[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
  LOW CLEARANCE: WHY DID DOD SUDDENLY STOP PROCESSING PRIVATE SECTOR 
                          SECURITY CLEARANCES?

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

                                HEARING

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 17, 2006

                               __________

                           Serial No. 109-156

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform



                                 ______

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
JON C. PORTER, Nevada                C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas                BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia        ELEANOR HOLMES NORTON, District of 
PATRICK T. McHENRY, North Carolina       Columbia
CHARLES W. DENT, Pennsylvania                    ------
VIRGINIA FOXX, North Carolina        BERNARD SANDERS, Vermont 
JEAN SCHMIDT, Ohio                       (Independent)
------ ------

                      David Marin, Staff Director
                Lawrence Halloran, Deputy Staff Director
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 17, 2006.....................................     1
Statement of:
    Johnson, Clay, III, Acting Director, U.S. Office of 
      Management and Budget; Robert Andrews, Deputy Under 
      Secretary of Defense for Counterintelligence and Security, 
      U.S. Department of Defense; Robert W. Rogalski, Special 
      Assistant to the Under Secretary of Defense for 
      Intelligence, accompanied by Janice Haith, Acting Director, 
      Defense Security Services, U.S. Department of Defense; 
      Kathy L. Dillaman, Associate Director, Federal 
      Investigative Services Division, U.S. Office of Personnel 
      Management; and Thomas F. Gimble, Principal Deputy 
      Inspector General, U.S. Department of Defense..............    11
        Andrews, Robert..........................................    18
        Dillaman, Kathy L........................................    41
        Gimble, Thomas F.........................................    50
        Johnson, Clay, III.......................................    11
        Rogalski, Robert W.......................................    30
    Wagoner, Doug, chairman, Intelligence Subcommittee, 
      Information Technology Association of America, on behalf of 
      the Security Clearance Coalition; William L. Gunst, vice 
      president for business operations, Anteon International 
      Corp.; and Nicholas Karangelen, president, Trident Systems, 
      Inc........................................................    78
        Gunst, William L.........................................    88
        Karangelen, Nicholas.....................................    94
        Wagoner, Doug............................................    78
Letters, statements, etc., submitted for the record by:
    Andrews, Robert, Deputy Under Secretary of Defense for 
      Counterintelligence and Security, U.S. Department of 
      Defense, prepared statement of.............................    19
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............   103
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia, prepared statement of...................     4
    Dillaman, Kathy L., Associate Director, Federal Investigative 
      Services Division, U.S. Office of Personnel Management, 
      prepared statement of......................................    43
    Gimble, Thomas F., Principal Deputy Inspector General, U.S. 
      Department of Defense, prepared statement of...............    52
    Gunst, William L., vice president for business operations, 
      Anteon International Corp., prepared statement of..........    90
    Johnson, Clay, III, Acting Director, U.S. Office of 
      Management and Budget, prepared statement of...............    13
    Karangelen, Nicholas, president, Trident Systems, Inc., 
      prepared statement of......................................    96
    Rogalski, Robert W., Special Assistant to the Under Secretary 
      of Defense for Intelligence, prepared statement of.........    32
    Wagoner, Doug, chairman, Intelligence Subcommittee, 
      Information Technology Association of America, prepared 
      statement of...............................................    81
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................     8


  LOW CLEARANCE: WHY DID DOD SUDDENLY STOP PROCESSING PRIVATE SECTOR 
                          SECURITY CLEARANCES?

                              ----------                              


                        WEDNESDAY, MAY 17, 2006

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 1 p.m., in room 
2154, Rayburn House Office Building, Hon. Tom Davis (chairman 
of the committee) presiding.
    Present: Representatives Tom Davis, Platts, Waxman, 
Cummings, Kucinich, Watson, Ruppersberger, and Higgins.
    Staff present: David Marin, staff director; Larry Halloran, 
deputy staff director; Keith Ausbrook, chief counsel; Ellen 
Brown, legislative director and senior policy counsel; Rob 
White, communications director; Andrea LeBlanc, deputy director 
of communications; Brien Beattie, professional staff member; 
Teresa Austin, chief clerk; Sarah D'Orsie, deputy clerk; Phil 
Barnett, minority staff director/chief counsel; Kristin 
Amerling, minority general counsel; Karen Lightfoot, minority 
senior policy advisor and communications director; David 
Rapallo, minority chief investigative counsel; Michael 
McCarthy, minority counsel; Earley Green, minority chief clerk; 
and Cecelia Morton, minority office manager.
    Chairman Tom Davis. The committee will come to order.
    Good afternoon and welcome to today's hearing to 
investigate the decision of the Defense Security Service to 
institute a moratorium on all private sector requests for 
personnel security clearance investigations.
    Each year, the Federal Government hires private companies 
to perform under defense and security-related contracts worth 
billions of dollars. Much of that work requires employees to be 
issued security clearances--to be checked and approved for 
access to information classified as Confidential, Secret, or 
Top Secret. If workers can't get cleared, important national 
security work will not get done on time, and costs will 
increase dramatically to the Government and the American 
taxpayer.
    Unfortunately, this is not the first disruption of a 
troubled DOD system that seems to be suffering a cyclic 
downward spiral. Intractable backlogs and lengthy delays in the 
security clearance process have prompted other hearings, other 
promises of reform. In testimony before this committee in May 
2004, GAO reported that processing time for private sector 
clearance requests had ballooned from an average of 56 days in 
fiscal year 2001 to more than a full year. At that time, 
backlogged cases numbered almost 200,000.
    To address that untenable situation, I and others authored 
Title III of the Intelligence Reform and Terrorism Prevention 
Act of 2004, which called for better management, greater 
transparency, and stronger accountability in the security 
clearance process. We also mandated adherence to long-ignored 
rules on reciprocity--recognition by one agency of clearances 
granted by another. In short, Congress has repeatedly indicated 
a strong desire to see the security clearance process function 
efficiently and effectively to meet urgent security 
requirements.
    So it came as a nasty surprise, to say the least, when we 
learned that DSS had notified thousands of contractors that it 
would no longer be accepting any requests for private sector 
security clearances because the agency was about to run out of 
money. How could that happen? How could DSS or their partners 
in this process at the Office of Personnel Management keep 
blithely driving at full speed when the fiscal gas gauge on a 
critical national security vehicle was hitting ``Empty?''
    The impact of this decision is already being felt across 
the Government and the corporate world. According to a May 8th 
story in the Federal Times, contractor employees with 
clearances have already begun asking their bosses for pay 
raises, and one company is reportedly paying an IT-related 
employee without a bachelor's degree a $100,000 premium because 
he has a Top Secret security clearance. It is an insult to the 
taxpayers. These anecdotes illustrate two things: an 
instinctive understanding of the law of supply and demand on 
the part of workers, and a penchant on the part of the Federal 
Government to run afoul of that law.
    Smaller companies are disproportionately hurt by a dearth 
of security clearances. The largest defense contractors, which 
employ tens of thousands of people, are usually able to find 
someone on the payroll with a clearance to fill important 
roles. And if not, they are in a much stronger position to 
recruit cleared employees away from small companies by offering 
salaries that small businesses are unable to afford, 
transforming them from competitive enterprises to prime targets 
for acquisition. In a business environment where the Government 
is best served by competition among contractors, the kind of 
corporate consolidation that clearance shortages may lead to 
can only serve to drive up costs and hurt the taxpayer.
    There will always be some kind of salary premium for those 
working on national security-related contracts because there 
will always be a demand for employees who are willing and able 
to submit to the extensive background investigation required to 
gain access to our Nation's secrets. But an inefficient system 
that leads to unnecessary shortages of security clearances is a 
self-imposed tax on the American people, and it is inexcusable.
    I was pleased to learn yesterday that DOD has found the 
money to restart the processing of Secret level clearance 
requests, and I look forward to hearing that all requests have 
been reactivated in the near future. However, I look forward to 
hearing today about the steps that are being taken to ensure 
that we will never again have to ask why, in a post-9/11 world, 
Federal security clearances are not being processed in a timely 
and efficient manner. We owe nothing less to the American 
people and to the men and women, both in and out of Government, 
who defend our National security.
    I want to thank our distinguished witnesses for being here 
today. I look forward to their testimony.
    [The prepared statement of Chairman Tom Davis follows:]

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    Chairman Tom Davis. The witnesses on our first panel are 
also scheduled to testify at a Senate hearing at 2:30, so we 
would like to limit opening statements to the chairman and 
ranking member. It looks like we are in luck, Henry. Members' 
statements will also be entered into the record, and the Chair 
will be happy to recognize members for statements before the 
second panel is sworn in.
    I would now recognize my distinguished ranking member, Mr. 
Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    Two years ago, this committee held a hearing about delay 
and mismanagement in the processing of security clearances. The 
most serious problems included long backlogs in clearance 
investigations, turf wars among Federal agencies, and a lack of 
accountability for management of clearances across the entire 
Federal Government.
    Two years ago, we heard assurances that the Bush 
administration was working to solve these problems. To improve 
accountability in 2004, Congress passed a law requiring that a 
single agency manage security clearance processing and get the 
entire Federal Government working together. The President 
designated the Office of Management and Budget.
    Today, 2 years later, not only have these problems not been 
solved, they have actually gotten worse. Today's hearing was 
prompted by the Department of Defense's abrupt announcement of 
a freeze on accepting clearance applications from contractors 
because DOD mismanaged its budget and ran out of money. DOD is 
now pointing fingers at the Office of Personnel Management, 
which conducts background investigations on DOD's behalf. OMB, 
which was supposed to be eliminating these turf wars, is 
reportedly refusing to get involved.
    Mismanagement and a lack of accountability have led to a 
crisis that weakens our national security and drives up costs 
for the taxpayer. Defense contractors are now paying exorbitant 
salaries to lure employees who already have security 
clearances, a cost that is ultimately passed on back to the 
Government and our taxpayers. In addition, the high salaries 
give an incentive to Government employees to jump ship and work 
for contractors, draining talent from the civil service, and 
renewal background checks on contractor employees who currently 
have access to classified information are on hold.
    The problems with the system for issuing security 
clearances are troubling enough, but there is also growing 
evidence that the system for revoking clearances is also being 
mishandled. In a hearing earlier this year, national security 
whistleblowers told us how the Bush administration had 
improperly suspended and revoked their security clearances in 
retaliation for reporting illegal activities occurring in their 
agencies. Chairman Davis and I introduced a bill to provide 
protections to national security whistleblowers. It passed out 
of this committee in a unanimous bipartisan vote, though it has 
not yet been allowed to go to the full House for a vote. I hope 
we can also work together to fix the problem identified in 
today's hearing.
    I would like to thank the witnesses for testifying today. I 
hope we can find some solution to these recurring problems so 
we don't come back 2 years from now to have yet another hearing 
on mismanagement of security clearances.
    [The prepared statement of Hon. Henry A. Waxman follows:]

