competitive sourcing.
    I take Ms. Styles at her word, that the initiative is not 
part of an ideological crusade against Federal employees. If I 
believed it was, I would be completely opposed to it. Rather, 
the purpose is to increase the efficiency of certain Federal 
operations through competition.
    This idea has merit. But the management shortcomings I have 
noted must be addressed, and the reasons and implementation for 
this initiative must be communicated more effectively to 
Federal employees, their unions, and Members of Congress. All 
of this could be done without an act of Congress.
    To the administration's credit, they have made improvements 
to the competitive sourcing initiative since the hearing in 
March 2001. We appreciate the fact that someone was listening.
    I am encouraged that OMB is now working with agencies on a 
case-by-case basis to make sure that the infrastructure to 
properly conduct public-private competitions. It is my 
understanding that Ms. Styles is going to announce additional 
modifications to the initiative today, which I will let her 
describe. These additional changes could go a long way towards 
reassuring skeptics that this initiative is being carried out 
in a careful, methodical manner and not with an arbitrary, one-
size-fits-all approach.
    Federal employees deserve to know the administration's plan 
for competitive sourcing. I intend to ensure that this 
initiative is soundly managed, and I will continue to conduct 
oversight towards that end.
    I would now like to yield to the Senator from New Jersey 
for his remarks, and thank you for being here this morning, 
Frank.

            OPENING STATEMENT OF SENATOR LAUTENBERG

    Senator Lautenberg. Thanks very much, Mr. Chairman. I think 
my absence of a couple years sabbatical I took may make people 
forget who I was and the fact that I am the junior member of 
the Committee puts me in a position that I do not really like. 
I had the fear that somehow or another I was going to be 
outsourced, that I was at the tail end of the senior list. 
[Laughter.]
    But, Mr. Chairman, you know we have a relationship that is 
treasured, I think, by both of us, respect, because I know how 
sincere you are about your responsibilities to your job and 
know that you, in your former career, exhibited the same kind 
of concerns for people. While you ran things with as tight a 
hand as you could do it, the taxpayers were treated fairly as 
well.
    I thank you for holding this hearing. The administration's 
desire to privatize these vast swathes of the Federal workforce 
is fraught with controversy and needs a great deal of scrutiny 
by Congress.
    Now, I would like to say at the outset that I think there 
are jobs that could well be done outside of the government 
workforce, but I would tell you, having had 30 years in the 
corporate world, having built a company that I and two others 
started with nothing and now employs 40,000 people in an 
outsourcing business, and now having been in government 19 
years--18\1/2\, who is counting--and the fact is that I am 
able, I think, to make comparisons between the folks who are 
working for government and those who work in the private 
sector.
    I will take a minute more on my own background because it 
sets the condition for me to examine these things.
    (A) the company was not a unionized company. We were very 
careful about how we treated our employees. Everybody was made 
a partner through the stock options or stock purchase plans, 
and they worked hard, enormous hours, and rarely could a 
holiday be taken by all of the employees because our work had 
to be turned out on a daily cycle.
    Then, I come to government, and I see the same kind of 
loyalty, same kind of energy, but not the same kind of 
paychecks and not the same opportunity for advancement that I 
saw with people in the corporate world.
    (B) is that when our greatest growth took place, it took 
place when there was relatively full employment, and people 
were hard to find, and we siphoned off a part of the office 
operation and did it for our clients--over 400,000 of them. The 
company is a great American story about three poor boys who 
started the company, today, 45,000 employees. When the 
president of the company--and forgive this immodesty--when the 
president of the company talks to the employees, it is 
immediately translated into 10 languages. So the breadth is 
there, and it was all done with an understanding that the most 
important ingredient we had were not the programs, not the 
name, because the name itself did not carry it, but it was the 
output.
    And I see in my office, and I know I speak for lots of 
other people here, the kind of staffing, the kind of 
dedication, the kind of zeal for the job that you just do not 
see in the private sector, and I do not know where we are going 
with this.
    So, ultimately, when I look at this and think about today's 
hearing, about people, individuals, who work for our government 
and who pay their taxes. Civil servants are the backbone of our 
government, and we have to remember that the skills, the 
talent, and the professionalism of the men and women in the 
Federal workplace are the best in the world.
    If there are malingerers, there are malingerers in every 
part of the economic world, and I saw it in my own company, and 
I have seen it here, but that is human nature. It does not mean 
that people who work for government are people who are trying 
to escape responsibilities. It means that they are--most of 
them, 98 percent, perhaps--are hardworking, committed people, 
and they are here in the morning, and they are here at night.
    The overwhelming majority of our civil servants are truly 
dedicated to their jobs, and many of them could make more money 
in the private sector, and I do not want my staff to hear this, 
but they work in government because they see public service as 
a higher calling, and the ability to make more money outside 
was just a passing thing.
    It is crucial that we all hold civil servants accountable 
for the jobs they do. There are jobs and activities that should 
be moved from the public sector to the private sector. As a 
former businessman, I salute that review. But I must say that I 
am concerned about the administration's announced intention to 
compete 127,500 Federal jobs within the next year. I am 
particularly concerned about setting an arbitrary quota and 
impossible deadline for privatization, and then deliberately 
withholding from agencies the financial resources they need to 
conduct the public/private competitions.
    I get the impression that the administration has determined 
in advance the way these competitions always should go, and 
that is to the private sector. And we heard Grover Nordquist, 
who is a senior adviser to the administration, paid or 
otherwise, I am not sure, but the fact is that he does render 
advice that government should be squeezed down, and we should 
try to eliminate 850,000 jobs.
    And with all due respect, many of us here in the Congress 
disagree when we look at how stretched we are militarily right 
now, wish we had more people, asking the people who are serving 
to go way beyond the call of duty, those who are reservists to 
be called on maybe for a weekend every other week and for a 
couple of weeks of summertime, away from home a year-plus, away 
from family, away from jobs. We ask so much, and the military, 
in my view, compares very favorably, let us say, to the FAA, 
which I see as a fifth branch of the military.
    And with all due respect, many of us here see anomalies. 
For instance, it struck me as ludicrous that we would 
federalize baggage screening at airports, then turn air traffic 
control over to the lowest bidder. Talk about security on the 
cheap, that is really backwards. So I offered an amendment to 
the FAA reauthorization bill to prevent that. Eleven 
Republicans voted with me--and that is not an easy job for a 
Republican, George. Eleven Republicans voted with me on an 
amendment which the Senate adopted 56 to 41 to keep FAA in the 
Federal employment structure.
    Last week, the Washington Post ran an article about the 
administration's attempt to privatize the job of the 
archaeologists who protected cultural heritage contained, found 
in our national parks. John Ehrenhard, director of the 
Southeast Archeological Center, put it this way: ``We do what 
is in the best interests of the public, which is not always in 
the best interests of some developer. It may not make the most 
sense economically, but we are the government, and we can't be 
bought.''
    And I think those are wise words, and we should contract 
out where it makes sense, but not because there is an ideology 
that says they would like to cripple the government. Many 
people correctly point out that taxpayers are owners of the 
Federal Government and deserve the most effective and efficient 
government possible.
    And I agree, but I would also point out that Federal 
employees do pay taxes also. They have invested even more than 
their taxes. They have invested their working lives. They 
deserve to be treated fairly and with respect, and doing so 
will maximize all taxpayer values.
    And I find it such a challenge, when I look at a report 
that is GovernmentExec.com, issued on July 11. The writer 
writes, ``Nearly a million and a half in performance bonuses 
went to political appointees in 2002, according to the Office 
of Personnel Management, and one House Democratic leader is 
raising a question about the Bush Administration's use of 
bonuses at a time when the administration is seeking to hold 
down pay raises for rank-and-file Federal employees. The cash 
awards were sent to 470 political appointees.''
    There is something that just does not ring true here. We 
have got over 6 percent of our people unemployed, we lost 
nearly 2.5 million jobs in the last couple of years, and now we 
want to farm out these people who have been good, loyal people, 
to say there is going to be competition for your job, and you 
may be put out of work. And we will have someone performing 
services, and what do we do if there is a strike, a labor 
difficulty with a company out there that is providing some of 
the replacements?
    I think there are serious questions and, Mr. Chairman, I 
thank you for the opportunity to make the statement, and I look 
forward to hearing from our witnesses.
    Senator Voinovich. Thank you, Senator Lautenberg. Senator 
Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman.
    Good morning to you and good morning to our panel. I want 
to thank you, Chairman Voinovich, for having this hearing 
today. It is certainly a step in the direction of dealing with 
some of the issues that will be facing us quickly concerning 
our workforce and for continuing the Committee's interests in 
issues affecting the Federal workforce and the management of 
agencies.
    Ms. Styles, I want you to know that I really appreciate 
your time and your effort you have spent on these issues over 
the past several years, and I would also like to thank Mr. 
Walker for his tremendous dedication, and I say that because I 
have been working with him, also, and I want to thank our 
witnesses for your testimony this morning.
    Mr. Chairman, no one disputes the importance of a 
government that is both cost-effective and accountable. 
Agencies require the appropriate tools and skilled personnel to 
meet their missions. It is in that light that we should examine 
what work is best performed by government employees and which 
could be performed by the private sector. And when I say that, 
I want to, again, think about what Senator Lautenberg 
mentioned, as a person who has been on both sides, and deeply 
on both sides, and can certainly share his experiences.
    As agencies make their contracting decisions, we should ask 
what impact outsourcing will have on the Federal workforce. 
With a number of the current Federal workforce eligible for 
retirement, we should take steps now to fill the void that they 
will leave, and that is something that we need to work on 
immediately and take care of. We cannot expect our young people 
to work for the government if they believe their work will be 
subject to outsourcing, nor should we accept policies that will 
instill fear and distrust among current employees.
    While the contracting debate is not new, the 
administration's contracting and other management proposals 
have attracted congressional attention. There is growing 
bipartisan concern that too much government work has been 
contracted out already.
    We should encourage, and I want to stress that, we should 
encourage, not discourage, employment with the Federal 
Government. We should tear down barriers that stand in the way 
of promoting the Federal Government as an employer of choice. 
We should ensure that Federal managers, employees, their unions 
and associations, Congress, Office of Personnel Management, and 
Office of Management and Budget work together to determine what 
is inherently governmental.
    Contracting policies should be fair to Federal workers, 
should be transparent, and in the best interests of the public. 
We have a strong and effective Federal workforce and should put 
to rest, once and for all, the faults, stereotype of the 
inefficient government bureaucrat.
    Let me touch, briefly, on the newly revised A-76 process 
for public-private competitions. Mr. Walker and Ms. Styles are 
familiar with my concerns over what I see as a lack of fairness 
and transparency in the revised rules for A-76 competitions. 
Under the revised A-76 process, government work could be 
contracted out, even if the work could be performed more 
efficiently by Federal employees.
    Moreover, the revision sets unrealistic deadlines for 
conducting public-private competitions that could push 
government work out the door to the private sector as fast as 
possible and may not give Federal workers a fair chance to 
compete. Unlike the private sector, Federal workers are 
required to compete for their jobs every 5 years and are 
prevented from competing for contracted-out work.
    True competition should be cost-effective and must promote 
trust. Federal workers should be provided with sufficient funds 
and personnel to compete. Revising the government's contracting 
process without improving contract management will likely 
result in hollow victories.
    Mr. Chairman, I thank you again for holding today's 
hearing. I thank our witnesses again for their time today, and 
I look forward to their thoughts and suggestions on the new A-
76 process and other contracting issues.
    Mr. Chairman, I would ask that a copy of my full statement 
be included in the record.
    Senator Voinovich. Without objection. Thank you, Senator 
Akaka.
    [The prepared opening statement of Senator Akaka follows:]
              PREPARED OPENING STATEMENT OF SENATOR AKAKA
    Good morning. I want to thank Chairman Voinovich for holding 
today's hearing which continues this Subcommittee's interest in issues 
affecting the Federal workforce and the management of agencies. Ms. 
Styles, I sincerely appreciate the time and effort you have spent on 
these issues over the past several years. I would also like to thank 
Mr. Walker for his tremendous dedication, and I thank our witnesses for 
their testimony this morning.
    No one disputes the importance of a government that is both cost-
effective and accountable. Agencies require the appropriate tools and 
skilled personnel to meet their missions. It is in that light that we 
should examine what work is best performed by government employees and 
which could be performed by the private sector.
    As agencies make their contacting decisions, we should ask what 
impact outsourcing will have on the Federal workforce. With a large 
number of the current Federal workforce eligible for retirement, we 
should take steps now to fill the void that they will leave.
    We cannot expect young people to work for the government if they 
believe their work will be subject to outsourcing. Nor should we accept 
policies that will instill fear and distrust in current employees.
    While the contracting debate is not new, the administration's 
contracting and other management proposals have attracted congressional 
attention. There is growing bipartisan concern that too much government 
work has been contracted out already. For example:

     LThe Fiscal Year 2003 Omnibus appropriations bill 
prohibits the use of funds to impose outsourcing goals, targets, or 
quotas at Federal agencies without thorough analysis.

     LThe Senate-passed Department of Defense Appropriations 
bill includes a bipartisan amendment requiring the Department to 
achieve a 10 percent cost savings before work is contracted out.

     LThe House--by a vote of 362 to 57--passed legislation to 
restrict contracting out in the National Parks Service.

    We should encourage--not discourage--employment with the Federal 
Government.
    We should tear down barriers that stand in the way of promoting the 
Federal Government as an employer of choice.
    We should ensure that Federal managers, employees, their unions and 
associations, Congress, the Office of Personnel Management, and the 
Office of Management and Budget work together to determine what is 
inherently governmental. By involving all parties within the Federal 
Government we are better able to forge contracting policies that are 
fair to Federal workers, transparent, and in the best interest of the 
public.
    We can do all of this and still ensure efficient and cost effective 
government contracting. We already have a strong and effective Federal 
workforce. We ought to put to rest, once and for all, the false 
stereotype of the inefficient government bureaucrat.
    As the Comptroller General has said repeatedly, poor contract 
management costs the government billions of dollars. These deficiencies 
can be improved by ensuring that the government has the employees, 
skills, and technologies to determine costs for both government and 
contracted out activities over the long-term.
    Let me touch briefly on the newly revised A-76 process for public-
private competitions. Mr. Walker and Ms. Styles are familiar with my 
concerns over what I see as a lack of fairness and transparency in the 
revised rules for A-76 competitions.
    Under the revised A-76 process, government work could be contracted 
out even if the work could be performed more efficiently by Federal 
employees. Moreover, the revision sets unrealistic deadlines for 
conducting public-private competitions that could push government work 
out the door to the private sector as fast as possible and may not give 
Federal workers a fair chance to compete. Unlike the private sector, 
Federal workers are required to compete for their jobs every 5 years 
and are prevented from competing for contracted out work.
    True competition should be cost-effective and promote trust. 
Federal workers should be provided with sufficient funds and personnel 
to compete. Revising the government's contracting process without 
improving contract management will likely result in hollow victories.
    Mr. Chairman, thank you again for holding today's hearing. I thank 
our witnesses for their time today, and I look forward to hearing their 
thoughts and suggestions on the new A-76 process and other contracting 
issues.

    Senator Voinovich. I would like to introduce the witnesses 
testifying today. Sitting on the first panel is the Hon. Angela 
Styles, the Administrator of the Office of Federal Procurement 
Policy of the Office of Management and Budget, and the Hon. 
David Walker, Comptroller General of the United States and head 
of the General Accounting Office.
    Our second panel consists of Dr. Jacques Gansler, a former 
Under Secretary of Defense during the Clinton Administration, 
now with the School of Public Policy at the University of 
Maryland; Dr. Paul Light is a senior fellow at The Brookings 
Institute and has testified before my Subcommittee many times 
before; Charles Tiefer, a professor of law at the University of 
Baltimore; and Dr. Frank Camm, a senior analyst at RAND.
    If you will, I would like all of the witnesses to stand and 
be sworn in.
    [Witnesses sworn en masse.]
    Senator Voinovich. Let the record show that the answers are 
an affirmative of at least four of our witnesses.
    I would like to note that many other groups, including the 
American Federation of Government Employees, the Professional 
Services Council, and the Federally Employed Women requested 
the opportunity to testify before the Subcommittee today. 
Although the Subcommittee could not accommodate everyone's 
request, we feel that this hearing will produce a balance and 
substantive discussion.
    And without objection, I will leave the hearing record open 
for 1 week to allow any, and all, interested groups to submit 
their views for the official hearing record. Without objection, 
that will be the case.
    We are very fortunate to have Ms. Styles here, and I second 
Senator Akaka's compliment of the time and effort that you have 
put into this effort.
    Comptroller General Walker, I want to say thank you for 
everything that you have done for this Committee and this 
Subcommittee. Without your input over the last couple of years, 
the significant changes that we made in the Federal workforce 
would not have occurred, and so I welcome both of you here 
today, and I appreciate your patience.
    Ms. Styles, you have heard some comments from us today, and 
I am anxious to hear your testimony.

TESTIMONY OF ANGELA STYLES,\1\ ADMINISTRATOR, OFFICE OF FEDERAL 
      PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET

    Ms. Styles. Thank you very much.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Styles with an attachment appears 
in the Appendix on page 57.
---------------------------------------------------------------------------
    I appreciate the opportunity to be here today to update you 
on the administration's competitive sourcing initiative. We are 
making significant progress towards public-private 
competition----
    This initiative asks people to make very hard management 
choices, choices that affect real jobs that are held by 
dedicated and loyal career civil servants. But the fact that 
public-private competition and our initiative require hard 
choices and a lot of hard work, makes it one that can, and is, 
affecting fundamental real and lasting changes to the way we 
manage the Federal Government.
    The clincher here for us is the taxpayer. Competitive 
sourcing strives to focus the Federal Government on its 
mission, delivering high-quality services to our citizens at 
the lowest possible cost.
    I would like to spend a few minutes addressing four issues 
that I know are of particular concern to you: The use of 
numerical targets, communication with employees and the unions, 
the recompetition requirements of the new circular, and the 
effect of competitive sourcing on our ability to recruit 
Federal employees.
    First, the use of numerical targets. Attached to my 
testimony, you will find a report released by OMB today that 
contains an extensive discussion about the history of 
competitive sourcing and the use of numerical targets. Most 
significantly, you will note that we have changed our 
management scorecard to eliminate the use of governmentwide 
numerical targets for the measurement of success.
    Second, you have expressed concerns about communications 
with the employees and employee unions. I can tell you that the 
most challenging part of my job is effective communication. I 
spend the vast majority of my day, explaining to people that 
competitive sourcing is about a commitment to management 
excellence. It is a commitment to ensuring that our citizens 
are receiving the highest-quality service from their 
government, without regard to whether that job is being done by 
dedicated Federal employees or the private sector.
    In spite of our extensive efforts, there is a tremendous 
amount of disinformation and confusion. Two examples have been 
mentioned here this morning:
    One, is maintenance at the Park Service. There were several 
press reports out dealing with Mount Rainier in Washington 
State and maintenance of the Park Service and funds being taken 
away from maintenance activities to actually run competitions 
at Mount Rainier. There are no public-private competitions 
planned in the near future, there are no public-private 
competitions planned at the current time at Mount Rainier, so 
those reports were erroneous.
    There was also a recent press report dealing with 
archaeologists. I have spent a lot of time researching the 
archaeologists that were mentioned in the Washington Post last 
week. The more research I have done, the more I have found out 
that these are not actually just archaeologists.
    These are technicians, these are people running computer 
databases. They are actually based in a Federal building in 
downtown Lincoln, Nebraska. They are not actually in a national 
park. They are not actually out in the field doing 
archeological work. They are running computer databases. They 
are publishing and writing newsletters. So I think it is a 
little bit different than has been articulated.
    We are constantly, as you look at those examples, fighting 
a flurry of erroneous propaganda about competitive sourcing. 
Unlike our past reforms that are focused on outsourcing, unlike 
other past reforms that have focused on outsourcing, 
privatization or downsizing through arbitrary FTE cuts, 
competitive sourcing is a review process that asks two very 
important questions: Should we reorganize for greater 
efficiency, and might a different provider, a local government, 
a nonprofit organization that employs disabled members of our 
society or a private business be better able to provide this 
service at a lower cost?
    Third, you have expressed concerns about the recompetition 
procedures in the circular. Specifically, our new circular does 
not assume that one competition or review of a function will 
ensure that the function is efficiently organized for the next 
50 years. The concept here is that relevant procurement 
statutes and regulations require the private sector to 
recompete for government work every 3 to 5 years. Competition 
and recompetition reduces costs and ensures that we are 
receiving the maximum benefit of private sector innovation.
    The policy in the circular applies this concept to 
commercial work performed by government employees, with a 
significantly less-stringent time frame: Every 5 to 8 years. 
There are also clear procedures for requesting a deviation from 
this generous time frame, and I can tell you that we will grant 
any deviation that is requested and supported.
    The practical reality of the situation, from my 
perspective, is there has not been one, not a single 
recompetition of a government function employed by Federal 
employees in the 55-year history of this circular. The reality 
is that we have well over 400,000 commercial positions, 
positions that the agencies have designated as open to 
competition, but have never been tested, reviewed or even 
competed one time.
    For a Federal employee that fears recompetition of a 
function that they have recently won and competed for, I think 
they are fearing a very distant and tenuous possibility. As a 
matter of practical reality, it will be quite a while before we 
even start thinking about recompeting functions won by 
government employees in the first round of competition.
    Finally, you have expressed concerns about the effect of 
competitive sourcing on our ability to recruit Federal 
employees. Clearly, competitive sourcing poses challenges for 
government personnel who perform commercial activities. These 
providers must critically examine their current processes and 
figure out how they can improve the delivery of services. 
Answers may not come easily, but they are ones which our 
taxpayers are owed and ones which efficient private-sector 
service providers ask themselves routinely.
    Despite the difficulty of this task, we have every reason 
to believe our workforce is up to the challenge. Historically, 
the government wins over 50 percent of these public-private 
competitions. The high success rate should give employees 
confidence that they can, and do, compete effectively in head-
to-head competition with the private sector.
    The revised circular recognizes the talents of the Federal 
workforce, the conditions under which the workforce operates, 
and the importance of providing the workforce with adequate 
training and technical support during the competition process 
to ensure that they can effectively compete.
    In particular, the revised circular seeks to ensure that 
the agency provider has the resources available to develop a 
competitive agency offer.
    As an example--and this is one of my best recent examples--
the Department of Energy competed the graphics function at 
their headquarters. Before the competition, this was a 13-
person operation for graphics at DOE headquarters. Through the 
competitive process, the incumbent government provider, and the 
in-house organization, determined they could do the same job 
with six people. By sharpening their pencils and reorganizing 
the function, the Federal employees won against the private 
sector. Importantly, through managed attrition, there were no 
involuntary separations.
    Though small in number, this competition exemplifies the 
benefits of competitive sourcing. From this very small 
competition, DOE was estimating $635,000 in annual savings. The 
employees won, but through competition, we were able to save 
$635,000 a year for a 13-person operation.
    Even when the commercial sector is chosen to perform the 
activity, there are usually a very small number of involuntary 
separations--8 percent, according to one study that is listed 
in the report that I have attached to my prepared statement 
today, and 3.4 percent, according to another report. The 
percentage, I believe, should remain very small.
    In conclusion, while there is a certain comfort level in 
maintaining the status quo, our taxpayers cannot afford, nor 
should they be asked, to support a system that operates at an 
unnecessarily high cost because many of our commercial 
activities are performed by agencies without the benefit of 
competition.
    For this reason, the administration has called upon the 
agencies to transform their business practices, and we have 
provided the tools for them to meet this objective in a 
responsible, fair and reasoned manner.
    This concludes my statement.
    Senator Voinovich. Thank you very much. Comptroller General 
Walker.