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    Chairman Tom Davis. Thank you.
    Members will have 7 days to submit opening statements for 
the record.
    Our first distinguished panel, we have the Honorable Clay 
Johnson III, the Acting Director of the U.S. Office of 
Management and Budget, no stranger to this committee, and thank 
you for being here with us today.
    We have Mr. Robert Andrews, the Deputy Under Secretary of 
Defense for Counterintelligence and Security, U.S. Department 
of Defense; Mr. Robert W. Rogalski, the Special Assistant to 
the Under Secretary for Intelligence, accompanied by Ms. Janice 
Haith, the Acting Director of Defense Security Services, U.S. 
Department of Defense; and Ms. Kathy Dillaman, the Associate 
Director, Federal Investigative Services Division, U.S. Office 
of Personnel Management; and Mr. Thomas Gimble, the Principal 
Deputy Inspector General, U.S. Department of Defense.
    It is our policy we swear you in before your testimony, so 
if you would just rise and raise your right hands.
    [Witnesses sworn.]
    Chairman Tom Davis. Mr. Johnson, we will start with you, 
and thank you once again for being with us.

STATEMENTS OF CLAY JOHNSON III, ACTING DIRECTOR, U.S. OFFICE OF 
 MANAGEMENT AND BUDGET; ROBERT ANDREWS, DEPUTY UNDER SECRETARY 
     OF DEFENSE FOR COUNTERINTELLIGENCE AND SECURITY, U.S. 
DEPARTMENT OF DEFENSE; ROBERT W. ROGALSKI, SPECIAL ASSISTANT TO 
THE UNDER SECRETARY OF DEFENSE FOR INTELLIGENCE, ACCOMPANIED BY 
JANICE HAITH, ACTING DIRECTOR, DEFENSE SECURITY SERVICES, U.S. 
 DEPARTMENT OF DEFENSE; KATHY L. DILLAMAN, ASSOCIATE DIRECTOR, 
    FEDERAL INVESTIGATIVE SERVICES DIVISION, U.S. OFFICE OF 
 PERSONNEL MANAGEMENT; AND THOMAS F. GIMBLE, PRINCIPAL DEPUTY 
         INSPECTOR GENERAL, U.S. DEPARTMENT OF DEFENSE

                 STATEMENT OF CLAY JOHNSON III

    Mr. Johnson. Chairman Davis, Congressman Waxman, thank you 
for having us here. Let me start off by saying that the 
security clearance granting process has gotten better, not 
worse; that the DOD is not pointing fingers at OPM for this 
recent problem with their budget; and that OMB is as involved 
as any oversight organization you would ever want any oversight 
organization to be.
    We are making progress in improving the process. In some 
cases, the progress is significant. But we are not where we 
wanted to be as of the month of May in our reform process. 
Overall, in April, we have improved the timeliness of granting 
clearances versus fiscal year 2005 by 40 days. It takes 11 days 
less time to submit clearances. It takes 40 days less time to 
investigate those clearances. And it takes us 10 days longer to 
adjudicate.
    The Department of Commerce and DOD have made significant 
improvements and almost are at the desired level in terms of 
the timeliness of submission. Adjudication at Commerce, Energy, 
Transportation, and Homeland Security are significantly moving 
forward in the percentage of satisfactorily adjudicating their 
cases. DOD is more than offsetting those gains in Commerce, 
Energy, Transportation, and Homeland Security.
    Everybody knows what they need to do to improve, everybody 
has clear goals, and everybody is committed to the reform 
effort and to achieving those goals. We are still committed to 
the goals that were laid out in the intel bill for where we 
were to be by December 2006. It is too early to say we will not 
achieve them, but we are making significant progress.
    The biggest challenges, I believe, in the overall reform 
process are in improving the timeliness of getting primarily 
FBI records from FBI, and also in adjudicating our security 
clearances in 30 days or less. The reason I say I believe those 
are our biggest challenges is because the resources--we know 
what we need to do, but the resources to do it are not yet in 
place. The extra people needed at the FBI, the extra 
adjudicators needed at DOD are not yet in place. We know how 
many need to be there. We know what they need to do when they 
are there, what they need to be trained to do. But it has not 
yet happened.
    I would be glad to answer any questions at the end of 
everybody's statements.
    [The prepared statement of Mr. Johnson follows:]

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    Chairman Tom Davis. Thank you very much.
    Mr. Andrews.

                  STATEMENT OF ROBERT ANDREWS

    Mr. Andrews. Mr. Chairman, I am Bob Andrews. The decision 
to suspend security investigations was made shortly after I 
took up my post. This was not the Defense Security Services' 
finest hour. We failed to estimate accurately the demand for 
security investigations. We failed, moreover, to understand the 
systemic problems that further contributed to suspending the 
investigations.
    Mr. Chairman, I am responsible for taking steps to resume 
the investigations. I am also responsible for fixing the 
underlying problems. I will meet those responsibilities.
    We have lifted the suspension for the secret security 
clearances, as you mentioned. We have also submitted to 
Congress a reprogramming action to permit us to lift suspension 
for top secret and periodic investigations. I believe we are on 
the patH toward fixing the fundamental flaws in our process 
itself. In the coming weeks, I will keep the committee abreast 
of our progress and, at the committee's convenience, will 
consult with you as we move forward.
    I have asked Rob Rogalski, Special Assistant to the Under 
Secretary for Intelligence, to lay out what happened and to 
outline the near-term and longer-term solutions we have 
identified.
    [The prepared statement of Mr. Andrews follows:]

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    Chairman Tom Davis. Mr. Rogalski, thanks for being with us.

                STATEMENT OF ROBERT W. ROGALSKI

    Mr. Rogalski. Good afternoon, Mr. Chairman.
    Prior to the appointment of Bob Andrews, I was the Acting 
Deputy Under Secretary of Defense for Counterintelligence 
Security. Today I am joined by Ms. Janice Haith, Acting 
Director, Defense Security Service, DSS. Ms. Haith does not 
have an opening statement, so I ask your indulgence if I go 
briefly over the 5 minutes allocated time.
    The Under Secretary of Defense for Intelligence asked me to 
lead a DOD team to diagnose what caused DSS to suspend industry 
investigations due to the $90 million funding shortfall.
    The work we have done has uncovered a number of systemic 
problems associated with the industrial security process. We 
have identified immediate changes which I believe will help 
address those problems.
    By way of background, the Department of Defense budgets and 
pays to OPM the cost of security clearance investigations for 
DOD contractors and contractors for 23 other Federal agencies 
as part of the national industry security program.
    On April 25th, the Acting Director, DSS, directed the 
Defense Industrial Security Clearance Office [DISCO], which 
processes requests from industry for investigations, to suspend 
submissions to OPM for two types of investigations; initial 
investigations and periodic reinvestigations.
    On April 28th, DSS notified the industrial security 
community to stop sending requests for investigations to DISCO 
because DSS projected that it did not have sufficient funds 
available to pay OPM for additional investigations. DSS took 
this action to comply with the Anti-Deficiency Act. DSS cannot 
knowingly request investigations without available funding.
    Let me stress that DSS did not direct OPM to stop work on 
any industrial investigations, initial or periodic, submitted 
prior to April 25th, and DSS has paid for all work submitted to 
OPM through April 25th.
    During fiscal year 2006 and prior to April 25th, DSS 
submitted to OPM over 100,000 requests for industry 
investigations. Based on our current projections, we anticipate 
submitting an additional 100,000 industry investigations for 
the remainder of fiscal year 2006.
    But, again, none of the more than 100,000 industrial 
investigations submitted by DSS to OPM prior to April 25th have 
been affected by DSS' action to suspend the submission of 
investigations.
    A number of factors contributed to the problem faced by 
DSS.
    First, DSS did not adequately budget for the cost of 
industry investigations in fiscal year 2006. In October 2004, 
the Department signed an agreement with OPM to transfer the 
personnel security investigation function from DOD to OPM. As 
part of the agreement, DOD agreed to pay to OPM up to a 25-
percent premium of the base cost of investigations to offset 
potential operating losses incurred by OPM. The DOD budget 
request, which was delivered to Congress in February 2005, 
prior to OPM publication of its fiscal year 2006 rates, did not 
include funds to pay the premium to OPM. In addition, the DSS 
budget was reduced during congressional deliberation on the 
fiscal year 2006 budget, and DSS did not appropriately manage 
that reduction.
    Second, when DOD transferred the personnel security 
function to OPM, DSS had approximately 45,000 pending industry 
investigation requests, which they did not transfer to OPM. DSS 
directed industry to resubmit many of these investigations, and 
it appears they are being submitted during this fiscal year. 
DSS failed to track the status of these investigations and did 
not request funding for them in its fiscal year 2006 budget 
submission.
    Let me now address the immediate steps the Department has 
taken to address the suspension.
    DOD's Comptroller provided DSS $28 million to restart 
industry investigations. DSS has expended $5 million of these 
funds to pay the most recent bill from OPM. Yesterday, DSS 
notified industry to begin submitting requests for initial 
investigations for secret clearances to ensure individuals 
requiring a clearance for employment are placed in the OPM 
processing queue. Based on present projections, the remaining 
$23 million will allow DSS to send to OPM for processing 
industry initial secret clearance requests through the end of 
June 2006.
    DOD, with OMB approval, submitted a reprogramming request 
to Congress for $90 million yesterday to enable DSS to submit 
the remaining projected industry investigations through the end 
of fiscal year 2006.
    The Deputy Under Secretary of Defense for 
Counterintelligence and Security, Mr. Andrews, has directed the 
following actions to address the systemic problems. The 
establishment within DSS of a Central Oversight Office to 
perform a variety of functions, to include: develop a process 
to link security investigation requirements and funding with 
current and future DOD contracts; monitor, initially on a daily 
basis, the industry investigation process and develop trip 
wires to reduce the probability of any need to impose a future 
suspension.
    The DOD Comptroller will immediately begin work with DSS to 
develop new processes for DSS to use in preparing its budget 
submissions. DSS will continue to work with OPM so that the two 
organizations can identify and track investigations submitted 
to OPM for processing, as well as the associated funding.
    Mr. Chairman, the Department's senior leadership is 
committed to correcting the systemic problems that have been 
identified in the personnel security process. The Department 
recognizes that inadequate oversight was a major contributor to 
the problem.
    We are prepared to meet with the committee periodically to 
provide progress reports on our efforts to correct the problems 
identified.
    Mr. Chairman, this concludes my statement.
    [The prepared statement of Mr. Rogalski follows:]

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    Chairman Tom Davis. Thank you very much.
    Ms. Dillaman.