 TESTIMONY OF HON. DAVID WALKER,\1\ COMPTROLLER GENERAL, U.S. 
                       ACCOUNTING OFFICE

    Mr. Walker. Thank you, Mr. Chairman, Senator Akaka, Senator 
Lautenberg, and other Members of the Subcommittee. It is a 
pleasure to be back before you, this time on the important 
issue of competitive sourcing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 81.
---------------------------------------------------------------------------
    If I might, Mr. Chairman, I assume my entire statement will 
be included for the record.
    Senator Voinovich. Without objection.
    Mr. Walker. Thank you, and therefore I will summarize some 
highlights.
    Let me say at the outset, that this is a highly complex and 
controversial topic. It has been for years, and it is likely to 
remain so for a number of years. But let me also say that I 
have had the pleasure to work with Angela Styles on this 
complex and controversial topic over the last couple of years, 
and that in my mind there is no question that she is a 
dedicated, capable and caring public servant trying to balance 
the various issues here. She is only one member of the 
administration, and obviously there are not necessarily always 
uniform views, but I wanted to say that as part of the record.
    I think the critical points are as follows:
    First, our Nation faces a number of major trends and 
challenges that have no boundaries. Second, our Nation faces 
large and growing budget deficits and fiscal imbalances for a 
variety of reasons. Tough choices will be required in defining 
what the government's proper role is in the 21st Century, how 
the government should do business in the 21st Century and, in 
some cases, who should do the government's business in the 21st 
Century.
    Competitive sourcing is a tool. It is a means to an end. It 
is not an end in and of itself. It is not a panacea. It is 
something that clearly has implications from the standpoint of 
cost and quality. It also is important, not just what you do, 
but how you do it and when you do it, in order to address the 
very human elements and the issues that all of you Senators 
have talked about--the interaction between our desire to 
maximize economy, efficiency and effectiveness, at the same 
point in time being able to attract and retain a high-quality 
and high-performing workforce.
    I think we need to keep in mind that sourcing has to be a 
strategic decision. It could be outsourcing, it could be in-
sourcing or, in many cases, it could be co-sourcing which, 
quite frankly, is frequently the case: Furthermore, even if the 
decision is to outsource, it is critically important that the 
government have enough qualified and capable public servants to 
manage cost, quality and performance of those activities that 
have been contracted out, and if we do not, everybody is going 
to be in trouble.
    And, in fact, we have several agencies--NASA, DOE, DOD, 
just to name three--that are on our high-risk list because of 
failure to do just that.
    As you know, the Congress has been concerned with this 
issue for a number of years, and therefore asked me to chair a 
Commercial Activities Panel, comprised of top-level individuals 
with a variety of perspectives. The Panel met for over a year, 
conducted a number of hearings, both in Washington and outside 
of Washington, came up with a report where there was unanimous 
agreement on 10 sourcing principles, and there was a 
supermajority agreement on a variety of other recommendations.
    Based upon the review of my staff and myself, it appears as 
if the revised Circular is generally consistent with the 10 
principles that were unanimously agreed to by the Commercial 
Activities Panel. However, there are certain areas of concern, 
and there are certain omissions, some of which go beyond the 
principles, to the other recommendations that a supermajority 
of the Panel recommended.
    Those concerns are noted in my statement. I will mention a 
few at this time:
    The new Circular provides for expedited time frames for 
conducting these competitions. In order for that to occur, 
Federal employees are going to have to have financial and 
technical assistance to be able to compete effectively and for 
the system to be fair, not only in reality, but in perception.
    There are also several concerns with regard to the 
streamlined competitions which, as you know, are for under 65 
full-time equivalents, or FTEs.
    First, there is not an express provision to deal with 
potential unbundling by agencies of functions, activities or 
operations to get under the 65 number, and therefore be able to 
circumvent some of the other requirements; second, there is no 
10-percent cost differential; third, there is no internal or 
external appeal right, which could leave an accountability gap. 
And depending upon how much activity ends up occurring under 
65, it could end up being a matter of concern.
    And last, but certainly not least, is the Panel's 
recommendation on high-performing organizations, one key 
element that a supermajority of the Panel recommended and, that 
members of organized labor supported, even though we voted on 
the supplemental recommendations as a package. Technically they 
did not vote for it because they did not vote in favor of the 
supplemental recommendations but they expressed support for 
this element. It was based on the idea that we need to 
recognize, and as I think Ms. Styles' statement notes, and the 
report that she issues today notes, a vast majority of 
government will never be subject to competitive sourcing. 
Therefore it is incumbent upon all of us to figure out not only 
how can we make sure that these MEOs, most efficient 
organizations, can compete fairly and effectively, but also 
what can we do to try to make sure that for the vast majority 
of government that will never be subject to competitive 
sourcing, that we can improve its economy, efficiency, 
effectiveness, and responsiveness. And it is in that regard 
that a supermajority of the Panel recommended taking steps to 
create high-performing organizations throughout government.
    There is also interest in government in moving more towards 
pay-for-performance. However, the Federal Government, at the 
present point in time, and a vast majority of Executive Branch 
agencies, do not have modern, effective, credible and validated 
performance appraisal and management systems in order to make 
intelligent decisions on how to implement a pay-for-performance 
system.
    Therefore, Mr. Chairman, and Members of the Subcommittee, 
as noted at the end of my statement, OMB has recently 
recommended creation of a governmentwide fund for purposes of 
pay for performance. I would respectfully suggest we are not 
ready yet to implement such a governmentwide fund, and that 
while it is highly desirable that we end up moving forward 
towards pay for performance on a broader basis, we need to have 
the infrastructure in place in order to do it effectively and 
fairly and in a nondiscriminatory manner.
    Therefore, I would respectfully suggest that the Congress 
consider taking this governmentwide fund concept and making 
those funds available for several things:
    One, to provide financial and technical assistance such 
that most efficient organizations can compete effectively and 
fairly within these expedited time frames; two, that we can end 
up promoting high-performing organizations throughout the rest 
of government that will never be subject to competitive 
sourcing; and, three, as a subelement of both, that we provide 
support on a business case-basis for all of these, to be able 
to help agencies develop the type of systems and infrastructure 
that has to be in place in order to move towards more pay-for-
performance-oriented structures. I think there would be many, 
many winners by taking that type of approach, and I think the 
time has come that we need to seriously consider doing that.
    Thank you, Mr. Chairman. I would be more than happy to 
answer any questions that you or the other Subcommittee Members 
may have.
    Senator Voinovich. Thank you, Mr. Walker.
    We are going to have 5 minutes of questioning by each of 
the Senators. I will try to stick to that and ask my colleagues 
to do the same. We will have a few rounds of questions.
    Ms. Styles, I am pleased to hear that the administration 
has decided to drop the government goals related to competitive 
sourcing. It is a significant change, and I commend you for 
going forward with it. How did you come to this decision?
    Ms. Styles. I think it has come over a long period of time 
over the past 2\1/2\ years, with experience that we have had 
with public-private competition, with input from the Hill.
    We do not want a number to be distracting from what we are 
really trying to do, which is provide a better service for the 
taxpayer at a lower cost. I think we want people to realize 
that we are listening to their concerns, and if the arbitrary 
numbers are making this controversial, then we don't want a 
number to make this controversial.
    We want this initiative to work, and I think we are willing 
to recognize people's concerns, to work with them to make this 
initiative work and to be effective. We really are committed to 
making this an accepted management practice at the departments 
and agencies. And if numbers and goals that are governmentwide 
are distracting us from that, then we will move away from 
those, and that is what we did today.
    Senator Voinovich. So agencies are not going to be graded 
on their scorecards, in terms of percentages, then?
    Ms. Styles. Absolutely not. There will be individual plans 
for each department and agency that is appropriate for that 
department and agency. I think a lot of those have already been 
negotiated and are in place. For a long time, we have had 
departments and agencies that are moving to yellow, well below 
a 15-percent number, and I think we finally decided that we had 
so many exceptions to that rule that it made sense to get rid 
of the numbers.
    Senator Voinovich. Thank you. From my experience, when 
given the opportunity in competition, I have been amazed at 
what the internal group can do. I have seen that over the 
years.
    I will never forget, when I was mayor of the City of 
Cleveland, that we considered outsourcing the garbage 
collection. There was a lot of ``feather bedding,'' and I will 
never forget, after a long negotiation, the head of the union 
said to me, ``Why didn't somebody suggest that we do this a 
long time ago?'' We eliminated one individual from the 
collection and reduced 50 percent the people that were working 
at the transfer stations. We saved a lot of money. I also had 
these experiences when I was governor of Ohio.
    So going forward with this does have some real ways of 
providing efficiencies to organizations.
    Mr. Walker, you observed the changes OMB has made, in the 
A-76 circular. Do you want to comment on them?
    Mr. Walker. Yes. They have made a number of changes in 
response to comments by us and others, and I think they have 
generally been responsive. I will say that I think it is 
totally appropriate that the administration has eliminated the 
50-percent and the 15-percent across-the-board numbers. The 
Panel noted that there should not be any quotas of any type; 
and there should not be arbitrary goals.
    At the same point in time, I think that what the 
administration is now trying to move to, as I understand it, is 
considered goals, which are based upon individual facts and 
circumstances which can potentially end up resulting in a 
quantifiable target on an agency-by-agency basis in order to 
hold management accountable for results.
    So I think quotas are bad, arbitrary goals are bad, but 
considered goals, if they are established the right way, can be 
necessary and, in fact, appropriate.
    Ms. Styles. We provided several examples of the specific 
agency plans for competition to move from red to yellow on our 
management scorecard. It is in the report that is attached. So 
people can get a very good idea of the numbers we are talking 
about, as well as the types of functions that agencies have 
decided to compete, the types of functions that they decided 
are not appropriate for competition right now.
    So we are trying to give people examples of how this is 
working with the departments and agencies. We will have a 
report out by the end of September that goes through this for 
every department and agency and is very forthcoming in what our 
plans are and where we intend to go with this.
    Senator Voinovich. I think, as you move along, it would be 
beneficial to share that with this Committee.
    Ms. Styles. We absolutely will.
    Senator Voinovich. One of the things that was brought up in 
Comptroller General Walker's testimony is the issue of 
improving and giving Federal employees the tools that they need 
and the empowerment to do better work. I would be interested in 
some written information about what it is that the 
administration is going to be doing in order to make that 
happen, I am particularly interested in the area of training, 
and upgrading the skills of individuals. I think that in too 
many agencies, that does not occur, and as a result of that, 
they cannot take on new challenges. Unfortunately the belief is 
training money is available, which hurts us in terms of our 
recruitment.
    So I would like to know what you are doing to try and help 
the current workforce, to empower them and give them the tools 
and the training they need to grow in the jobs that they have.
    Ms. Styles. Absolutely.
    Senator Voinovich. We are going to use the early bird rule, 
for asking questions. Senator Lautenberg, I will call on you 
first.
    Senator Lautenberg. Thank you, Mr. Chairman.
    I want to say at the outset that I listened to each of you 
and am impressed with the way you have handled your respective 
assignments, the positions you hold regularly, but even as you 
make the case here. So this is not intended to be questions 
about you, but questions so much more about the policy that got 
us where we are.
    Because as I look at what is intended here, I get the 
feeling--and I know both of you have excellent professional 
backgrounds--I get the feeling that this is much more political 
than it is an exercise in efficiency. And I say that because, 
Ms. Styles, the fact that you say there are no arbitrary 
targets and so forth, but what is magic about the 65 number 
that can be handled at the local level, department level, up to 
65 employees can have their jobs eliminated, turning toward 
commercialization, and why is 65 the magic number?
    Ms. Styles. They actually can't have their jobs eliminated. 
We eliminated the use of direct conversions altogether. One of 
the problems I saw is the old circular had a process that if it 
was a function of less than 10, you could directly convert that 
work to the private sector without determining whether it made 
sense or the in-house organization could perform it. And I saw 
agencies doing it all of the time, without a significant 
justification. Even if it is a small function, I just don't 
think that is appropriate.
    What we did was we took a process that has been in place 
for at least 6 years, that was created by the previous 
administration for a function that is less than 65 Federal 
employees. We added to that I think a lot of transparency. It 
is called a streamlined competition process. It is not as 
extensive as our full-blown competition.
    Senator Lautenberg. No, but it does say that, in the 
streamlined process, the Federal agency head can outsource 
Federal work for a function of 65 FTEs, and private or private 
bids are not necessary because the streamlined process does not 
require truly competitive cost comparisons; is that not 
correct?
    Ms. Styles. I do not believe that is correct. It is a 
competition process. There is transparency. The agency has to 
put a public notice out before they do it, and when they 
finish, and they also have to supply you, and me, and everybody 
else with a form that says what the private sector cost was, 
what the public sector cost was and explain to all of us why 
they made the decision. So I wanted some transparency and 
accountability in this.
    Senator Lautenberg. Well, what we will do, since we 
disagree here, is we will discuss this, Mr. Chairman, further, 
and we will have a sit-down, and we will go through that.
    Ms. Styles. I am very happy to supply any information you 
want on this process.
    Senator Lautenberg. Yes, I am sure.
    And the question about how we got here reminds me of a 
little song that says, ``Where did all of the money go?'' I 
know it is a substitute for words, but the melody is there. 
``Where did all of the money go?''
    The fact is that we are not struggling alone here because 
there is not or there has not been sufficient funds to carry 
out the programs as we would like to, as we would like to be 
more intensive training. We certainly ought to be looking at 
the implementation of more efficiencies, the technology 
applications, wherever they can be, and as far as I am 
concerned, though we cannot discuss this at length here, I 
think the money went for other purposes. And when we look at 
the deficit, the money is not created, the deficit is not 
created by the explosion of costs internally, not at all. There 
have not been wholesale raises, there has not been anything 
that says suddenly it is going to cost more to operate.
    It is because people like me are getting tax breaks that we 
do not need, and frankly I would rather have plowed back into 
our society to build a stronger, more harmonious society than 
give people who have been successful more than they already 
have, and they have earned it under the system.
    So I look at this as a political exercise, denominated by 
the statement that I read earlier, and that is the mission is 
to get rid of 850,000 employees, and let us do that. And that 
is as arbitrary as it gets to be. I do not understand why we do 
not look at what we have got, where we are going, and how we 
finance internal operations.
    And I can tell you this, that if we were to advertise for 
employees on the basis that they would find in the commercial 
world, I do not think that you would get anybody to work here. 
I think the fact that we have seniority systems that provide 
for longevity, and, yes, there are blips along the way, but the 
fact is that we do lots of things right.
    We have lots of policies that are excellent in terms of our 
research and things of that nature that carry on, beyond the 
military, beyond the law enforcement, and the money has gone 
into other places, Mr. Chairman. That is what I see as the 
biggest difficulty that precipitates this kind of thinking.
    Senator Voinovich. Thank you, Senator. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Ms. Styles, you mentioned the rumors within the Park 
Service in your testimony. As the ranking member of the Senate 
Park Subcommittee, I am curious as to how you communicated with 
NPS employees to counteract these rumors.
    Ms. Styles. There actually is a hearing this afternoon 
dealing with the Park Service, where Fran Mainella, the head of 
the National Park Service, is testifying.
    We do generally leave it to the agencies. We try to provide 
them as much information as we can, the resources to 
communicate with their people, and I know that the Secretary of 
Interior has sent out all employee E-mails trying to explain 
this initiative, and I know that Fran Mainella has worked hard 
to fight against this initiative. But we fight against 
information that may be inaccurate and not correct all the 
time, and I think we put--I don't think we have put in enough 
effort, I think we put in a lot of effort, but I don't think we 
could ever put in enough efforts to make sure that we are 
communicating appropriately on this, but we do keep trying.
    Senator Akaka. Is OMB questioning agency decisions not to 
include a function on its FAIR Act inventory and under what 
circumstances would you do so?
    Ms. Styles. We are actually required by statute to review 
those functions and make sure that they are consistent within 
agencies and among agencies. So, yes, we do review, as we are 
required to, and I think we fulfill that role as we go through 
each year with the FAIR Act inventory process.
    Senator Akaka. Mr. Walker, you have reported, and OMB has 
acknowledged, severe limitations in the financial management 
systems throughout the Federal Government. How do these 
problems affect an agency's ability to determine the cost of 
the President's competitive sourcing initiative?
    Mr. Walker. They have a very real effect. And let me say 
that, while I know that Bobby Harnage is not going to be 
physically present today, he has a statement for the record, 
and he has a comment there that I would like to address, in 
response to your question.
    The Federal Government's financial management systems are 
not what they need to be. We have made a lot of progress, but 
we still have major challenges, especially in the Department of 
Defense. A vast majority of the historical A-76 competitive 
sourcing competition activity has been within the Department of 
Defense. The fact of the matter is that DOD and OMB estimate 
that historical savings, from A-76 competitions have ranged 
from 20 to 30 percent no matter who wins.
    Those are unaudited numbers. They are OMB and DOD's 
numbers. GAO has done work in this area, and we do believe that 
there are real cost savings. However we can't express an 
opinion as to whether or not that 20- to 30-percent range is 
reasonable because the cost accounting systems are just not of 
a state that we can form an opinion on it.
    Senator Akaka. Ms. Styles, I was pleased to receive OMB's 
competitive sourcing report last night and hear your testimony 
this morning which focused on the steps OMB is taking to 
institutionalize the administration's contracting out policies.
    The report appropriately acknowledged that now two agencies 
are alike. This is an important recognition, especially, as Mr. 
Walker notes, Federal agencies are faced with the dual 
challenges of implementing the revised A-76 provisions and the 
competitive sourcing portion of the President's management 
agenda.
    He points to the Department of Defense, as he did, which 
despite being the government's largest procurer of outside 
goods and services, has long occupied a place on GAO's high-
risk list because of contract management problems.
    Considering that most agencies lack the knowledge base, 
personnel and funding to carry out outsourcing competitions, 
what guidance will OMB offer to the new competitive sourcing 
officials to ensure that an agency's competitive sourcing 
activities integrate with their human capital and funding 
needs?
    Ms. Styles. We actually wrote the new circular with that 
specific thought in mind. When we looked at competitions in the 
Department of Defense, I can tell you what bothered me the most 
was the Department of Defense will go out, they make an 
announcement, without a whole lot of thought about it, that we 
are going to compete 1,000 people at this base, and then 4 
years later they decided, after they did a little work and a 
little planning, we are really only going to compete 100 people 
here. And for 4 years, there were 900 people that were very 
concerned about this, and there were expectations raised in the 
private sector about what this competition was going to look 
like.
    We want agencies to do a great deal of preliminary 
planning. You will see 2 pages, in a 23-page circular, that 
talk about preliminary planning, that before you make any 
public announcement of what you are doing, reengineer, 
understand what you do, understand the workload, understand how 
the private sector does this, understand what your human 
capital requirements are, and then make an announcement of what 
you are going to source.
    The best example I have is the Department of Education. 
They did it this way. They spent 2 years reengineering and 
planning before they made any announcements of what they were 
going to source, and it has worked very well.
    Senator Akaka. Thank you, Mr. Chairman.
    Mr. Walker. Mr. Chairman, can I come back on that?
    Senator Voinovich. Yes. Go ahead.
    Mr. Walker. I think the process is very important, but I 
think this also reinforces a point that I made before. It takes 
time, it takes financial and technical assistance in order to 
be able to make this work, and what are we going to do for the 
75 percent of government that is not subject to competitive 
sourcing? They need to look at their people, process, 
technology, and environmental situations, and we need to figure 
out ways that we can provide them with financial and technical 
assistance to get that done.
    Senator Voinovich. Ms. Styles, I share Senator Akaka's 
concerns about having the people get the job done. And as you 
know, the acquisition workforce is facing a serious human 
capital challenges. It has been underscored by GAO, for 
instance. Twenty-two percent of the acquisition workforce is 
eligible to retire between now and 2005, and after 2005, 69 
percent of the workforce will be eligible to retire.
    What strategies will OMB employ to ensure that those 
Federal employees responsible for conducting public-private 
competitions and contract management receive the tools, 
training, and the resources they need to do their job 
efficiently?
    In other words, one of the things that Senator Akaka and I 
did last year when we amended the Homeland Security Act was 
upgrade human capital awareness by creating chief human capital 
officers in each of the departments.
    What are you going to be doing to make sure that those 
human capital officers have the people to do the work within 
their agencies?
    I think the point was that you have expedited in less than 
12 months that you are going to move forward with it. Well, you 
know, and I know, there is no way you can do that unless you 
have the people on board to get the job done. So I would be 
interested in learing more about that.
    The other thing is that we have not had any oversight 
hearings, and I am going to talk to Senator Collins about it, 
and particularly in the area that Dave Walker has referenced, 
in terms of these acquisition workforce, particularly in the 
Department of Defense.
    And I really think this is something that somebody is going 
to hone in on, and I would like to know what are you doing 
currently to respond to that.
    Ms. Styles. Sure. I think it is a very serious and a valid 
concern. Our acquisition workforce took severe cuts over the 
past 10 years. They have been asked to do much more with much 
less. I will comment, though, on the 12-month time frame, that 
clock doesn't start ticking until the agency decides they want 
it to. They do all of their preliminary planning, and once they 
get through preliminary planning, they decide when they want 
that clock to start ticking.
    In the human capital arena, as it relates to competitive 
sourcing, we recently established, with the help of the Council 
for Excellence in Government, a new council, a Federal 
Acquisition Council, and we met with groups of people from the 
agencies, specific people that are designated to this council. 
Much like the new Human Capital Officers Council, the CFO 
Council, CIO Council, we have one for acquisition, and we 
recreated it with the help of the Council for Excellence in 
Government. And one of our main focuses is human capital and 
competitive sourcing and how those two relate together.
    What we have asked is for the leads from the agencies--one 
is Scott Cameron from Interior on competitive sourcing, the 
other one is a career person from NASA, Tom Ludke--to get 
together and help us form a small group of Federal employees 
that will go to each agency and assess at that agency what 
their infrastructure is in place for competitive sourcing.
    I know one contact at the agency, but I do not now exactly 
what their infrastructure is, and who is doing this, and who is 
actually leading the charge below the head person. So we can 
take the best practices. We can understand where there are 
deficiencies. We can compare and share among the different 
departments and agencies.
    So we are trying to be very proactive in assessing what is 
working and what is not and where we have problems and what 
strains competitive sourcing is putting on our acquisition 
workforce or sometimes this isn't always in the acquisition 
shop, which is an interesting dynamic at the agencies. 
Sometimes it is within the CFO shop or a different location, 
and we are trying to better understand the agencies that are 
successful and are not, how they are working and what 
infrastructure is best here.
    Senator Voinovich. Well, one of the concerns I have is that 
we speak about doing some of these things, but now that 
agencies are starting to think about workforce in reshaping 
they realize they do not have the people they need. I am 
hopeful that when an agency comes back to OMB and says, we do 
not have the folks to get the job done, that it is reflected in 
preparing their budget requests.
    Because part of the problem that we have had here is that, 
in the last dozen or so years, we just downsized and did not 
replace the people who were needed. Some agencies had the wrong 
people. We did not have the opportunity for early separation or 
for early retirement. I need some reassurance to know that you 
are just not going through the process, and then we just do not 
have the people there to get the job done.
    I know one of the things I was impressed with in my 
experience on the Foreign Relations Committee, was hearing 
Secretary Powell talk about adding about 300 people--and I know 
people do not want to hear about adding people--but the State 
Department was riddled, and they needed people. They are moving 
forward. He was very excited that a lot of people are 
interested in going to work for the State Department.
    I think too often the human capital aspect of one's budget 
does not get the kind of attention that it ought to be getting.
    Ms. Styles. We will----
    Senator Voinovich. In the last budget, for example, did you 
entertain any requests for people?
    Ms. Styles. Absolutely. We sit down with the agencies on a 
quarterly basis, and it is the relationship on competitive 
sourcing and the resources that are needed is maintained on a 
day-to-day basis, but we have designated quarterly meetings 
with the agencies to discuss where they are in the initiative 
and what their needs are.
    In our recent A-11 guidance to the agencies on preparing 
their 2005 budget, we have a very specific item called out for 
them to designate what their needs are in terms of resources 
for competitive sourcing, so we can be very clear about the 
costs and what the agencies' needs are in these areas.
    Senator Voinovich. Ms. Styles, the Commercial Activities 
Panel recommended limited changes to the A-76 and develop 
instead a FAR-type process for public-private competition. 
Could you describe how OMB came to the decision to incorporate 
those recommendations into the complete rewrite of Circular A-
76?
    Ms. Styles. Certainly. I was a participant on the 
Commercial Activities Panel, and one thing that I saw, and I 
think everybody on the panel saw, was that we had two different 
types of people. We had people who understood public-private 
competition and people who understood private-private 
competition. We had rules for private-private competition that 
worked very well together, and we really fundamentally needed 
to integrate those rules together.
    We took the recommendations of the panel very seriously, as 
we did our rewrite. We went out with a Notice for Public 
Comment. We received 700 comments on our draft, and we took all 
of those very seriously. We met and had discussions with GAO, 
the unions, the private sector and people that were involved 
before we actually came out--and the agencies, too. I sat down 
with every single agency for a 4-hour period, before that 
circular went out, to make sure I understood what the effect of 
these new provisions would be on their particular agency.
    So we spent a lot of time I think integrating the panel 
recommendations into our circular and working with people to 
make sure we understood the effects.
    Senator Voinovich. Mr. Walker, would you enunciate any 
further recommendations? We have the revised circular, and do 
you think there is anything that needs to be added or deleted?
    Mr. Walker. Well, I mentioned in my oral remarks, as well 
as more detailed in my written testimony, some areas that I 
think bear looking at.
    I do also have a concern, which I don't believe is in my 
testimony, about this recompetition 5 to 8 years down the road. 
My personal view is that it kind of relates to the high-
performing organization issue that I talked about before. We 
need to have fair and effective competitions with regard to 
MEOs. A decision gets made.
    We then have to recognize that is not forever, but we ought 
to be incorporating the concepts of these high-performing 
organizations there, and only if there is a significant change 
in the circumstances, should we think about recompeting. I 
don't think it should be something that is automatic. I think 
it should be something that is based on facts and 
circumstances, but we need to have mechanisms to provide 
reasonable assurance that there is continuous----