                 STATEMENT OF KATHY L. DILLAMAN

    Ms. Dillaman. Mr. Chairman, it is my privilege to testify 
today on behalf of the Office of Personnel Management to 
provide you with an update of the progress that has been made 
to improve the timeliness of the security clearance process and 
reduce the backlog of background investigations, as well as 
answer any questions you may have about OPM's role in 
processing security clearance investigations for the Department 
of Defense.
    OPM's mission is to ensure the Federal Government has an 
effective civilian work force. To accomplish this mission, OPM 
provides background investigation products and services to 
agencies to make security clearance or suitability decisions on 
civilian, military, and contractor personnel.
    At OPM, the division responsible for conducting background 
investigations is our Federal Investigative Services Division, 
headquartered in Boyers, PA. This division supports over 100 
Federal agencies with thousands of security offices worldwide. 
Our automated processing systems and vast network of field 
investigators handle a high volume of cases. In fact, this year 
we expect to process over 1.7 million investigations.
    Since February 2005, OPM has had responsibility for about 
90 percent of all personnel background investigations for the 
Federal Government. Subsequently, the Office of Management and 
Budget formalized this by officially designating OPM as the 
lead investigative agency responsible for conducting 
investigations. We have been working closely with OMB and the 
major clearance granting agencies to meet the timeliness 
requirements of the Intelligence Reform and Terrorism 
Prevention Act of 2004. Last fall, when our performance 
improvement plan was released, it addressed four critical areas 
of the investigation and security clearance process: workload 
projections, timeliness and quality of agency submissions, 
timeliness of the investigations, and the adjudications 
process.
    Since that time, I am happy to report that we have made 
great strides in improving overall timeliness and reducing the 
inventory of backlogged investigations.
    OPM provides reports each quarter to OMB and the clearance 
granting agencies on the progress that has been made to meet 
the goals of the performance plan I referenced earlier. As an 
attachment to my testimony today, I am providing a chart which 
depicts the overall performance improvement trends for all 
agencies.
    To staff the investigative program responsibly, we need 
agencies to work toward projecting their annual need within a 
margin of 5 percent. Overall, agencies' projections are within 
17 percent of actual submissions this fiscal year. The 
Department of Defense, which represents 80 percent of the 
national security investigations, has exceeded their annual 
projections by 59 percent for the first half of the year. We 
have asked all agencies to re-evaluate the projections for the 
remainder of the year, and based on any adjustments provided, 
we may need to further increase our Federal and contractor 
staff to keep pace with demand.
    The first step in improving the timeliness of the 
investigation and clearance process is timely and accurate 
submission of the subject's background information to OPM. The 
expanded use of the electronic Questionnaires for 
Investigations Processing [e-QIP] by submitting agencies has 
improved submission timeliness and lowered the rate of 
submission rejections because they contain inadequate or 
incomplete information.
    OPM continues to make significant progress in reducing the 
amount of time it takes to complete the investigations as well. 
I have included a table in my written statement that 
demonstrates this progress. The improvement in timeliness can 
be attributed largely to our increased staffing and 
productivity by our field agents. Currently, we are maintaining 
a staff of over 8,600 employees and contractors devoted to the 
background investigations program. In addition, we began 
deploying field agents overseas in August 2005 and currently 
have more than 40 field agents working in more than 30 military 
installations around the world to handle international coverage 
requirements.
    Although we have been able to reduce the number of overdue 
initial clearance investigations, our inventory of pending 
investigations is increasing because of the difficulty we have 
in obtaining information from some national, State, and local 
record providers. Working with OMB, Federal agencies that 
provide records have developed aggressive plans to improve 
their performance.
    During the second quarter of this fiscal year, agencies 
reported their adjudication actions to OPM. They averaged 78 
days to complete this action, with 9 percent done within the 
required 30 days of completion of the investigation. OPM is 
working with agencies to improve this time and to automate the 
process of returning investigations and reporting updating of 
their actions.
    Mr. Chairman, when the Senate confirmed OPM Director Linda 
Springer last summer, I know she assured Members of Congress 
that our work on security clearance reforms would be one of her 
highest priorities. I am proud to have been given the 
opportunity to work closely with our Director and put my own 30 
years of Federal experience in this area to work in order to 
meet the expectations Congress and the President have set on 
this critical issue.
    That concludes my remarks. I would be happy to answer any 
questions.
    [The prepared statement of Ms. Dillaman follows:]

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    Chairman Tom Davis. Thank you.
    Mr. Gimble.

                 STATEMENT OF THOMAS F. GIMBLE

    Mr. Gimble. Mr. Chairman, thank you for the opportunity to 
appear before the committee today to discuss personnel security 
clearance program issues.
    Since 1997, the DOD IG has issued 14 reports, including the 
April 2006 report on ``DOD's Security Clearance Process at 
Requesting Activities.'' Cumulatively, these reports address 
the five phases of the personnel security clearance process. 
Although we have not focused specifically on fiscal issues, 
many of the issues that we have reported have fiscal 
ramifications. Also, our ongoing ``Audit of Transition 
Expenditures for DOD Personnel Security Investigations for 
fiscal year 2005'' will determine whether the expenditures for 
the transition of personnel security investigations from DSS to 
OPM were in accordance with the agreement and whether OPM's 
rate structure and adjustments for DOD investigations are 
reasonable. Working jointly with the OPM Inspector General, we 
anticipate issuing our report by August 2006.
    Our reports have identified longstanding issues and made 
numerous recommendations that, if implemented, would lead to a 
more efficient and effective personnel security clearance 
program. GAO's findings have been consistent with ours. 
Unfortunately, the implementation of key recommendations has 
been slow and, as a result, longstanding issues remain 
uncorrected. I will discuss several longstanding issues.
    In a 2002 report on ``Security Clearance Investigative 
Priorities,'' we reported that DOD lacked a meaningful process 
for prioritizing security clearance requests. To date, our 
recommendation on prioritization remains outstanding, and 
timely completion of security clearances for mission-critical 
and high-risk positions is still very much an issue.
    A 2001 report on the ``Defense Clearance and Investigations 
Index Data base,'' the DCII, identified data integrity problems 
that included incomplete and obsolete data. The DCII has not 
been updated, but was still used to populate the Joint 
Personnel Adjudication System [JPAS]. The new system is the 
single, central record for investigative data. As a result, the 
data integrity problems are still an issue.
    For nearly 10 years, we have reported the need to update 
the DOD Regulation 5200.2-R and DOD management has agreed. Yet, 
to this date, the action remains to be completed and needs to 
be given a higher priority.
    A number of our reports, as well as GAO reports, have 
addressed the impact of increasing workloads on both personnel 
and fiscal resources. Our most recent audit report focused on 
the impediments to initiating security clearance requests at 26 
DOD activities and substantiated many of the longstanding 
issues that I just discussed. The report found that the Under 
Secretary of Defense Intelligence Office responsible for DOD 
personnel security clearance program was understaffed, thus 
limiting the ability to issue DOD policy and provide assistance 
and oversight to the military services and defense agencies.
    Security managers' workloads have grown significantly 
because of September 11th, the military deployments, the global 
war on terrorism, and increased use of sensitive classified 
technology. OPM has also returned about 20 to 25 percent of the 
investigation reports to the DOD activities because of 
inaccurate data.
    DSS Liaison Office was established to assist the Under 
Secretary of Defense Intelligence with the oversight, 
communication, and transition to OPM. Its existence was not 
well-known to security managers at the requesting activities.
    For almost a decade, our audits have highlighted serious 
flaws in DOD's security clearance process. DOD has taken steps 
to address some of the identified problems. But until systemic 
and growing problems receive DOD management attention, not much 
will change.
    The personnel security program needs to have strong senior 
leadership focus at the OSD level to include oversight of DSS; 
a current integrated long-range strategic plan supported by 
resources and senior leadership involvement that will enable 
OSD to have visibility and oversight of the entire program to 
effect the necessary changes; a transparent process for DOD 
security personnel to understand the processes and resources 
and using the DSS Clearance Liaison Office and other 
communications tools; a better identification of personnel 
security clearance requirements that will assist both DOD and 
OPM in identifying the investigative and funding needs; an 
updated current version of DOD Regulation 5200.2-R.
    In conclusion, regardless of whether the investigative 
function remains at OPM or DOD, these longstanding issues must 
be resolved to make meaningful progress in reducing backlog and 
ensuring a more effective and efficient end-to-end security 
clearance process which will contribute to a more fiscally 
sound program.
    That concludes my statement.
    [The prepared statement of Mr. Gimble follows:]

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    Chairman Tom Davis. Thank you very much.
    Mr. Rogalski, let me start with you. In your testimony, you 
state that one of the factors leading to the $90 million 
shortfall at DSS in fiscal year 2006 was that at time DOD 
submitted its budget request in February 2005, DOD did not 
request funds to cover the 25-percent premium that DOD agreed 
to pay OPM in the Memorandum of Understanding that was signed 
in October 2004.
    Considering that the Memorandum of Understanding clearly 
established that OPM could charge DSS at the rates it had been 
charging, which was a known quantity, and that it could charge 
up to a 25-percent premium on top of that figure, also a known 
quantity, why was DOD unable to estimate the amount of money it 
would need to cover what it would owe OPM?
    Mr. Rogalski. First of all, I might have to take part of 
this as a question for the record because that is a DOD 
Comptroller answer. But let me give you what I understand from 
what the DOD Comptroller told us.
    It is clear that in the MOA between DOD and OPM it does say 
that OPM may charge up to a 25-percent premium for the conduct 
of investigations. Our understanding from the Comptroller is it 
is very difficult to forecast a budget when you have a term 
such as ``may'' in there. So that is why, on the advice of the 
Comptroller, we went in with our initial request, again, 
looking to having make some budget adjustments once that 
surcharge, once that premium was imposed on DOD, and we did not 
do that.
    Chairman Tom Davis. So they looked at ``may'' as a 
possibility and not----
    Mr. Rogalski. That is correct.
    Chairman Tom Davis [continuing]. As a ceiling in budget.
    Mr. Rogalski. Yes, sir.
    Chairman Tom Davis. Live and learn, I guess.
    Why did I read about this in the paper? Why didn't DOD 
notify Congress that they were about to run out of money? I 
mean, you know what the congressional interest in this has 
been. Do you know the answer to that? Or maybe Mr. Andrews--can 
somebody tell us why?
    Mr. Rogalski. Very candidly, it was a mistake on our part. 
We should have notified you prior to the announcement being 
made in the press. We should have notified you first.
    Chairman Tom Davis. It was a shock to me.
    Mr. Andrews, do you have any comment on that?
    Mr. Andrews. I was as shocked as my boss was, Mr. Chairman.
    Chairman Tom Davis. Mr. Johnson, one of the reasons cited 
by DOD is the 25 percent per investigation that they have to 
pay to OPM. GAO has reported that DOD and OPM approached Office 
of Management and Budget seeking arbitration of this matter, 
but that OPM directed the agencies to continue to negotiate.
    Why did you decline to mediate at the time? Did you think 
it could----
    Mr. Andrews. We have never declined. In fact, we were told 
by DOD and OPM that they would come to us when it was the 
appropriate time. But they were still working through the 
issues and making good progress.
    Chairman Tom Davis. Well, let me ask this question: Were 
you as surprised as we were when they came out with this 
announcement?
    Mr. Andrews. Yes.
    Chairman Tom Davis. So they did not check with you either.
    Mr. Andrews. No. No. Let me comment also.
    Chairman Tom Davis. Yes.
    Mr. Andrews. Two things were going on here: their estimate 
of volume was off by 50 percent, and their estimate of unit 
price was off by 25 percent. The bigger of the two shortcomings 
is the volume estimate, but in both cases, as I understand from 
my conversation with Bob, they had the information to identify 
this and forecast this problem earlier in the year. And as they 
said to me and to themselves and to their bosses and we are 
saying to you today, they did not do what they needed to do 
when they needed to do it.
    Chairman Tom Davis. Well, I would like to hear from DOD and 
OPM. If you both accept the need for the premium, as well as 
about the assumption underlying it and the empirical base that 
they use to support it now, we have a year's worth of data now 
on the costs involved in the clearance investigation process. I 
would just like to get both of your views on it.
    Mr. Rogalski. Let me address the premium issue. It is 
correct that we did ask OMB to mediate that, but we did agree 
that our respective staffs, the DOD and OPM staffs, would meet 
to look at the premium issue.
    On May 5th, DOD did have a meeting with OPM, and we were 
again advised that the premium would remain for the rest of the 
fiscal year. Again, that was a business decision the Department 
made when the MOA was signed. We did agree to that. And, again, 
we did not adequately budget for that premium increase from 
OPM.
    Chairman Tom Davis. Not only did Congress NOT get notified, 
but I guess the Office of Management and Budget was a little 
taken by surprise, too, by your announcement.
    Mr. Rogalski. That is correct.
    Chairman Tom Davis. Ms. Dillaman.
    Ms. Dillaman. Yes, Mr. Chairman. First, OPM's 
investigations program is totally a revolving fund program, 
fee-for-service program, unlike when DOD handled the background 
investigations. We must recover all costs, full cost recovery 
in our process.
    When we negotiated the Memorandum of Understanding, we had 
concerns in three areas: The transferring staff, if they would 
be able to cover their payroll; we inherited about a $10 
million a month payroll. Also, we needed to double our 
contracting capacity to handle the additional workloads. And 
there were several infrastructure issues that had yet to be 
resolved.
    We have provided all of our financial statements to DOD, 
and they clearly demonstrated the need for the premium. The 
first quarter after transfer, we went into the red. By the end 
of the year last year, we broke even, and for this first 
quarter of this year, we have a slight margin. All of that 
information has been provided. We fully expect, barring any 
unforeseen circumstances, that we may be able to eliminate the 
premium as soon as the end of this fiscal year, but there still 
lurk some variables that will have to be considered.
    Chairman Tom Davis. Well, let me just say this: On behalf 
of everybody who is out there--the companies that are involved, 
the people that are involved, the American taxpayers, who are 
really getting the short end of this--when the agencies look 
narrowly at your focus and your budgets and you make those 
decisions based on--you know, whatever, the Anti-Difficult Act 
or whatever--you just jack up the cost that everybody is paying 
for these services. It ends up costing the governmental entity 
money over the long term. Your budget may be covered. And we 
just rely on everybody to not just look at the narrow piece of 
paper and the regulations that are operating, but at the 
mission as a whole, and to make sure that we are complying with 
that mission. And in this case, the mission has been clear for 
a couple years. We have a huge backlog that did not exist in 
2001, and it is backlogged there, and now this action makes it 
worse over the short term. Then we get everybody up here, and--
I mean, that is the concern, is that nobody seems to worry 
about the mission. Everybody is just worried about their 
bureaucratic niche and violating this act or that act or 
meeting their budget, and we forget about the taxpayers and why 
we are in Government.
    Yes, go ahead.
    Mr. Johnson. The distinguished characteristic, I believe, 
of the efforts by the six large security clearance granting 
agencies is their commitment to fix this. You would be very 
proud of the level of commitment by all the agencies and OPM to 
fix this and the time and attention that is going into this. We 
are not where we want to be. We are better than we have been. 
And there is a lot of looking at the big picture and not much 
looking at our budgets and so forth. So I----
    Chairman Tom Davis. But that is what caused the 
announcement in this case.
    Mr. Johnson. Well, there was oversight, as I heard it 
reported, and that Bob was not then--was not notified. His boss 
was not identified. We were not identified that this was 
happening. And this could have been identified and forecasted 
several months prior. Error.
    Chairman Tom Davis. That is what I am referring to.
    Mr. Johnson. But two-thirds of the problem, their budget 
problem, the reason they ran out of money mid-year, two-thirds 
of the reason is their volume of clearances was 50-plus-percent 
higher than they thought. Only one-third of the problem is not 
budgeting for the increased rate.
    Chairman Tom Davis. I understand. Look, one of the outcomes 
of the security language that was included in the intelligence 
reform legislation of 2004 was Executive Order 13381, which 
designates OMB as the oversight authority for clearance policy. 
I want to congratulate you personally, Clay, for your hard work 
in bringing together all the stakeholders, developing a plan to 
reduce the backlogs, and enforce reciprocity agreements.
    However, this Executive order expires in July of this year, 
and in light of the recent situation at DSS, it seems apparent 
that there continues to be a need for high-level oversight at 
your level of this. Do you anticipate there being a continued 
oversight role for OMB and maybe the Executive order being 
extended?
    Mr. Johnson. There will be continued oversight. I think 
eventually the oversight for the proper activities of the 
security clearance part of the Government will fall to DNI. 
When they are ready to take on that oversight, it will pass to 
them, and we are in conversations with the DNI to determine 
whether they are ready now or they would recommend that OMB 
continue in the oversight capacity. But there will continue to 
be oversight on this process.
    Chairman Tom Davis. But it may not come in the form of an 
Executive order.
    Mr. Johnson. We will issue another Executive order.
    Chairman Tom Davis. OK. I have more questions, but I will 
yield to Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    Ms. Haith and Ms. Dillaman, you are both Directors of the 
two primary Federal agencies that conduct background 
investigations for security clearances. Your agencies conduct 
initial investigations as well as periodic reinvestigations. I 
would like to ask you about the process for reinvestigations, 
if I may.
    I have here the adjudicative guidelines for determining 
eligibility for access to classified information, which were 
approved by President Bush on December 29, 2005. These apply 
explicitly to ``persons being considered for continued 
eligibility for access to classified information.''
    Ms. Haith, to take a hypothetical example, when you are 
reinvestigating a Government employee's background, Section 34 
of the President's guidelines says you are supposed to examine 
incidents in which an employee has engaged in a ``deliberate or 
negligent disclosure of classified or other protected 
information to unauthorized persons, including, but not limited 
to, the media.'' The President's guidelines say this is a 
serious security concern. Would you agree?
    Ms. Haith. Yes, sir, I would agree.
    Mr. Waxman. And it would be especially pertinent if it 
happened on several occasions. Is that right?
    Ms. Haith. Yes.
    Mr. Waxman. Ms. Dillaman, the President's guidelines refer 
to both intentional and negligent handling of classified 
information. So we are not just concerned about intentional 
leaks. We are also concerned with Government officials who are 
negligent in the way they handle classified information. Is 
that right?
    Ms. Dillaman. Yes, sir.
    Mr. Waxman. So reinvestigations for security clearances are 
really very different from criminal investigations. We are not 
looking for intentional actions, prove beyond a reasonable 
doubt. We are looking for any activity that bears on a person's 
honesty and integrity. Is that correct?
    Ms. Dillaman. And their continued eligibility to have a 
security clearance, yes, sir.
    Mr. Waxman. Finally, Ms. Haith, Section 2(e) of the 
President's guidelines say that when a security concern becomes 
known about someone who already has a clearance, it is 
important to determine whether the person voluntarily reported 
the information and was truthful and complete in responding to 
questions. So, in your opinion, if an agency employee lies to 
the head of the agency about improper disclosures, would that 
be relevant to whether that employee should continue to have 
access to classified information in the future?
    Ms. Haith. Yes, sir it would be relevant. However, there is 
a due process requirement, and we would have to implement the 
due process according to the law.
    Mr. Waxman. I thank you for that answer.
    I did not get specific about a particular case, but the 
information you provided raises serious questions about why 
Karl Rove retains his security clearance today. Reports 
indicate that he leaked classified information, the identity of 
a CIA operative. Reports also indicate that he did so on more 
than one occasion. It appears that he tried to cover it up by 
telling the White House Press Secretary that he was not 
involved. It appears he may have also lied to President Bush 
himself.
    Given the President's own guidelines, can either of you 
tell me why Karl Rove still has a security clearance?
    Ms. Haith. Sir, he is not a DOD employee. I cannot comment 
on that.
    Mr. Waxman. Ms. Dillaman.
    Ms. Dillaman. Nor can I, sir. My agency conducts the 
background investigations. The adjudications for clearances are 
handled by the clearance granting agency.
    Mr. Waxman. Let me ask you this: Karl Rove came into the 
White House with President Bush in January 2001. If he applied 