    Senator Voinovich. In other words, eliminate the 
requirement that every 5 years, if you have decided they are 
doing the job, then it ought to be? The real issue should be 
not a 5-year deadline, but whether or not they are performing. 
It could be in 3 years that the decision is made that they are 
not performing, but if somebody is getting the job done, they 
ought not to be forced, at the end of 5 years, Ms. Styles, to 
recompete. I do not think that is good public policy.
    Mr. Walker. It should be facts and circumstances, and I 
think that is what Ms. Styles said, to a certain extent----
    Ms. Styles. Right.
    Mr. Walker. At the same point in time, I think we also have 
to recognize: Perceptions matter. Even though there may be a 
small percentage that ultimately might be recompeted, if the 
perception is that the rule is that you are going to be 
recompeted after 5 to 8 years, then perceptions matter, and 
that can have adverse behavioral effects, and I think we just 
need to be sensitive to that.
    Ms. Styles. I have to say, in writing that provision, it 
was a very difficult one to write because the private sector 
feels that they have to recompete every 3 to 5 years, and I 
thought 5 years was too short a period of time for an 
organization that was doing a good job, and performing well, 
and was a group of Federal employees.
    I also understood the reality of the situation, that we can 
write a policy that says every 5 years, but I don't think that 
we are really going to be able to enforce that. But that is the 
reason that we wrote one that essentially said, if you are a 
high-performing organization, you can have an extension of a 
period of time. I think it is a good question whether that is a 
long enough period of time, what other mechanism.
    There is a mechanism in place that even after 2 years, if 
you are the government organization and a private sector not 
performing, that you can terminate the contract. So it is not 
just you get it for 5 years and that is it. But as a matter of 
practical reality, if you get it for 5 years, generally, you 
continue to perform for 5 years, and people try to help you 
perform better if things aren't working out, whether you are a 
private contractor or a Federal employee.
    Senator Voinovich. I have just about run out of my time. 
Senator Lautenberg.
    Senator Lautenberg. Thanks, Mr. Chairman, and I will try to 
be short here.
    Ms. Styles, in looking at your statement, I am reminded 
that you made a specific comment, ``The revised circular 
eliminates direct conversions and instead provides a versatile 
streamlined competition process for agencies to efficiently 
capture the benefits of public-private competition for 
activities performed by 65 or fewer full-time equivalent 
employees.''
    So that 65 is a target. I mean, why did you not say 75? Why 
did you not say 95? I am just curious.
    Ms. Styles. I think that is a fair question because it is a 
question of why is 65 an appropriate number for a less-
extensive competition process than would be used for over 65.
    Senator Lautenberg. Yes.
    Ms. Styles. I will be honest with you. The reason we chose 
it is because it was the standard that had been chosen before. 
It was the standard that was in the old circular that had been 
amended in 1996 and was used. From my perspective, it was less 
controversial to stick with an established standard.
    Senator Lautenberg. Fair enough. Now, those people who are 
in that group, do they lose some of the benefits they might 
lose, in terms of a retirement program as a consequence of the 
streamlining?
    Ms. Styles. No, if they are involuntarily, I don't believe 
they do.
    Senator Lautenberg. Well, right now, if we want to 
terminate somebody under the Federal system, assuming that 
there is, first, you justify the cause, but are there not 
benefits that are carried out or available to someone who is 
leaving the service?
    Ms. Styles. Yes.
    Senator Lautenberg. The same would apply to these if they 
are one of the----
    Ms. Styles. Absolutely, all of the procedures that are in 
place would be the same for both mechanisms.
    Senator Lautenberg. Ms. Styles, you know that my amendment 
to the FAA reauthorization bill, and I mentioned this earlier, 
passed the Senate by a vote of 56-41 on June 12. My amendment 
would prevent the administration from trying to outsource or 
privatize air traffic control people using the A-76 process.
    And I think we saw quite a demonstration of skill, loyalty, 
and determination on September 11 when the air traffic control 
system jumped into place to bring roughly 10,000 flights to the 
ground safely, to clear the skies. There was a moment of great 
tension and fear, and I said earlier that I regard that as kind 
of the fifth branch of the military because of the emergency 
nature of their functioning.
    Why is the administration so focused on privatizing the air 
traffic control system?
    Ms. Styles. We have no intention of privatizing the air 
traffic control system.
    Senator Lautenberg. But we have taken off a significant 
portion of them and taken them away from the inherently 
government protection that otherwise would be there.
    Ms. Styles. There are a whole cadre of people that are 
commercial that are exempt from competition. There are three 
categories of people at the FAA, generally speaking, that your 
amendment affects. There are the large air traffic control 
towers and air traffic controllers. There are the small towers, 
over 100 of which are run right now by the private sector with 
a better safety record than Federal towers at a lower cost.
    Senator Lautenberg. Right.
    Ms. Styles. There are also flight service stations as well. 
My understanding of your amendment is that we would not be able 
to look at any of these functions for public-private 
competition.
    Senator Lautenberg. Right. But it does grandfather the 
small airports and the services that go there. They are 
commercially handled now, and we are not thinking of doing 
anything differently. A lot of them are in remote places where 
it is hard to move people.
    Ms. Styles. We have been very clear. There are two points 
here. We have been very clear that all we are doing here is 
being what we believe is honest in our articulation of air 
traffic controllers as being a commercial function because some 
of our towers are actually in the private sector. Other 
countries have privatized their entire air traffic control 
function.
    Senator Lautenberg. Have you examined the consequences of 
that privatization in the U.K. and Canada, for instance, where 
the number of near misses in the air have increased----
    Ms. Styles. I have not, personally, but I believe other 
people have.
    Senator Lautenberg. I am sure you have not, and I am not 
being critical of you, but I think any evaluation like that has 
to look at what happened in Canada and in the U.K., where 
expenses soared, where services were substantially reduced, 
where bailouts had to come in by those governments to further 
lend financial credibility.
    Ms. Styles. Well, we have no intention of--all we wanted to 
say is that it is considered commercial in other places. We 
consider it commercial, but we are not going to compete it.
    The other part is we have flight service stations. These 
are people that check the weather for private pilots. There are 
2,700 of them across the country.
    Senator Lautenberg. Ask Senator Stevens how he feels about 
the weather forecasters up in Alaska, and you will get a pretty 
interesting response.
    What I say to you, we have passed this through the Senate. 
Do you know whether the administration is going to help see 
that this gets through the conference and leaves it to reflect 
the will of the Senate when, again 11 Democrats joined me and 
others to say that this should not be done at this point?
    Ms. Styles. I think we have been very clear that the 
President's senior advisers would recommend a veto if there is 
not a sunset provision for the larger towers. And if we are 
constrained in our ability to look at the smaller towers or the 
flight service stations.
    Senator Lautenberg. So, in effect, it says, no matter what 
you folks in the Senate feel, that we are going to veto the 
will of the Senate and abandon the check and balance that is 
purportedly existent between the Legislative and the Executive 
Branch.
    Thanks very much, Mr. Chairman.
    Senator Voinovich. Senator Lautenberg, I wish to correct a 
statement. You said there were 11 Democrats that joined you, 
but there were 11 Republicans.
    Senator Lautenberg. That was a terrible oversight. 
[Laughter.]
    I guess that was, you know, sometimes dreams come out--you 
are right--dreams come out, and you say things you do not 
really mean, but you would like to see happen.
    Senator Voinovich. Senator Akaka.
    Senator Akaka. Ms. Styles, your testimony states that 
competitive sourcing is a major component of the 
administration's vision of a market-based government, and 
therefore I would like to ask whether you would please provide 
us with a governmentwide estimate for the cost, an estimate of 
the cost of implementing the competitive sourcing component of 
the President's management agenda, if you will.
    Ms. Styles. We are certainly working--that is part of the 
reason we amended our guidance for the fiscal year 2005 budget 
is because we do not have a clear number to give you. I can 
give you estimates of how much it cost per person, although I 
have to tell you it is a double-edged sword. On one hand, you 
asked us to help the employees be able to compete, and on the 
other hand, people want us to keep the cost per position being 
competed low.
    So it is very conflicting goals here, in terms of making 
sure we have the resources available for our people to compete 
and keeping the cost of these competitions low because we get 
criticized on both sides of this.
    Senator Akaka. Talking about kinds of costs, why is there 
no minimum cost savings for streamlined competitions?
    Ms. Styles. When I took this circular to the Director at 
the time, when we were going through this, I had examples of 
competitions, and there would be one where the government offer 
was $3.4 million and the private sector offer was $3 million, 
and the government won. And I had a very hard time explaining 
why that was. We decided for a streamlined process to remove 
that cost differential in order to give agencies the 
flexibility that they were asking us for in doing these 
competitions.
    Senator Akaka. Mr. Walker, I liked your comment about 
outsourcing as being a tool and its effectiveness would depend 
on how and when you do it to maximize the effects. I think that 
will ring throughout these discussions as we go along and prove 
you to be right.
    As you know, Mr. Walker, the Commercial Activities Panel, 
which you chaired, recommended that Federal employees be 
allowed to appeal A-76 and its decisions, just as contractors 
may do now.
    I understand that GAO is considering options for addressing 
this so-called inequity. What is the progress of GAO's review 
of bid protests, and when do you expect the review to be 
completed?
    Mr. Walker. Well, first, let me note that, as I have 
mentioned in my testimony, that for the streamlined 
competitions of under 65 FTE there is not an internal appeal 
process or an external appeal process which I believe creates 
an accountability gap, which is a matter of concern.
    With regard to your question, Senator, we sent out a public 
notice seeking comments, and have received 50 comments back, 
some favoring us being able to consider appeals, some opposing 
it for various reasons. This is a high priority for us. We have 
a target of Labor Day. We would like to be able to come out 
with something the week of Labor Day, as to what our decision 
will be, and I hope that we can meet that time frame.
    Senator Akaka. Ms. Styles, as you know, bipartisan 
legislation has been introduced in the House to identify 
contractors with histories of misconduct and bar them from 
receiving government contracts. What disbarment programs are 
now in effect?
    Ms. Styles. We have what I believe is a rather rigorous 
process at the agencies for looking at the present 
responsibility of a contractor, whether they are financially 
capable, whether they are a good corporate citizen, whether 
they can perform, and this process is one that was established 
by statute and implemented by regulations, and it is pretty 
rigorous at most of our departments and agencies.
    It affords due process for the contractors to be able to 
make their case if there is an issue or a problem or a proposed 
debarment or suspension, and I think it generally works well.
    Senator Akaka. Mr. Walker--for my final question, Mr. 
Chairman--the Defense Department procures more government 
contracts than any other Federal agency. It is responsible for 
$90 billion in service contracts alone. DOD has been identified 
on GAO's high-risk list for contract management since 1992.
    At the same time, DOD's Inspector General has released a 
report that DOD may have paid more than $4 billion for services 
without first determining that the work was needed. In fact, 
the report found that DOD failed to enforce contract terms and 
made payments without determining that contract terms were met.
    My question is how will OMB's revisions to A-76 impact 
contract management challenges at DOD?
    Mr. Walker. Well, directly, I don't believe that they do 
because we are really talking about two areas that are on our 
high-risk list: First, current concerns with regard to 
inadequate procedures and practices to oversee contract 
management; and, second, also the acquisitions process, 
especially in conjunction with major weapons systems. Unless 
there is some intent to be able to do further outsourcing in 
this particular area with regard to the individuals who are 
performing this oversight that obviously would be a problem. We 
are not doing enough, if you will.
    As I said to you, when we contract out, we need to have an 
adequate number of skilled individuals to manage cost, quality, 
and performance of the contractors. I question whether or not 
we have that at DOD right now.
    DOD is an ``A'' on effectiveness. We are No. 1 in the world 
in fighting and winning armed conflicts.
    DOD is a ``D'' on economy, efficiency, transparency, and 
accountability. The general culture is get the money, spend the 
money; get the money, spend the money. There are not adequate 
checks and balances to protect the taxpayers' interests in the 
military industrial complex, and we have a number of 
recommendations that we have had for a period of time in this 
area. Some have been adopted and others remain to be adopted.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Senator Voinovich. Thank you, Senator Akaka.
    We have many other questions, but in fairness to the next 
panel, I think that we will conclude.
    There are still some questions, Ms. Styles, that I would 
like to have answered, and I thank you for being here. You have 
had an opportunity to hear some of our concerns, and I would be 
interested in, after your hearing these concerns, if there is 
going to be any response to any of them that we have raised 
today in terms of where you are going.
    Senator Lautenberg. Mr. Chairman, just one comment, and I 
do not want to interrupt the flow, so, please, as far as I am 
concerned, feel free to get up. But I would say but there is 
another policy that could be spend the money, then get the 
money, and you can borrow it from places around town.
    Senator Voinovich. Thank you very much.
    Our next panel will come forward, and I think that all of 
you have been sworn in but for Dr. Light, if I am not mistaken. 
Is that right?
    Mr. Light. I was not sworn in with the other witnesses.
    [Witness sworn.]
    Senator Voinovich. Thank you. Let the record show--Mr. 
Tiefer, did you get sworn in too?
    Mr. Tiefer. I am sworn.
    Senator Voinovich. We thank you for your patience. In order 
for us to get some questions answered, I would like you, if 
possible, to see if you can share with us, within 5 minutes, 
your testimony, understanding that the rest of your testimony 
will be made a part of the record this morning.
    We really appreciate your being here today. It is an 
intellectual group of people who are going to be looking at 
this. Frankly, we did not bring the unions in, or the 
contractors and so forth because so often it turns into a very 
contentious debate, and hopefully we are going to get a more 
objective view from the four of you, in terms of what you think 
about the competitive sourcing initiative.
    So, Dr. Gansler, we will start with you.