for a security clearance at that time, he would have received 
an interim clearance while his background was being 
investigated. He was then granted a final security clearance 
most likely at some point in 2001. That means that this year, 
2006, he should be scheduled for his 5-year reinvestigation. Is 
either of your offices conducting this reinvestigation?
    Ms. Haith. DSS is not conducting any investigation.
    Mr. Waxman. Ms. Dillaman.
    Ms. Dillaman. I have no idea, sir.
    Mr. Waxman. OK. Can you tell us who conducts this periodic 
investigation for White House staff? Who is the official we 
need to talk to about this issue?
    Ms. Dillaman. Sir, I need to get back to you with an answer 
on that. I believe those investigations are conducted by the 
FBI, but I cannot confirm that now.
    Mr. Johnson. Congressman.
    Mr. Waxman. Anybody on the panel? Yes?
    Mr. Johnson. You need to contact the White House. Counsel's 
Office is in charge of--they have a Security Office in the 
White House, and they would be responsible for the 5-year 
reinvestigations. And I believe it is true that the FBI does 
the background checks.
    Mr. Waxman. They do the background check, but the----
    Mr. Johnson. Adjudication is done by the Security Office 
and the White House Counsel's Office.
    Mr. Waxman. OK. Well, I will just conclude by noting that 
right now it looks like the White House is ignoring the 
President's own guidelines while they wait for the outcome of a 
criminal investigation. But as these experts here today have 
testified, that is not the case that is supposed to--that is 
not the way it is supposed to work. The White House is supposed 
to halt access to classified information and investigate the 
breach. You lose your classification status and then you see if 
there is anything wrong that has been done criminally. It seems 
like it has been reverse with Karl Rove. They refuse to stop 
his access to classified information while there is a criminal 
investigation going on.
    The White House is supposed to halt the access to 
classified information and investigate the breach. And, Mr. 
Chairman, I think the committee should investigate how this 
process works at the White House and who is in charge over 
there, and I would like to ask if you would consider joining my 
request for a White House briefing on these matters.
    Chairman Tom Davis. Well, I think that is not a discussion 
I am going to have out here with you, Mr. Waxman, but I will 
certainly be happy to talk to you about this.
    Mr. Waxman. Well, Mr. Chairman, as we look at this access 
to classified information, I think we need to look at this 
matter very, very carefully. Some of us have already reviewed 
the CIA's concern about what the disclosure of Valerie Plame 
meant to the CIA itself, the operatives that work for it, and 
we could easily guess what the impact has been on our 
classified information, whether people can trust that 
classified information is going to be kept secret and not 
jeopardize those about whom the classified information may be 
about.
    So I will close my questions with that point and will look 
forward to further discussions.
    Chairman Tom Davis. Thank you, Mr. Waxman.
    I have a few more questions. I would like to hear from both 
OPM and DOD how they go about projecting annual requests, how 
accurate these estimates have been in the past, and why DOD was 
so off of its estimates for this year. I know there are lot of 
moving parts in this, but let's just see if you can help me on 
that.
    Let me start with OPM. Ms. Dillaman.
    Ms. Dillaman. Yes, sir. Each year, OPM does a data call for 
all agencies asking for projections for the following fiscal 
year. We contrast those projections with our own records of 
what has been received in the past and work with agencies if 
there seems to be a significant difference between what we 
actually received the prior year and what is projected for the 
next year.
    This year, early, before this fiscal year started, every 
agency provided those projections. We are in the mid-year point 
now, and we are asking agencies to revalidate those projections 
to see if adjustments are needed.
    Chairman Tom Davis. OK.
    Mr. Rogalski. DOD has always had a challenge in making 
these projections, and we certainly want to get our fidelity in 
making these projections down much clearer.
    There are two dynamics in the Department of Defense: one is 
the projection we get from the military departments on their 
projections, and then the projections for industry. Let me 
address the military departments first.
    What we are seeing in the Department of Defense is 
increased access and expanded sharing of classified information 
to the warfighter. So by getting more classified information to 
the warfighter in the field, we have seen an increase across 
the board to increase the number of security clearances. 
Although both the Marine Corps and the Army are both looking to 
try to declassify information as much as possible, but today we 
are getting more information to the warfighter; hence, that has 
increased the need for security clearances.
    Additionally, we have extended intelligence community 
networks in the field. Those further require clearances. And we 
are seeing a greater percentage of clearances for our top 
secret information as well. So those dynamics have increased to 
the overall projections from the military departments.
    Annually, we go out to industry and ask them to project 
their projected workload, and industry numbers are actually 
pretty accurate. For this year, we just did not adequately plan 
for the increased workload for those cases being resubmitted. 
We are working in the Department. Air Force has a good model. 
We are looking at that as a way to be applied through DOD. We 
asked for the military departments and the rest of the 
Department last week--we got their input last week to develop a 
strategy to better forecast data. But we realize this is an 
area the Department must improve upon to get better fidelity in 
our projections so we can provide OPM the data they need to 
manage workload.
    Chairman Tom Davis. There are a lot of moving parts in the 
personnel security process. You have DOD adjudicators. You have 
OPM investigators, both Federal and under contract, and private 
sector requesters. What I am getting at is it would seem a 
necessity that the guidelines for this process be up-to-date 
and accessible to everybody. But my reading is that the DOD--
and the DOD IG has reported that the key DOD guidance, which is 
Regulation 5200.2-R, hasn't been updated for almost a decade, 
even though recommendations from the IG are that it be 
reviewed. Similarly, the OPM investigator's manual has been in 
draft for some years now.
    What is DOD doing to update the necessary guidance? And 
when will that be complete? And what are OPM's plans for 
finalizing the investigator's manual? And has this manual been 
made accessible to all those in the process, such as DOD 
adjudicators who need it? I will start with DOD.
    Mr. Rogalski. Mr. Chairman, the base document, that is 
correct, is dated 1987. DOD has issued three changes to the 
base document, with the latest being February 1996, and 
additionally we have issued an interim policy guidance 
memorandum since then. So even the absence of that base policy, 
we meet regularly with the DOD security community. Our Acting 
Director of Security chairs the DOD's Security Directors Group, 
with the Security Directors from the military departments, 
defense agencies, combat and commands. We put out guidance with 
that forum. People can access in the community the Defense 
Security Service Web site.
    So we do keep the DOD security community advised of policy 
changes. We are going to get out a draft coordination of the 
5200.2-R, the DOD personnel security regulation in draft, by 
July 2006.
    Chairman Tom Davis. Do you want me to ask my question 
again?
    Ms. Dillaman. No. I am fine, sir.
    Chairman Tom Davis. OK.
    Ms. Dillaman. OPM's investigator handbook has been shared 
with the adjudication community consistently. In 2004, a year 
before the merger of DSS and OPM, we shared the investigator's 
handbook with all of DOD because they began processing their 
investigations using our handbook. We then started working 
closely with DOD to come to some agreement on some common 
investigative interpretations of standards and come up with one 
community handbook.
    In 2005, a second draft was published. It was shared with 
DOD, and we have been working since then with educational text 
writers to improve the format of it.
    Recently, the final draft went to all of the community 
stakeholders for review, and we do anticipate a final handbook 
to be issued later this year.
    You should keep in mind, however, that things do constantly 
change and amendments need to be added. As new laws are passed 
or new investigative practices are incorporated, we need to 
keep amending that handbook to keep it up-to-date.
    Chairman Tom Davis. So is it going to be perpetually in 
draft, or are you going to----
    Ms. Dillaman. No, sir. There will be a final, but 
immediately after the final, we will start on improving.
    Chairman Tom Davis. I got you.
    Let me ask you, Mr. Gimble, what role does the Joint 
Personnel Adjudication System [JPAS], play in the single data 
base requirement? What is being done to eliminate the IT 
stovepipes instead of a truly unified clearance data base?
    Mr. Gimble. Within the Department, it is the central 
repository, replacing what was known as the DCII. As I 
understand it--and I do not have any current work on this, but 
as I understand it, it will be the central data base within the 
Department of Defense. The challenge is to make it interface 
with the OPM system to where you can have a true back-and-forth 
download and upload and avoid the manual----
    Chairman Tom Davis. How close are we to making that happen?
    Mr. Gimble. That I would have to defer and get back to you 
on that. I think it is a challenge that is going to take a lot 
of work to get there. I do not have a timeframe as to when you 
would expect it to be there.
    Chairman Tom Davis. OK. Ms. Dillaman, you testified that 
OPM's inventory of so-called closed pending cases has been 
increasing because of the difficulty OPM faces in obtaining 
third-party information necessary to complete investigations.
    Ms. Dillaman. Yes, sir.
    Chairman Tom Davis. But it seems that OPM is simply 
providing agencies with incomplete investigations after 
charging for the full cost of a completed product.
    Ms. Dillaman. First of all, sir, if I advance information 
to an agency, that file is open with me until the final pieces 
are completed. Today, I have 70,000 investigations pending at 
OPM that are waiting for third-party information from the FBI 
and the Department of Defense only. That is 70,000 
investigations that could be reviewed and the decision made on 
whether a clearance could be granted.
    Chairman Tom Davis. So agencies could actually use 
incomplete investigations to award clearances?
    Ms. Dillaman. It is a judgment call on the agency's part 
whether or not the final pieces pose a risk in making that 
decision. Some agencies lack sufficient staff to handle the 
file twice, even though the timeliness for granting clearance 
or an interim clearance could be improved.
    Chairman Tom Davis. OK. In a November 2003 report, GAO 
reported that the Transportation Security Agency paid about 
$3,195 per investigation with the understanding that they would 
be expedited and completed within 75 days rather than paying 
$2,700 and having the investigation completed in 120 days. So 
they paid about a $500 premium.
    However, when the investigations were not completed in over 
a year, TSA requested a refund and they were refused.
    Ms. Dillaman. Yes, sir.
    Chairman Tom Davis. OK. Why shouldn't a customer receive a 
refund if OPM is unable to provide the level of service that 
was paid for?
    Ms. Dillaman. First of all, sir, the premium relates 
directly to what the contractors charge OPM to conduct the 
investigations, and we advertise----
    Chairman Tom Davis. But they paid more than they ordinarily 
would so that they would get it back on an expedited basis.
    Ms. Dillaman. And historically the processing time for 
priority investigations is faster, significantly faster, than 
standard service investigations. And in this case, for TSA and 
for DOD, priority investigations where a premium is paid are 
turned around much faster. Today, for top secret 
investigations, priority service investigations are processed 
in an average of 50-odd days. Standard service investigations 
are averaging about 170 days. So they are getting their 
investigations in about a third of the time by paying the 
premium.
    Chairman Tom Davis. So basically just everything has gotten 
less efficient in terms of the time period?
    Ms. Dillaman. No, sir. The premium on the case--the 
priority cases require our contractors to invest sometimes 
significant additional overhead in managing a smaller 
inventory. They may send an agent to travel specifically for 
one case rather than efficiently letting them queue and sending 
an agent to travel for multiple cases in order to meet a 
priority deadline.
    Chairman Tom Davis. I am just trying to understand then. 
The extra $495 that was paid, my understanding is they were 
moving it from 120 days to 75 days, while you are saying, well, 
the 120 was really 180 and the 75 days was really something 
else. Is that----
    Ms. Dillaman. Sir, we don't advertise a timeliness by days. 
We advertise two levels of service: priority and standard, with 
our contractors bidding a premium to do priority work faster 
than standard service.
    Chairman Tom Davis. It sounds like two levels of service, 
slow and slower, is what it looks like.
    Ms. Dillaman. Yes, sir.
    Chairman Tom Davis. OK. Mr. Gimble, what has the impact of 
understaffing been in the current situation? And can you 
suggest a more realistic staffing level at USDI that will 
ensure adequate oversight of the security clearance function at 
DOD?
    Mr. Gimble. I think first, Mr. Chairman, you have to kind 
of put it in perspective. The staffing of the oversight at 
USDI, we believe it is very significantly understaffed simply 
because they do the policy updates, write the manuals, and I 
think that is part of the reason that four times in the last 7 
years they have said they were going to issue an updated manual 
and they have not been able to do that.
    The magic number I think would have to be done, there needs 
to be an adequate staffing study, a delineation of exactly 
what--where they want the policy procedures to be handled, 
either at USDI, DSS, or down in the military departments. So I 
do not have a definitive answer for you today.
    Chairman Tom Davis. You testified in June 2005 that DSS 
established a seven-person clearance liaison office to assist 
the Office of the Under Secretary of Defense for Intelligence 
with oversight, planning, communication, the transition to OPM, 
and coordination for overseas interviews. But it appears that 
DSS has done a poor job of advertising this office because very 
few security managers the IG interviewed were aware of its 
existence. Is that----
    Mr. Gimble. That is correct. We went to 26 DOD locations 
out in the field on the audit that we were looking at. When you 
put in the initial request, did they know--were they aware of 
the office and its functions to answer questions and provide 
oversight? And basically it was a very low awareness at the 
field level.
    Chairman Tom Davis. All right. Thank you. My last question, 
Clay, goes to you. And, again, I thank you for being here, and 
I know you have put a lot of your effort into this thing. I am 
glad to hear you were as disappointed as we were when this 
announcement came out, and you are back supervising this. But 
in 2004, GAO requested that the proportion of requests for 
private sector top secret clearances increased from 17 percent 
to 24 percent from fiscal year 1996 to fiscal year 2003, and 
that the 10-year cost to the Government is 13 times higher for 
a person with a top secret clearance relative to a person with 
a secret clearance. That was a GAO report.
    But if the bar is rising for clearance level requirements, 
the cost to the Government will continue to rise with it. I am 
just asking, do you have any thoughts on how to ensure that the 
growth in demand for top level clearances is both necessary and 
manageable?
    Mr. Johnson. I don't have the answer to that. We have 
talked recently about certain levels of people that OPM is 
considering sending to the FBI to help with some file recovery 
work, and they are required to have a top secret clearance, and 
some people have asked why do they need a top secret clearance? 
Some of the files require it; some don't. There is no easy 
answer to that.
    So I don't know how to control or how to manage or how to 
make proper the demand for the different levels of clearance. I 
know that longer term--not in the next year or 18 months--say 4 
or 5 years out, we will be doing clearances--we all can 
envision doing clearances very differently than we do them now, 
and a lot more data mining and a lot less interviewing next-
door neighbors, which is the same way we have been doing it 
since the 1950's. That will be almost certainly more efficient, 
less expensive to do.
    So I would suspect that the cost to do a certain type of 
clearance will tend to come down over time, but we have not 
built any of those assumptions into our attack on improving the 
process here in the short term in the next 2 years.
    Chairman Tom Davis. But I guess the agencies, to the extent 
that someone is overclassified, are you asking--there is a cost 
to that as well. We just need to understand that as we walk 
through it.
    I think those are the questions that I wanted to get out 
today. I am just glad that we are at least back on track, but 
we still have a long-term issue, and I would just say, Mr. 
Johnson, we are going to need your continued efforts to try to 
bring this backlog back.
    Anyone else want to add anything before we go to the next 
panel? Mr. Rogalski.
    Mr. Rogalski. I would like to add one thing very quickly. 
Thank you. We have had many discussions with Mr. Johnson about 
how to improve the process, so we have the one issue of the 
immediate funding shortfall, which we need to address, but I do 
think--and DOD is certainly looking at what are those changes 
to national policy. I do believe it is time--we are overdue--to 
look at the need for the efficacy of the 5-year, 10-year, 15-
year updates. So DOD is certainly looking at these initiatives. 
How can we get better investment for our dollar, again, to 
really determine what is the right criteria to have to 
determine that someone is suitable, trustworthy to have access 
to classified information. So we are certainly looking at those 
types of things in a strategic concept.
    Thank you.
    Chairman Tom Davis. And I would just say, we are looking at 
a way to see if GAO can measure what the cost is to the 
taxpayer by having this backlog, by either work not getting 
done or overpaying, because there is a huge cost to that. I see 
it out in my district all the time because a lot of our 
companies do this kind of work and are seeing the problems. You 
know what the House did in the appropriations--excuse me, in 
the authorization bill last week in terms of we are not going 
to allow clearances to expire at this point. There is always, I 
guess, some risk in that, but given the backlog, we do not need 
to create more backlog. The problem with that is when that 
legislation expires, the backlog or queue will get much longer 
much faster.
    Yes, sir, Mr. Andrews?
    Mr. Andrews. Mr. Chairman, let me close by saying that 
whenever there is a crisis in Government, there is always an 
initial response to let's reorganize. I think we see this 
problem not as an organizational problem but as a leadership 
problem at its very core, and we are going to take care of it.
    Chairman Tom Davis. Well, you know, I was an Army officer, 
and when you take over a post--you are former officers. You 
know the story. It leaves you three envelopes if things go bad. 
In the first envelope, when you open it up, if things are not 
going well the first few weeks, it says, ``Blame it on your 
predecessor.'' If in a couple months things still are not going 
well, you get to the second envelope, and I guess that is where 
we are here. It says, ``Reorganize.'' If a few months later 
things are still going bad, you open up the third envelope, and 
it says, ``Prepare three envelopes.''
    So I think we are at the reorganize stage here. I know you 
have to get over to the Senate.
    Mr. Ruppersberger, do you want to ask anything?
    Mr. Ruppersberger. I am sorry we have all these different 
hearings, but I am on the Intelligence Committee, and we have 
dealt a lot in the clearance arena, and I am not sure what you 
just testified to, but my staff was here so I will find out.
    I want to ask a question about--we have a program at NSA 
that I believe is working pretty well from a clearance 
perspective. I know when I first started working with General 
Hayden on the issue, I think it was a year. I think it is down 
to 3 or 4 months, and sometimes when it is a priority, it goes 
a lot quicker. And from my analysis, looking at where we are, 
it seems to me that things are getting clogged at OMB. And I 
wonder, when we have a good program and it is working, why 
don't we see why it is working.
    Another issue, too, I represent the NSA Fort Meade area, 
also, and I know we are having a division under the BRAC 
process coming into Fort Meade. And I am concerned that what is 
coming into Fort Meade on the clearance issue might interfere 
with what NSA is doing now because it works.
    The bottom line is where it works. And I would like you to 
answer the question about, the first thing, why is it necessary 
to go through OMB if that is where it seems the back-up is 
there. If an NSA program--and there are other Defense areas 
that are working from a clearance perspective, they seem to 
have it more under control, and also as it relates to the 
contractors, because the contractors that are working with our 
NSA, CIA, whatever it is, you know, if they don't get their 
clearances, they might not be able to do the jobs, and it slows 
everything down. And we know al Qaeda is not going to wait for 
us, that is for sure.
    So who could answer that question about why we don't take a 
program that is working, why it seems we have to go through 
OMB? OMB in the beginning was kind of good because they got it 
going and organized it, but now it seems to be slowing up again 
and the bureaucracy seems to be coming in. And could you 
identify who you are with?
    Mr. Johnson. I am Clay Johnson. I am the Deputy Director 
for Management at OMB and I am the person that is in charge of 
this oversight process and reform process--oversight of the 
reform process.
    Mr. Ruppersberger. OK.
    Mr. Johnson. I am not familiar with the NSA program. I know 
that the security clearance process and results within the 
intelligence community is considered satisfactory. They do it 
on a very timely basis, high quality and so forth. So there is 
not a turnaround time problem we are trying to address. So what 
we are----
    Mr. Ruppersberger. Wait. I don't get you there. What do you 
mean there is not a turnaround problem? In the intelligence 
community, in some agencies there are. I just used NSA as an 
example of one that is working. Why don't we see what they are 
doing and follow what they are doing? And then the second issue 
is OMB. Why do we need to get involved and go with OMB? Why is 
it slowing down at OMB? That is my question.
    Mr. Johnson. I am not aware of what NSA is having to do 
with OMB, but I would be glad to look into it and----
    Mr. Ruppersberger. Did I say OMB? I meant OPM. I am sorry.
    Mr. Johnson. Oh, OK.
    Mr. Ruppersberger. All these acronyms are----
    Mr. Johnson. Then I don't care as much. [Laughter.]
    Ms. Dillaman. I care a lot because I am OPM.
    Mr. Ruppersberger. OK. Let's go.
    Ms. Dillaman. Sir, I am not aware of any----
    Mr. Ruppersberger. You are off the hook. That is good.
    Ms. Dillaman. OPM provides some of the background 
investigations for NSA, and NSA has a contract to do some of 
the investigations themselves. We work very closely with them, 
and I know of no inordinate delays in that process.
    Mr. Ruppersberger. Well, why are we here today then? I am 
looking at Mr. Chairman. We are here because of the concern and 
the slowdown with contractors as far as clearances. That is why 
we are here today.
    Chairman Tom Davis. Well, right on the eve of this 
yesterday, they announced they were resuming it right before 
the hearing. But we still felt it was important to get them up 
here to understand what happened, and I guess once again 
reiterate how important this is.
    I had promised this panel they could leave. They have to be 
over at the Senate at 2:30.
    Mr. Ruppersberger. All right. I tell you what. Then could 
you--what was your name?
    Mr. Rogalski. I am Robert Rogalski from the Department of 
Defense, USDI. I will take that as a question for the record. I 
have met with the Director of Security at NSA. I have looked at 
their process, and we will provide you a detailed explanation.
    Just for clarification, NSA has been granted authority by 
the Department as well as the Defense Intelligence Agency to 
conduct initial background investigations. OPM conducts their 
periodic reinvestigations. I will tell you that from the NSA 
perspective--and I have looked at their program. They have an 
excellent program. But the Department has a scalability issue 
if we were to adopt the NSA program. But I will provide you a 
detailed----
    Mr. Ruppersberger. This is Walter Gonzalez. I am going to 
have him get with you all to follow through on this.
    Mr. Rogalski. Absolutely.
    Mr. Ruppersberger. Fine. Thank you.
    Mr. Rogalski. We would be glad to do that.
    Chairman Tom Davis. All right. We are going to take a 5-
minute break--or about a 3-minute break as we move to our next 
panel. I want to thank this panel for coming.
    [Recess.]
    Chairman Tom Davis. The hearing will come back to order.
    I recognize our second panel: Mr. Doug Wagoner, the 
chairman of the Intelligence Subcommittee of the Information 
Technology Association of America, on behalf of the Security 
Clearance Coalition; Mr. William L. Gunst, the vice president 
for business operations, from Anteon International Corp.; and 
Mr. Nicholas Karangelen, the president of Trident Systems, Inc. 
It is good to see you all here.
    You know, we swear you in before you testify. It is our 
policy. If you would just rise with me and raise your right 
hands.
    [Witnesses sworn.]
    Chairman Tom Davis. Just a second, do you want to get a 
photo op here? You can let her get a photo op here while you 
are there. I hope that will look good in the newsletter.
    Have a seat.
    Well, you have heard the previous panel. I do not want to 
say we are back on track, but at least one hiccup is resolved 
for the immediate future. All of you are no strangers to this 
issue. We just really appreciate your being here. Mr. Wagoner, 
we will start with you and then go down the line.