   TESTIMONY OF JACQUES GANSLER, Ph.D.,\1\ SCHOOL OF PUBLIC 
                AFFAIRS, UNIVERSITY OF MARYLAND

    Mr. Gansler. Thank you, Mr. Chairman. Thank you very much 
for inviting me here today to discuss competitive sourcing.
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    \1\ The prepared statement of Mr. Gansler with an attachment 
appears in the Appendix on page 93.
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    Let me start off, though, Mr. Chairman, by complimenting 
you and the rest of the Subcommittee for focusing on this 
really critical issue of the government workforce. It is 
important, complex, and I must say obviously a somewhat 
controversial aspect of this competitive sourcing debate.
    I believe everybody here can agree that the government 
needs a high-performance, high-quality workforce for the 21st 
Century. The question is will competitive sourcing help or hurt 
in that objective? It is my personal belief that it will help, 
significantly.
    Unfortunately, today, many Federal employees view 
competitive sourcing as a personal assault, an accusation that 
they are incompetent, lazy and only interested in secure, life-
long employment. In fact, competitive sourcing is not an attack 
on Federal employees; it is an attack on a system that 
encourages government organizations to maintain a monopoly over 
a service sector. And whenever a monopoly exists in the public 
or the private sector, innovation, improvements and cost 
reductions are discouraged. The missing ingredient is 
competition.
    Yet, while the evidence overwhelmingly demonstrates that 
competitive sourcing really works, we continue to hear the 
statements that, for example, ``there is no data that show any 
benefits from competitive sourcing.'' But there actually has 
been an abundance of data generated; it just hasn't been made 
widely available.
    Recently, I issued a report on this existing data; I put 
copies of it over on the table (and it is referenced in my 
prepared remarks). What I found was that there was much 
confusion, including even on definitions, and I even heard some 
of them today. For example, competitive sourcing is not 
outsourcing, nor is competitive sourcing privatization, though 
it is often referred to in that way. In fact, the public sector 
has won, depending upon what statistics you use, 40 to 60 
percent of these competitions, and the public sector has won 98 
percent of the streamlined competitions.
    To summarize the overall results actually found, based on 
over 2,000 cases in the Department of Defense alone, plus 
hundreds of other cases at the Federal, State and local levels, 
when competitive sourcing is done right--and that is important, 
and I will come back to that--the performance improves 
significantly, performance improves significantly while costs 
go down by an average of over 30 percent. And, this result is 
true whether the winner is the government or the private 
sector.
    It is really important to understand that even when the 
award stays within the government, the performance improves 
significantly and the costs go down significantly. This is due 
simply to the shift from a monopoly environment to a 
competitive one.
    The incentives created by competition are what make the 
difference. Let me provide a few specifics that address what I 
think are the six most common misperceptions about the actual 
results achieved.
    First, performance does improve. The data at Federal, State 
and local levels overwhelmingly demonstrate that the 
performance improves dramatically, whether it is measured as 
customer satisfaction, system reliability, on-time delivery or 
whatever. These are measured results, comparing performance 
before and performance after the competition is introduced.
    Second, the savings are real. Again, the verified, 
comparative costs actually show an average saving of over 30 
percent. And, this has been shown not to be due to low 
individual hourly rates, but due to productivity gains from 
process changes, as driven by the competitive forces, using 
obviously significantly fewer people, but often at higher 
individual hourly rates.
    Third, contractor costs do not increase after the award. 
Independent studies have found that, when best practices have 
been utilized, when a private-sector firm won the competition, 
the savings that were promised were actually realized at the 
end of the contract period. However, when a government 
organization wins the competition, there have been problems.
    Specifically, as was noted a few minutes ago, it has often 
been difficult to identify overall government costs, especially 
overhead costs, either before award or after performance 
achievement. However, you can use head count before and after 
as a way of making a comparison in the government, and they 
generally do match the reduced numbers in the government bids. 
Clearly, future government-cost visibility would be highly 
desirable.
    Fourth, small businesses actually benefit. Again, when best 
practices are utilized, the data show that small businesses do 
extremely well. For example, between 1995 and 2001, the 
Department of Defense conducted 784 public-private competitions 
and 79 percent of all of those awarded as contracts went to 
small businesses.
    Additionally, small business requirements for subcontracts 
and large awards can be even more significant to the small 
businesses. For example, the outsourcing of the Navy and Marine 
Corps Intranet, as well as the National Security Agency 
information technology infrastructure--these are both multi-
billion-dollar awards--each had a 35-percent small business 
requirement.
    Fifth, there is a minimum impact on government employees. 
As I noted, even when the government wins, the data show a 20- 
to 40-percent reduction in the government staff. However, the 
independent studies of this show actual involuntary separation 
was only in single digits, ranging from one study that found 
about 8 percent to another that found around 3 percent and some 
that found 0 percent.
    This low rate of involuntary separation is due to a 
combination of transfers to other government positions, 
retirements, and voluntary separations, often to the jobs 
created with the winning contractor. Clearly, this issue of the 
workforce is an important area, and it should be a major 
consideration, in both the requests-for-proposal and the 
ensuing competition. In my report, I cover some ways in which 
that can be done specifically.
    And, finally, sixth, and of greatest importance, I would 
argue, is the government actually has greater control if you 
use competitive sourcing. In a competitive environment, the 
government managers have been found to have far greater control 
no matter who wins.
    If the government wins, it is now required to keep 
performance and cost metrics, along with the potential for 
competition--and I emphasize potential for competition--in 3 to 
5 years in order to keep the pressure on the government 
workforce for continuous productivity gains. And I should 
emphasize that that is very similar to the normal competitive 
pressures that one in industry sees all of the time. So people 
going to work for the government or going to work for industry 
have the same competitive pressures at all times.
    While, if the contractor wins, the government manager has 
full of control and visibility into the performance and cost 
and can terminate the contract if they are dissatisfied, 
something the government manager cannot do with a civil service 
workforce.
    Senator Voinovich. Dr. Gansler, could you wrap up your 
testimony?
    Mr. Gansler. Sure. In fact, I just wanted to summarize the 
five points that I think make the difference in terms of 
whether or not you do it right, and I think this is critically 
important.
    The most important key to success is shifting from a 
monopoly to a competitive environment.
    Second, the competition must be for best value, not simply 
for cheapest.
    Third, even when the government contracts out the work to 
be performed, it does not give up any of its management 
responsibilities.
    Fourth, critical performance and cost metrics must be 
mutually agreed to at the beginning and monitored and reported 
throughout the program, and they have to be output oriented, 
results oriented.
    And, last, the government must aggressively provide the 
training, that you emphasized as being so necessary, to reshape 
and sustain the workforce and to help overcome the natural 
resistance to the changes that competitive sourcing brings.
    If one does these ``best practices,'' it is very clear that 
the government will gain, and the employees will be fulfilled 
employees working up to their full potential.
    Thank you very much, Mr. Chairman.
    Senator Voinovich. Thank you, Dr. Gansler. Dr. Light.

   TESTIMONY OF PAUL C. LIGHT, Ph.D.,\1\ SENIOR FELLOW, THE 
                     BROOKINGS INSTITUTION

    Mr. Light. It is a pleasure to be here.
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    \1\ The prepared statement of Mr. Light appears in the Appendix on 
page 159.
---------------------------------------------------------------------------
    Senator Voinovich. I am glad to welcome you back, Paul. You 
have been a frequent visitor over the years, and we thank you 
publicly for all of the help that you have given us.
    Mr. Light. Thank you. It is a pleasure to be before you and 
on this panel. Jack and Frank I have known off and on for a 
long time, and we will have to get to know each other.
    I am going to leave it to Frank to talk about the quality 
of the data that underpin these estimates. The best research 
has been done by RAND, and I have a lot of confidence in their 
analysis of how much money gets saved and how durable the 
savings are, but I think the RAND analysts would say that it is 
a limited study, but an important contribution to the debate. 
Some of the data that float around here is just not very good, 
and that is an issue that you all may want to take on.
    I am going to be very brief here. I want to make one or two 
comments about the testimony this morning by OFPP Director 
Styles. I think what you are seeing here is, from a skeptic's 
point of view, a little bit of a sleight of hand. It is true 
that we are going to get rid of the arbitrary targets, and I 
think that is a wonderful and important step forward, but I 
think what you are hearing and what you see in the OMB document 
is that the debate is going to move upstream. The debate is 
going to be about what the term ``inherently governmental'' 
means and what the reason codes justify by way of exemptions.
    The appointment of a chief or a competitive sourcing 
officer in every department is an important step forward here, 
but I think the debate is now going to shift to a place where 
we are not going to be able to view it very closely.
    Instead of 25 percent of Federal jobs being eligible for 
competitive sourcing, I would estimate--or I can't estimate--I 
would argue that the goal will be to increase that number 
steadily by questioning the reason codes that are currently 
used to exempt commercially available activities from 
competition and by changing the definition of inherently 
governmental.
    Indeed, in the revised A-76 circular, there is an important 
change to the definition of what is, in fact, inherently 
governmental from activities which involve the discretion, the 
exercise of discretion of government authorities to the 
definition of activities that involve the ``substantial'' 
exercise of discretion.
    Now, substantiality is very much in the eye of the 
beholder, and I think what you are going to see here, as an 
important issue for oversight, is to maintain a steady focus on 
where the key decisions are made about eligibility.
    So, with all due respect to the Chairman, I do not believe 
that we are talking about a relatively small number of jobs in 
the long haul.
    With all due respect to my colleague and friend from GAO, 
who rightly argues that we need to bring these competitive 
pressures to bear throughout the government, if we are getting 
these kinds of savings, through competitive sourcing, why 
aren't we getting them elsewhere?
    I will argue that within several years, we are going to see 
a very large proportion of jobs that will be defined as 
eligible for competitive sourcing, and that is an important 
area for debate. Now, this Committee, this Congress may decide 
that it would be best to codify the definitions of inherently 
governmental and commercially available, rather than leaving 
that to the Office of Management and Budget for regulatory 
rulemaking.
    In fact, you may wish to take a look at the OFPP policy 
letter, which defines these terms, which I would argue to you 
is an utter mess, in terms of actually interpreting what these 
terms means. What is inherently governmental? What is 
commercially available? Where do you use the reason codes?
    And if ever there was an area where the U.S. Congress could 
do the Executive Branch a favor, it would be in codifying the 
definitions of what these terms mean, so that as we move ahead 
with competitive sourcing, everybody is reading from the same 
script, in terms of what is what.
    I noted with some interest and support that OMB has decided 
that no two agencies are created alike. Arguably, on the air 
traffic sourcing issue, the United Kingdom, Canada, and the 
United States are, in fact, enough alike to make the decision 
that we can make some of our air traffic control commercially 
available.
    My summary, my statement goes into the good and the bad 
reasons for outsourcing. I accept and embrace the notion that 
competitive competition can, and does have, a salutary effect 
on performance. I think we need to learn how to do it so that 
it affects all Federal agencies. I believe the way to go is 
possibly through pay for performance of the kind that this 
Subcommittee has been struggling with.
    I also note with some concern the use of price as a 
surrogate measure of things we value. Price is not a good 
measure of motivation. Price is not a good measure of fairness 
and commitment to the public service. So as we proceed with 
competitive sourcing by putting the emphasis on price, we need 
to understand not just what price measures, but what it 
ignores.
    I submit my statement for the record, and I am delighted to 
answer any questions that you might have.
    Thank you for having me.
    Senator Voinovich. Thank you very much. Mr. Tiefer.

TESTIMONY OF CHARLES TIEFER,\1\ PROFESSOR OF LAW, UNIVERSITY OF 
                           BALTIMORE

    Mr. Tiefer. Thank you, Mr. Chairman. I am a professor of 
law at the University of Baltimore and the author of 
``Government Contract Law.''
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    \1\ The prepared statement of Mr. Tiefer appears in the Appendix on 
page 175.
---------------------------------------------------------------------------
    Mr. Chairman, you, yourself, have appropriately focused 
your own legislative efforts, in general, and this 
Subcommittee's work on workforce issues. And like other people, 
like your colleagues and other witnesses, I salute you for 
those efforts.
    Today, you began the hearing by expressing a half a dozen 
concerns about the new A-76, which I can only say were 
extremely well taken, well articulated, and I share them more 
intensely I think even than you.
    Your first concern was the issue of across-the-board goals. 
Although we are trying to think positively of the steps we have 
heard today from OMB, I have studied the report and the 
testimony that they filed, and I am unable to find the 
tremendous departure from across-the-board goals that they seem 
to be contending they have made.
    When I look at Page 5 of their competitive sourcing report, 
``Under the scorecard approach, numerical mandates were 
converted to incentives,'' not eliminated, converted. ``An 
agency would move from a red score to a yellow score if it 
completed competitions for 15 percent of the total commercial 
positions,'' and it will move from yellow to green when it 
completes 50 percent of the total commercial positions.
    Now, earlier this year, OMB had a 15-percent near-term and 
50-percent eventual target, and as of today, OMB still has a 
15-percent near-term and 50-percent eventual target. It does 
not have an announced percentage target that varies from agency 
to agency; it may have fixed governmentwide percentage targets. 
So that concern has not been eliminated.
    Another concern that the Chairman appropriately expressed 
was that as a result of this heavy emphasis on outsourcing, 
managers will not be investing enough in alternatives in ways 
of making their existing workforce do the job better, and I 
combine this with concerns that several members of this panel 
have expressed about the A-76 innovation of this radically 
exalted, ``streamlined'' procedure. The streamlined procedure 
is a way for a manager who is trying to meet these percentage 
targets not to invest in his workforce, but instead just to 
outsource.
    And in particular, the streamlined procedure does away with 
the requirement of a most efficient organization, an in-house 
bid that tries to maximize the in-house resources. Instead, it 
is practically a direct conversion. A manager who goes by a 
streamlined competition not only does not have to work on 
producing a most efficient organization, but as Senator Akaka 
emphasized, it eliminates, when you do a streamlined 
competition, the 10-percent minimum cost differential.
    And there was a very interesting exchange in which Ms. 
Styles was asked, ``Where did that come from? Why did you get 
rid of the 10 percent?''
    And she basically said, ``I had a conversation with my 
Director, and my Director insisted on it.''
    Now, that is a translation. Ms. Styles is a government 
contracting professional. She yielded to the political 
directive, come up with a tool to outsource rapidly.
    Finally, the Chairman expressed his concern that their 
acquisition officers in the government are understaffed and 
overworked, and therefore unable to conduct full-scale, 
meaningful competitions, public and private. I share that. I 
cited the statistics. I am familiar with it from general 
government contract law, that the radical truncation, the 
cutting in half of the DOD acquisition force has produced 
problems in government contracting across the board, greatly 
decreased competition, greatly increased sole sourcing, and we 
are about to see what it is going to produce in the outsourcing 
area.
    It is going to produce a reliance upon streamlined, meaning 
nonreal competition or, if there is a full-scale competition 
because you are dealing with some large facility, over 65 
people, that cannot even be split and broken down, which is an 
available tactic to avoid the 65 level.
    What we are about to see is that this underworked 
acquisition force will simply throw up its hands and say, 
``Give the jobs out.''
    Thank you, Mr. Chairman.
    Senator Voinovich. Thank you. Mr. Camm.