      STATEMENTS OF DOUG WAGONER, CHAIRMAN, INTELLIGENCE 
SUBCOMMITTEE, INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA, ON 
 BEHALF OF THE SECURITY CLEARANCE COALITION; WILLIAM L. GUNST, 
 VICE PRESIDENT FOR BUSINESS OPERATIONS, ANTEON INTERNATIONAL 
  CORP.; AND NICHOLAS KARANGELEN, PRESIDENT, TRIDENT SYSTEMS, 
                              INC.

                   STATEMENT OF DOUG WAGONER

    Mr. Wagoner. Mr. Chairman and members of the committee, 
thank you for inviting ITAA and its industry partners to 
testify today on the continuing challenges industry faces in 
obtaining Federal security clearances. My name is Doug Wagoner 
and I serve as chairman of the ITAA Intelligence Committee. I 
also bring the perspective of a small business executive from 
Fairfax struggling with this issue each day.
    I've included more detail on our proposed solution to this 
problem in a detailed white paper, and I would like to submit 
that for the record.
    Mr. Chairman, I was before you and this committee almost 
exactly 2 years ago to discuss this problem. DSS leadership 
testified that day that, as a result of changes under way at 
DSS and OPM, 95 percent of Top Secret clearances by fiscal year 
2005 would be completed in 120 days and no case would take over 
a year. Since then, with the leadership of your committee, we 
thought we had made strides to significantly change the 
security clearance process. Here we are 2 years later, and DSS 
is nowhere near fulfilling promises made to this committee.
    In light of the past promises and attempted reforms, 
industry was greatly alarmed by the April 26th action to 
suspend acceptance of contractor requests for clearances. We 
appreciate this committee's quick action to hold this hearing, 
and look forward to Congress's support in solving this problem 
both in the near and long term.
    DSS may decide to suspend its activity, but our enemies are 
not suspending theirs. Nor are others in the defense and 
intelligence community suspending their vigilance to defeat 
those enemies, and the demand and support from private industry 
is greater than ever. Increasingly, defense and intelligence 
agencies are turning to the private sector for products and 
services they need to do their jobs. We cannot provide that 
without access to classified facilities and information. In 
other words, we cannot provide support without security 
clearances.
    There's much to tell about the impact of DSS's decision, 
but none as important as the possibility that national security 
missions may not be accomplished unless this issue is 
addressed. This problem is also keeping qualified people from 
working, is causing salary premiums as high as 25 percent, 
premiums that raise the costs to industry, Government, and 
ultimately the taxpayer, as you brought out earlier. And it is 
leaving companies unable to meet contract requirements.
    Industry has three requests that it would like to detail 
today. One, immediate funding to reinstate acceptance and 
processing of all contractor security clearances. Two, an audit 
on how DSS and OPM could have created such a drastic shortfall 
so early in the fiscal year and how that shortfall led to an 
absolute moratorium. And three, a legislative overhaul of the 
security clearance process, programs, and related bureaucracy, 
with an immediate infusion of technology.
    We must require DOD to reinstate the processing contractor 
clearances immediately. If full funding cannot be found, 
industry can work with DSS to prioritize cases for the rest of 
this fiscal year, given full funding is made for fiscal year 
2007.
    It has been suggested that industry should pay for their 
clearances, which cost about $3,700 for a Top Secret. Industry 
rejects this suggestion for several reasons. First, it would 
create haves and have-nots between large and small firms. 
Additionally, the costs would be forwarded to Government, along 
with any overhead charges, just as with any other allowable 
cost, and this means the increased costs would come out the 
expense of congressionally approved program funds. And last, 
and probably the most profound reason, is that industry is not 
in the business to support failed processes in Government.
    It appears the decision to stop processing contractor 
clearance requests was made in a vacuum and the funding 
shortfall came as a complete surprise to DOD. We know of no 
oversight body, including this one, that was alerted. We heard 
that $145 million was budgeted and burned in 7 months, and 
today they announced that they need an additional $91 billion 
for the balance of fiscal year 2006. For DSS not to detect that 
something was going wrong a month ago, 3 months ago, and sound 
the alarm--or did OPM to deliver a surprise bill to DSS? 
Industry believes there are accounting issues between OPM and 
DSS on how cases are charged, and there may even be double 
billing caused by how OPM rejects incomplete files.
    It is for these reasons that a complete audit investigation 
is needed for this monumental shortfall and how it came as a 
surprise to almost everyone.
    For the long term, our Nation needs a complete overhaul of 
the security clearance bureaucracy. This overhaul must include 
an immediate infusion of technology and data collection and 
analysis. While OPM struggles to find enough investigators 
armed with pen and paper to collect the data, much of this data 
can be verified through commercial data bases. These sources 
can verify identity, credit, and other transactional 
information; in fact, our Nation's financial insurance industry 
takes billions of dollars of informed risk each year based upon 
the reliability of the exact same data.
    In closing, Mr. Chairman, industry is very concerned by the 
arbitrary decision to no longer accept our requests for 
clearances. These requests are solely generated by mission 
need. We stand side-by-side with our Government partners to 
keep our Nation safe and are truly worried about the impact of 
this decision on the many missions we support.
    Mr. Chairman, you may recall that 2 years ago you held up a 
1982 GAO report on security clearance problems and commented 
that, since that time, you raised your son, put him through 
college and law school, while little had been done to shorten 
the clearance timeframes. Let's not wait for our grandchildren 
to complete law school before we embark on a total overhaul of 
the program's process and bureaucracies related to security 
clearances.
    Thank you again, and I look forward to your questions.
    [The prepared statement of Mr. Wagoner follows:]

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    Chairman Tom Davis. Thank you very much.
    Mr. Gunst.