    TESTIMONY OF FRANK CAMM, Ph.D.,\1\ SENIOR ANALYST, RAND

    Mr. Camm. Thank you, Mr. Chairman, for your invitation to 
testify here today. I will be testifying on the basis of work 
that I did on the Commercial Activities Panel, as well as 
policy analysis that we have conducted at RAND, but let me be 
clear that I am testifying as an individual not representing 
views from the RAND Corporation.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Camm appears in the Appendix on 
page 190.
---------------------------------------------------------------------------
    I share your belief, Mr. Chairman, that we should treat the 
government's career employees with respect and appreciation. 
Competition affects every person's sense of self-respect 
throughout our society. Some Federal employees fear competition 
because they are convinced that they and their colleagues 
cannot or will not be allowed to compete successfully against 
an alternative commercial source. That cannot be good for 
morale, whether competition occurs or not.
    But on the other hand, thousands of other Federal employees 
have affirmed their self-respect by helping their Federal 
colleagues win public-private competitions. To me, the two 
critical challenges we should be thinking about here, for 
competitive sourcing policy, are to ensure that we properly 
empower our Federal employees, as has been repeated here today, 
and to create as level a playing field as possible for them to 
compete on and to prove themselves.
    Let me offer the following observations from the work that 
we have done at RAND and, to some extent, on the panel as well.
    Competitive sourcing is one of the best tools we have 
available to improve the cost effectiveness of Federal 
agencies. In its efforts to improve productivity since 1996, 
for example, the Department of Defense has consistently 
preferred this as the option with the best documented history 
of improvement.
    RAND analysis on the best commercial sourcing practices 
indicates the following conditions improved the morale of the 
workforce in a company when it is considering whether or not to 
outsource an activity.
    The sourcing decision process should be fair, objective and 
transparent enough for employees to understand the final 
decision.
    Second, the decision process should proceed rapidly. 
Employee morale suffers most when awaiting a decision and 
suffers more the longer the process takes.
    Third, displaced employees should be assured employment 
elsewhere in the firm.
    And, fourth, displaced employees should receive a soft 
landing if they leave the firm. This can occur in one of two 
ways. First, it can occur through formal severance or 
outplacement agreements with the firm if it outsources their 
positions. Alternatively, it can occur through criteria that 
are used to choose an external source that reward that source 
for having generous compensation benefit and training plans, as 
well as good opportunities for advancement.
    When we look in the commercial sector, well-managed out-
sourcing programs displace workers who often find themselves to 
be better off after being outsourced. Their new employers, who 
specialize more than their original employers did, are often 
more willing to invest in their skills and more likely to give 
them opportunities to grow.
    That said, we have to recognize that individuals who have 
self-selected into government jobs may simply not like jobs in 
the private sector, even if those opportunities are better for 
them in the private sector.
    OMB's goal in the past of competing 50 percent of the 
positions in the commercial activities of the Federal 
Government has clearly raised concerns, and you all have 
expressed those clearly here today. Our analysis at RAND has 
long supported the strong empirical findings at the Center for 
Naval Analysis that the OMB Circular A-76 has achieved savings 
through competition and not through outsourcing. This simply 
confirms what Dr. Gansler talked about a moment ago, and we are 
talking about the same sources of information here.
    OMB's recent changes in Circular A-76 emphasized that it is 
a competitive sourcing program. It is not an outsourcing 
program. Again, I emphasize the difference that Dr. Gansler 
drew between these two because it is important to see it. That 
said, is the 50-percent goal the right goal? I think everyone 
here today has agreed that it is not. The fact is that there is 
no one right percentage that can be applied to every agency. 
More broadly, a reliable method does not yet exist to determine 
exactly where competitive sourcing is cost effective in any 
agency, even DOD, the agency with the most experience in the 
Federal Government.
    I would prefer an OMB policy that motivated competitive 
sourcing with targets that had more operational or strategic 
significance to Federal managers, like specific targets for 
cost reductions or for performance improvements. Such a policy 
would make it easier for people to understand that competitive 
sourcing is, in fact, a tool, not an end in itself.
    OMB has done a remarkably good job of implementing the key 
elements of the Commercial Activity Panel's recommendations 
that it can control. I generally agree with General Walker's 
careful delineation of differences between the panel's 
recommendations and OMB's new version of A-76, and I will not 
try to list those differences here. Rather, I would direct your 
attention to the extent to which the new version of A-76 
captures the central elements of the panel's strong consensus 
on principles.
    Taken together as a coherent whole, these principles call 
for major changes in competitive sourcing policy, and OMB's 
recent revision of A-76 captures many of those changes in an 
effectively integrated manner. The changes that Ms. Styles told 
us about today make it even more closely matched to the panel's 
findings.
    Thank you, again, for the opportunity to testify. I look 
forward to answering your questions.
    Senator Voinovich. Thank you.
    There is one thing that I want to correct for the record. 
Mr. Tiefer, you said that reading a summary on page 5 of OMB's 
new report on the new definition of what is required, in terms 
of getting yellow and green on the scorecard is not written in 
percentages. In other words, this document, the Competitive 
Sourcing, July 2003, lays out the new scorecard criteria. ``OMB 
has modified the scorecard criteria. These refinements have 
been informed by discussions with,'' and so on, ``ensure an 
agency's commitment to competitive sourcing is measured against 
targets that reasonably reflect its unique mission and 
circumstances, not arbitrary or official goals.''
    I just want to clear that up, and it is interesting that 
Dr. Light, you make the point that your concern is in the 
definition--this definition could open up a lot more functions 
because of the definition, and so we are going to look into 
that suggestion that you have made.
    Dr. Gansler, I am interested in your comment that 
competition is what provides the improvement in performance. If 
75 percent of the workforce is not subject to competition, God 
help us if the only way you can improve performance is by 
turning to competition. I want to say that I got involved in 
this whole area in the beginning because I wanted to change the 
culture of the Federal workforce and try to build on what I did 
when I was in Cleveland, and when I was governor, where we 
aggressively pursued quality management and trained some 58,000 
people in quality management.
    I and the union leaders had a 3-day retreat. At the end of 
my term we had 17 percent less employees in the State of Ohio. 
We did not just hack them out of there, but we did it through 
tools such as attrition, and we had a much better workforce 
because we empowered them, we gave them the tools, we increased 
dramatically the amount of money that we provided to train them 
so they could upgrade their skills. I think that the next issue 
after this year is over that I am going to start going back to 
that and identifying agencies that have quality management.
    Mr. Gansler. I couldn't agree with you more, Senator.
    Senator Voinovich. I would like to give you each an 
opportunity to comment on the testimony of someone else at the 
table. I am sure there may be some questions, there may be some 
differences. I would give you this chance to do that.
    Mr. Gansler. In the same order, I guess.
    The one obvious point that I would like to make about Mr. 
Tiefer's comments, where he said that streamlining is the same 
as direct conversion, the empirical data are exactly the 
opposite. Ninety-eight percent of the time when streamlining is 
used the government wins. So, if you are worried about the 
government trying to break up the size of competitions so that 
they can use streamlining, the government is likely to win more 
of them than, on average, what it has in the past--40 to 60 
percent--under full A-76 competitions.
    I think that streamlining, in fact, has favored the 
government rather dramatically, in terms of its win ratio. 
Having said that, I still think the important point here is not 
the fact that you get a cost reduction. The really important 
point is that you get performance improvement at lower cost, 
and that is what I think the government needs. That is your 
high-performance workforce, and that is what we need to strive 
for in the 75 percent not affected by competitive sourcing, as 
well as in the 25 percent that are.
    Mr. Light. My general reaction is that I think Jack has 
taught me a great deal in his paper, and others have taught me 
a great deal about the value of competition. I think that we 
have got a serious problem in government playing off or 
pivoting off Frank Camm's comments about allowing Federal 
employees or giving Federal employees the tools to compete and 
also creating a culture in which competition is not necessarily 
the only tool that you have available as a manager.
    One of the issues surrounding this is the presence of 
relatively low-powered incentives in government, and I think 
that is where DOD started out this spring, in terms of its 
arguments on behalf of personnel reform; the notion being that 
give us some tools that we can use on a day-to-day basis to 
promote higher performance.
    I guess my general reaction is this is a tool that needs to 
be very carefully used because of its repercussions throughout 
government on government morale, and its kind of reinforcing 
effects on whether or not or doubts among Federal employees 
that they do, in fact, have the tools with which to compete.
    I think there are an awful lot of Federal employees out 
there who are saying give us the training, give us the 
staffing, give us the resources so that we can do the jobs that 
we came here to do. In that regard, you bring competition in on 
a unit, you have to, at some level, deal with that general 
sense that there are not enough resources out there.
    Senator Voinovich. Mr. Tiefer, would you like to comment?
    Mr. Tiefer. Thank you, Mr. Chairman.
    Dr. Gansler has noticed that I am concerned about the 
streamlining process and that I have a question about the 
government breaking units so they get them under the 65 level 
and other shifts in it. I can't claim originality on these. I 
read the GAO report that was provided today, and I listened to 
Comptroller General Walker's testimony. And as he said in his 
section entitled, ``Potential Issues with Streamlined Cost 
Comparison Process,'' there used to be--well, he says:
    ``First, the prior version of the circular contained an 
express prohibition on dividing functions so as to come under 
the 65 FTE limit for using a streamlined process. The revised 
circular contains no such prohibition. We are concerned that in 
the absence of an express prohibition, agencies could 
arbitrarily split activities, entities or functions to 
circumvent the 65 FTE ceiling applicable to the streamlined 
process,'' and then goes on to comment about the elimination of 
the 10-percent conversion differential.
    There is a reason why a procurement professional, such as 
the Comptroller General or myself, is worried about this. 
Splitting things in order to come under the limit is tactic, 
No. 1 for speeding things through the procurement process. The 
Comptroller General has seen this everywhere else in 
procurement, as have I. That is the problem.
    Senator Voinovich. Dr. Camm.
    Mr. Camm. Let me just comment on a couple of things that 
Dr. Light said. I agree with him that, as we get into this, the 
debate is going to move towards the question of how to define 
the inventory, and I actually welcome that. Because I think if 
we can get agreement on an improved competition process through 
A-76, then we can move on to what is a much more difficult 
question. And that is which activities really do belong within 
the government and which should be taken care of by an outside 
provider.
    I have been privileged to be present at many of the 
discussions inside different agencies about how that decision 
is made, and I look forward to improvements in the process that 
is used, because the processes I have observed in a number of 
different settings are not reassuring.
    I think there is a lot of misunderstanding about what core 
competency means, there is a lot of misunderstanding about what 
inherently governmental means, there is a lot of 
misunderstanding about what the risks are that are present when 
you are using an internal, as opposed to an external source. We 
need a lot of learning on the part of our government 
decisionmakers about this, because this is a strategic decision 
that has to be made, and I think Dr. Light is right. I think 
the focus will be moving in that direction. We need to be 
prepared to keep an eye on that.
    I also agree, and I guess it has been said several times, 
but let me emphasize that the secret to the success of this 
whole program is going to lie in its implementation. I have 
spent a lot of time in several parts of DOD helping people go 
through these competitions, and so I have a special 
appreciation for the challenge that they face.
    You are asking people who have full-time jobs to take on an 
additional job they have never had before--and in all 
likelihood, one they won't have again in the foreseeable 
future--a very difficult thing. They are going to be doing 
things that their commercial counterparts do every day for a 
living, and so they are very good at it. These people are 
frightened, and they need help.
    I think that there are lots of things that could be 
recommended to empower these people. I think we can put 
together what in the Air Force was called a central tiger team 
that could go from one location to the next. Experts can come 
in and provide a very clear way of executing an A-76 study from 
the government point of view.
    We can provide just-in-time training. There is a nice 
program in place which has been recommended at the Defense 
Acquisition University, that could apply throughout the 
government. There is nothing special about Defense. Just before 
one of these studies, the program trains the people who are 
going to be involved in exactly how the study runs. It is a 
simple thing to do, and I think it will be quite effective to 
try.
    And I think Federal employees can benefit from analytic 
support from third parties. Unless we spend the money to do 
that, we are going to be in big trouble. I appreciate Ms. 
Styles' comments that, on the one hand, we want to get the cost 
of these competitions down, but on the other hand, if we want 
them to run right. As Dr. Gansler has suggested, if you want to 
do this right, it is not going to be cheap, and we shouldn't do 
it on the cheap.
    Senator Voinovich. Thank you very much. Senator Lautenberg.
    Senator Lautenberg. Thanks very much, Mr. Chairman, and 
thank all of you for your interesting testimony. I am not going 
to try to create condition, but I can tell you that several 
hours in the room would probably be a good way to get to 
understand what it is precisely that we are talking about here 
because there is no magic that says competition--I think you, 
Mr. Chairman, said something about it--being the driver always 
for the best result.
    Look at the management of some of our great companies that 
used to exist, I might add, about how they competed for capital 
dollars, how they competed for wealth and how they competed for 
position and the kind of chicanery that crept in there to try 
and make it look like it was straight old competition. Well, it 
was not.
    And I come from the management school, and I really do buy 
into the training of the people that we have, insisting that 
there be some criteria for performance given to them and 
discussed with them.
    We found in my first 18 years here, when I was very 
involved in the superfund, the development of this program, the 
management of these huge projects, is that too often the 
management really did not get to the people who had to do the 
job and let them understand what was required of them, and we 
tend to permit those things to slip by in government because of 
the magnitude of the job, the growth of the responsibility, the 
growth of our country, the demographic growth. I mean, look at 
what has happened. We put on maybe 100 million people in the 
last 25 or 30 years, and there are a lot of services required. 
So it is complicated.
    And I do not say you have to keep everybody on the Federal 
payroll that you started with, but Professor Gansler, I am 
curious about one thing, do you support tenure as a mark of 
appropriateness on the college campus?
    Mr. Gansler. I have to tell you, Senator, I, for most of my 
life, was either in industry, mostly in industry, and served 
two terms in the government, and during that period I chaired 
an advisory board at the University of Virginia and another one 
at the University of Maryland, and frankly I was against 
tenure. Now, I have it. [Laughter.]
    There are some advantages, but clearly I think, in the long 
run, it is not a good idea. Personally, I don't think it is a 
good idea.
    Senator Lautenberg. Therefore, then, if one takes a 
sabbatical, do not come back or something like that?
    Mr. Gansler. No, I think you should measure an individual 
on their performance, and if they do a good job, they should 
keep their jobs. I believe the same thing should be true for 
the government workforce, as well as for the private sector. 
The difference is, in the private sector, I had more 
flexibility than I did in the government when I had government 
workers working for me.
    Senator Lautenberg. Yes. How do the others of you feel 
about tenure on the campus? I am just curious. Dr. Camm, do 
you----
    Mr. Camm. Well, I don't have tenure. My company doesn't 
believe in it, and I think it----
    Senator Lautenberg. They believe in it, but they just do 
not enforce it.
    Mr. Camm. Well, we don't have tenure, and I think we are 
better for it. I think it makes it a more interesting place to 
work.
    Senator Lautenberg. Yes. My company did not have any tenure 
either, and we got up to 45,000 employees and started with 
zero, and capital, just good will handed down by our parents, 
and that was it. We had no--the company is called ADP, 
Automatic Data Processing, and in business now, 50 years, and I 
am one of the three founders, and the other two guys are in 
better shape than I am. So that tells you something about what 
hard work does.
    But the fact of the matter is, if there is an incentive, 
and I do not quite know how we do it in government. You cannot 
just do it with plaques, and little hors d'oeuvres and a glass 
of Diet Coke. That is not quite enough. But I will tell you, 
and I am a firm supporter of the workforce generally in the 
government, and I see that when they are asked to do things, 
when there is leadership, they perform as no other workforce 
that I have seen. And, again, we had a very successful one, and 
I know lots of people in the private world. And I am considered 
a Hall of Famer in information processing. I had to do that to 
match Bill Bradley's Hall of Fame and reputation in similar 
things---- [Laughter.]
    But the fact of the matter is that I was a pioneer in 
outsourcing. That is what that began, and I really believe in 
it, but what do you outsource? You do not outsource jobs, you 
outsource assignments, and here we start talking about it as 
outsourcing jobs. I would prefer another look at things.
    So, when I look at what has happened--and this is what 
worries me--I have a particular focus on the FAA and where it 
belongs. Again, I think it is like the fifth branch of the 
military, and I cannot believe, and I am sorry that Ms. Styles 
is not here, that the President would veto a bill that takes 
care of essential air service, advances the technology and FAA, 
etc., because we passed, with the help of 11 Republicans, a 
bill to restrict FAA to inherently government because I have 
looked at other situations.
    In Great Britain, since privatization, near misses or other 
problems have increased by 50 percent. That is near misses in 
the area. Delays caused by air traffic control have increased 
by 20 percent, and the story goes on. Debt service has 
increased by 80 percent. Canada's privatized system has run up 
a $145-million deficit just in the past year, and I worry about 
what happens when you buy security on the cheap, and that is 
what you have got when you are up there, and there is a labor 
dispute. I mean, we can talk about strike prohibitions here, 
but when you turn it out to an employer, you cannot say, and, 
remember, they are not allowed to strike. It is impossible.
    So the review is an excellent one, and I thank each one of 
you for your contribution, especially my good friend, the 
Chairman here, who has an earnest view of the responsibility to 
employees, but also responsibility to the constituents in the 
government, and I salute that.
    I thank you very much.
    Senator Carper. Is there going to be a second round of 
questions? Do you have some questions?
    Senator Voinovich. No, I think we will conclude with yours.
    Senator Carper. All right.
    Senator Voinovich. Because we are past the 12 o'clock hour.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. I apologize for not being here earlier to 
hear your testimony. Others of my colleagues and I are working 
with things on the floor, and we have constituents that are in 
and trying to meet with us, and so I apologize for having 
missed your testimony.
              OPENING PREPARED STATEMENT OF SENATOR CARPER
    Thank you, Mr. Chairman. I think we would all agree that the goal 
of any effort to encourage public-private competitions for Federal work 
should be to ensure that the people best able to do the work win the 
competition, regardless of whether they are Federal employees or from 
the private sector. I am concerned, however, that the administration's 
competitive sourcing initiative, at the very least, sends the message 
that most work is better handled by the private sector.
    As a former governor who has some experience managing a public 
workforce, I can appreciate the President's desire to fix the 
competitive sourcing process. The old process took too long and 
probably prevented qualified contractors who could have saved the 
Federal Government money from competing for work. That said, the new 
process laid out in revised OMB Circular A-76 probably makes it more 
likely that private sector bidders will be awarded Federal contracts, 
even if that is not in our best interests. While I am concerned that 
some of the new time limits for public-private competitions laid out in 
the revised rules may not give Federal employees enough time to put 
forward their best bid, I am most concerned with aspects of the rules 
that could unfairly tilt the process in the private sector's favor.
    First, requiring agencies to decide a competition based on ``best 
value'' instead of cost could be positive if it allows agencies to 
contract out in situations in which the private bidder is more 
expensive initially but could save them money in the long run. However, 
I think it should be made clear that cost should be the main item 
agencies look at when deciding who wins a competition.
    Also, while I would generally look on increased competition as a 
good thing, I do not think it is a good idea to dramatically expand the 
number of Federal jobs eligible for competition. There are certain 
jobs, such as air traffic control and food inspection, that I think 
should not be competed under any set of rules. I am concerned that the 
revised rules could classify too many sensitive jobs as ``commercial'' 
in nature and led to irresponsible outsourcing decisions.
    Finally, while they have been moderated somewhat in recent months, 
I would argue that the administration's competitive sourcing goals are 
arbitrary and will force agency managers to compete jobs even when they 
might not think doing so is the best thing to do.
    In closing, I will point out that, if we are going to increase 
public-private competition, we must also increase the resources made 
available for contracting management and oversight. Federal employees 
forced to bid for their jobs under tight timelines need to get enough 
resources to be able to make their best offer. Perhaps more 
importantly, agencies must also be capable of monitoring contractors to 
ensure that they are providing taxpayers good service.
    Thank you, Mr. Chairman, for holding this important hearing and 
thank you Administrator Styles and Comptroller General Walker for your 
work on this issue.

    Senator Carper. I have a summary of what you have said, but 
I probably will not have a chance to read your testimony. Let 
me just ask each of you, when I walk out of here, I do not know 
if I will ever see you fellows, again, but I want to thank you 
for having come today and shared your thoughts with us.
    Just take a minute, what would you like for me to take out 
of this hearing that you think will be most valuable to us as 
we go through our deliberations?
    Mr. Camm. What I would suggest is that A-76 should be 
considered as an integral part of the strategic management of 
the Federal workforce and that Federal workers must recognize 
that they are part of a broader economy where competition 
drives the way the workforce works.
    When we use the word ``human capital,'' and we use it 
repeatedly without thinking about what it means, it means you 
carry a basket of skills with you wherever you go. We need to 
make sure that the workers in the Federal workforce have the 
basket of skills they need, whether they stay in the Federal 
workforce or go someplace else.
    A-76 is an integral part of that because it trains them in 
what competition is, and it makes them skilled and useful if 
they decide to go somewhere else. So I would hope that you 
would remember A-76 as being an integral part of that strategic 
human capital planning process.
    Senator Carper. Thanks. Mr. Tiefer.
    Mr. Tiefer. What I think we have seen today is, let us put 
it this way, already this year the issue of outsourcing has 
been handled a number of times by appropriation riders because 
last year that is how it was handled, by an anti-quota 
provision that became Section 647 on the omnibus appropriation 
because there is a great deal of support in Congress for not 
having numerical targets for outsourcing, and although there 
was some modification today, Ms. Styles implicitly adheres to a 
15-percent near-term and 50-percent long-term target, the same 
targets we have been seeing previously this year for what 
should be put through the competition process, and it is a 
streamlined process.
    And so the up-shot is you are going to be seeing plenty 
more of those appropriation rider votes the rest of the year 
because we are still stuck with numerical targets.
    Senator Carper. Thank you. Dr. Light.
    Mr. Light. I would say that the thing that I would 
emphasize is that we have a workforce that does the job for the 
Federal Government that is much larger than just civil 
servants. If you add up the contractors, and the grantees, the 
military personnel and Federal civil servants, we have a 
workforce in the Federal Government of about 12.5 million 
employees.
    What we ought to be thinking about is how to make sure they 
are all performing well, how to make sure they all have the 
tools to succeed, and how to get on with this very difficult 
issue of how you sort who does the job. We are dealing with 
terms here, commercially available, and inherently 
governmental, that were first applied in the 1950's, and I 
think we are well beyond the sort of environment in which we 
invented this system that we use now for sorting jobs. It is 
just not up to snuff, I would argue, for managing the kind of 
workforce we have and managing the kinds of functions that we 
perform.
    Senator Carper. Thanks, Dr. Light. Dr. Gansler.
    Mr. Gansler. I would first of all point out, that there 
have been lots and lots of examples, thousands of examples of 
competitive sourcing. And what they show is when it is done 
right, that the benefits of, first, improved performance, and 
then lower cost, are really very important and worth it for the 
government, for the appropriate portions of the government, 
that are doing work that is not inherently governmental.
    On the other hand, I think it is equally important to 
recognize that we have a really great workforce, the people are 
very dedicated. It is not the people that we are trying to 
attack here. It is the system that basically has a monopoly 
environment and that no matter who wins the competition--the 
government or the private sector--there is a significant 
improvement in performance and a significant reduction in cost.
    And so we need to move in that direction, as the Chairman 
said, for 100 percent of the workforce, and this means a high-
quality, performance-oriented, excellent workforce. That is the 
direction that we really need to move in across the board. 
Competition is one way to do that in those sectors where we 
have non-inherently governmental work.
    Senator Carper. Could I have one more minute?
    Senator Voinovich. Sure.
    Senator Carper. Governor Voinovich and I were governors 
once in an earlier life, and I recall debates in the way we 
awarded construction contracts. We used to award them on lowest 
bid, and if the----
    I like to run. I go back and forth to Delaware every day, 
and I am a runner. And sometimes when I run, I run by a high 
school that is not too far from our house. And the school, I 
see them replacing the windows of the school, and I am reminded 
of the contract that was let in one of our schools where they 
were rehabbing an older school, and they let the contract out 
to the lowest bidder for replacing the windows. It turned out 
the company did not know what they were doing, did a lousy job, 
a couple of years later had to replace the windows, but we 
awarded the bid on the lowest possible cost, not best value.
    I remember the governor's house down in Dover. It is an old 
house, in fact, over 200 years old. It is the oldest governor's 
mansion in America. And I remember we had to replace the patio 
around the house, George, and the folks that came in to do the 
masonry work won it on the lowest bid, the lowest cost, but as 
it turns out the work that they did had to be basically ripped 
up and replaced within a year--not best value.
    Somewhere inherent in this debate is the question of 
awarding bids who work on the lowest cost versus best value--my 
last question is to ask you your thoughts on either approach.
    Mr. Camm. The government wants to move towards the use of 
performance-based contracting. This is standard policy in the 
Department of Defense. It is spreading to the rest of the 
government as well. They have learned this from the commercial 
sector.
    In the commercial sector, you cannot do performance-based 
contracting successfully unless you are also doing best-value 
competition. The reason for that is that you don't want to rely 
in a performance-based contract on the minimum cost offeror. 
And so I would say that, because we have this policy of 
pursuing performance-based contracts, we have to recognize that 
it has to be matched to a sourcing policy based on best value. 
That is true for private-private competitions; it is true for 
public-private competitions.
    I am very concerned that right now Congress does not allow 
the Department of Defense to use best-value in public-private 
competitions. I think we are going to run into trouble down the 
road, because the Department of Defense is pursuing these 
performance-based arrangements. DoD is going to get poor 
providers, and they are not going to work. So I am quite 
concerned about it.
    Senator Carper. Thank you. Mr. Tiefer.
    Mr. Tiefer. Senator Carper, the new A-76 makes a change I 
think in the wrong direction in the area that you are talking 
about--I discuss it on Page 13 of my written testimony--in that 
you now can have a competition, a public-private competition of 
a certain kind, a specialized kind, in which, a trade-off kind 
it is called, in which they not only have gone away from lowest 
cost, but there is not even a requirement, there was in the 
draft, and it was taken out in the final, there is not even a 
requirement of a ``quantifiable'' basis for choosing the 
private contractor.
    Now, the history that you described is your classic correct 
executive perspective, which is the movement, the evolution 
from pure cost comparisons to best value, and it is a classic 
correct analysis, but at least there should be a quantifiable 
basis, and that, for the choice, and now that has been taken 
out even of the final.
    Senator Carper. Thank you.
    Dr. Light and Dr. Gansler, we have about 6 minutes to go in 
a vote that is underway, so I will just ask you to use about a 
minute apiece, if you would.
    Mr. Light. Yes, I agree with Frank Camm on this issue. The 
problem is that we have an environment that is so distrustful 
right now between the people making the decisions about 
outsourcing or competitive sourcing and the people who are 
involved in actually the target or the emphasis of this that I 
don't see how we can create a political environment in which we 
could allow for a best-value competition.
    I don't see why, I mean, on the surface, you would like to 
get away from price as the consideration here because it is 
entirely conceivable that a private contractor could do a job 
better at a higher price or that a Federal unit could do the 
job better at a higher price. You get better value, but the 
politics of this are just so extreme right now, and the anxiety 
in the workforce so extreme that I just don't see how we get 
there.
    Maybe if we do this work on defining terms more carefully 
so that we could bring a quantitative position to bear on it, 
perhaps.
    Senator Carper. Thank you.
    Mr. Gansler. I think we must use best value. It is clearly 
the objective here has to be to improve performance at lower 
cost. It is the improved service that is really the objective, 
and if you don't use best value, what you get is cheap service, 
and that is not acceptable service, as far as I am concerned.
    The answer has to be to move towards best value. It will be 
more difficult because it becomes more subjective in some ways, 
but even the performance is measurable in most cases, and you 
should be able to use that the same way you and I do when we go 
out shopping in the stores. We don't buy the cheapest, we buy 
something that is the best value.
    Senator Carper [presiding]. My wife says I buy the 
cheapest. [Laughter.]
    I tell her I am looking for the best value. That is what we 
ought to be looking for, I think, for our taxpayers.
    But you are good to come here and share your time and your 
thoughts with all of us.
    Senator Voinovich has gone to vote, and I probably ought to 
go join him or I am going to miss this opportunity.
    Thank you very much, and the Committee stands adjourned.
    [Whereupon, at 12:20 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

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