                   STATEMENT OF WILLIAM GUNST

    Mr. Gunst. Chairman Davis, Ranking Member Waxman, and 
members of the Committee on Government Reform, thank you for 
inviting Anteon International Corp. to testify today on an 
issue that is very troubling to my company and the government-
contracting community.
    Anteon, headquartered in Fairfax, VA, is a leading 
information technology company serving the U.S. Federal 
Government. We design, integrate, maintain, and upgrade state-
of-the-art systems for national defense, intelligence, homeland 
security, and other high-priority missions. Anteon was founded 
in 1976 and currently has almost 10,000 employees in more than 
100 locations worldwide. In short, we have been deeply involved 
in this process for a long time.
    We perform a significant volume of classified work under 
contract with the Federal Government. Consequently, over 70 
percent of our employees hold Government security clearances 
today. Since 1999, the backlog for security clearance 
investigations has increased significantly. As you might 
expect, with this increased demand, the time to obtain a 
clearance has lengthened from what it was. In the post-
September 11th period, our experience, at its worst, has shown 
that the time to process a Top Secret clearance has doubled to 
between 18 to 24 months.
    Our need for clearances is very simple. We are subject to 
the Federal Government's--our customer's--requirements. If you 
cannot fill the need, you lose out on the most fundamental task 
of bidding on an opportunity and then supporting the customer. 
No clearances, no contracts.
    At the time DSS imposed the freeze, Anteon had 
approximately 1,100 actions pending, which grow at a rate of 
150 to 200 actions monthly, covering new clearances, upgrades, 
and reinvestigations. On a day-to-day basis we are facing three 
fundamental problems, which will get worse with any 
interruption to this process.
    First, obtaining qualified staffing will be impacted. We 
will be forced to change our hiring practices, to restrict our 
hiring to only those people who already have clearances.
    Second, affordability will become an issue. We will need to 
closely balance being able to afford the limited and shrinking 
universe of people with security clearances within the 
constraints of our fixed labor-rate environments.
    And third, retention could become a growing problem. 
Competition for dwindling qualified staff will intensify as 
those individuals with security clearances hop-scotch their way 
to higher salaries. On the almost 40 percent of our contracts 
that are cost reimbursable, these higher salaries will be 
passed on to our Federal customers.
    Let me speak to the misunderstood belief that large 
contractors can deal with this current situation, since they 
maintain a bench of cleared employees. Individuals sitting in a 
company waiting for assignment to a contract will not be there 
long. Federal contractors who strive to provide qualified staff 
at a fair price cannot afford to park individuals with valuable 
security clearances and indirect accounts.
    We succeed in this marketplace by providing outstanding and 
qualified service to our customers at a reasonable price with 
lean indirect expenses. When we fail to consistently meet any 
of these criteria, everyone involved in this system fails, 
including our customers. It destroys our competitive position 
in the marketplace for bidding, and it is a dollar-for-dollar 
reduction against the reasonable expectation of our 
shareholders. This condition is especially relevant for the 
small business community, where limited staffs often wear 
multiple hats to satisfy the customer.
    This current interruption is all the more baffling after 
the recent successful work to make the system more responsible 
to serve those involved. Mr. Chairman, in October I joined you, 
your staff, and others from the contracting community in a 
meeting with the Hon. Clay Johnson in the Old Executive Office 
Building to discuss the status of clearance processing at OPM. 
Real progress was being made and hard targets were being 
established and met. Last October, most of us left that meeting 
with the firm belief that we were turning the corner and would 
see continued improvement in the security clearance process.
    I believe the infrastructure and outsourcing tools to 
ensure continued improvements in the system are in place and 
must be given a reasonable chance to succeed. However, we 
cannot afford to take our eye off any piece of this very 
fragile puzzle. Any interruption like this causes us to lose 
progress and creates an untenable backlog.
    Mr. Chairman, thank you for giving me the opportunity to 
testify today, and I'm available to respond to your questions.
    [The prepared statement of Mr. Gunst follows:]
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    Chairman Tom Davis. Thank you very much.
    Mr. Karangelen.

                STATEMENT OF NICHOLAS KARANGELEN

    Mr. Karangelen. Chairman Davis, thank you very much for 
inviting me to testify today. It's an honor to have an 
opportunity to appear before you and discuss what we believe in 
small business is a timely and significant challenge.
    I also am a board member of the Small Business Technology 
Coalition, and I'd like to--I think we've talked a lot about 
the potential impact this has on companies. My written 
statement also speaks to that. But I'd like to say 
retrospectively that when OPM took over this DSS in 
reorganization, and I guess it sort of ended in February, we 
actually saw an improvement. I haven't been as deeply involved 
as the gentlemen here with me on the panel, but we did see 
interim clearances go from weeks and maybe even months to a 
couple of days.
    And frankly, that was fabulous, because in a lot of cases 
our customers will accept an interim clearance while you wait 
for your final, although there are some customers that won't. 
And today, just at Trident Systems, which is a small technology 
company, we do a lot of work for many of the agencies of the 
Government, we have 108 cleared personnel. Thirty-eight of them 
have interim clearances. That's over 30 percent of my work 
force.
    Now, and with all due respect to the large-company problem, 
small companies, especially mine, that have--sometimes our 
growth is sporadic, you know, we'll grow 30 percent 1 year and 
be flat for another, our companies, we have this--this problem 
really exacerbates our ability to juggle. And I think we've 
been doing a pretty good job of juggling the delay, which is 
between 8--sometimes it's longer--months between an interim and 
a final. But the notion that this could stop and we'd stop 
processing clearances really puts the whole thing into a 
tailspin.
    I was really delighted to hear today that it looks like 
we're good to go through June. I think that's what I understood 
from the earlier panel. But it's a very ominous notion that we 
would stop processing clearances from private-sector requests. 
I spoke to some of the members of the Small Business Technology 
Coalition yesterday and the day before on this issue and 
there's literally panic. There are companies that are not going 
to be able to fulfill contractual requirements if these delays 
are extended.
    So I'd like to sort of wrap up just by saying that, you 
know, I deeply appreciate, and we all do, what you do here on 
Government Reform. The committee is really focused on the 
bureaucracy and how to make it work better. We have a couple of 
suggestions. Clearly, in the short term, I would agree that 
we've got to give these guys some more money. There's no way we 
can avoid--we can stop processing clearances. I think that's 
completely untenable from a small business perspective.
    From a longer-term view, though, the automation that exists 
in JPAS and the potential for automation really offers what we 
believe is not just a process improvement, because there's 
probably lots of process improvement that could be had in 
reorganization and in looking at the process, but a technology 
advantage, to give investigators quicker, easier access to 
information, to allow the timeframe for clearances to come down 
to months.
    And I want to finish by saying I'm sure there are a lot of 
small businesses who would welcome the opportunity to offer an 
innovative and affordable solution to fixing this problem.
    So with that, I'd like to thank you again for all the work 
the committee does, not just in Government Reform but in 
supporting our troops as they wage the war on terror across the 
globe, and for the opportunity to speak on this important 
issue.
    [The prepared statement of Mr. Karangelen follows:]

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    Chairman Tom Davis. Thank you very much.
    Let me just start the questioning. Bearing in mind that Top 
Secret clearances cost the Government so much more, is the 
contractor community seeing the requirement for Top Secret 
clearances over lesser levels of clearances increase over the 
last few years? And is it warranted if it has? Any thoughts on 
that? We had this discussion how much more expensive it is to 
clear someone with a Top Secret. Are we overclassifying 
people--there would be an expense to that. Do you have any 
reaction to that?
    Mr. Wagoner. Well, I have some hard facts. ITAA is 
embarking upon a new survey of our members. We have about 400 
respondents in so far. We're going to wrap this up here in 
about a week. So far, 88 percent of the companies that 
responded have said that they have seen a dramatic increase for 
the requirement of cleared personnel in the last 5 years. So 
that's a hard fact based on 356 respondents.
    The second part of your question, I believe, was do we 
believe that these are all required. Sir, is that the question?
    Chairman Tom Davis. Mm-hm. Or are we overclassifying? 
Probably the Government overclassifies to begin with, but in 
looking at these clearances, could someone with a Secret 
clearance do stuff that we're requiring Top Secret for? Because 
there is a cost for that.
    Mr. Wagoner. We would sure like to say yes, but I think I 
have to agree with the first panel, that stated that a lot of 
the requirements upon industry is because of the greater need 
to push data down to the war fighter, the new systems that have 
been put in place. And then we are building those systems. We 
have hands-on in those systems. I wish I could say that we 
could declassify some of that, but I believe that we should 
keep that as a Top Secret.
    Chairman Tom Davis. Anybody else have a reaction to that?
    Mr. Karangelen. I think it's interesting to note that radio 
operators in the Army and the Marine Corps who are carrying 
radios, SINCGARS radios with crypto that are, you know, top-
secret pieces of gear, many of them don't have any security 
clearances at all.
    It's very difficult for us, from where we sit, to make a 
judgment about whether or not somebody needs a Top Secret 
clearance or whether or not somebody should be Top Secret, but 
clearly, if there was a little more--it seems to be that there 
should be a little more oversight about what's top-secret and 
what's not.
    Chairman Tom Davis. Let me ask you this. When it comes to 
pricing--and Mr. Gunst, I'll start with you--when you're 
pricing something and there are security clearances, how do you 
price that into your total cost at this point?
    Mr. Gunst. Well, presently, given the size we are, we have 
the advantage of having a little history and we have a pretty 
broad range of employees with clearances. So we know when we go 
into the marketplace what we're going to see there with respect 
to salaries. So we have that advantage working for us. We don't 
really find ourselves pricing people and then pricing 
clearances. We use salaries, and the basis we use is the near-
term experience we have in the particular marketplace that we 
are attempting to price an opportunity in.
    Mr. Wagoner. I think also, if I could add something to 
that, I think what's happened in the last 5 years is I may have 
signed a contract 3 or 4 years ago with established hourly 
rates for that person, and the problem is their qualifications 
haven't changed, so I can't charge a higher rate for them. The 
only thing that's changed is the demand for their clearance. So 
we are seeing--it is impacting our margin significantly because 
we're locked into a contract that we agreed to 3 or 4 years ago 
not realizing that this problem was going to continue and that 
we're going to have to keep paying premiums for these folks.
    Chairman Tom Davis. But the little guys really get hurt in 
a case like that, don't they?
    Mr. Wagoner. Yes, sir.
    Chairman Tom Davis. Everybody gets hurt, but----
    Mr. Wagoner. I am a little guy, sir. Yes. I'm a big little 
guy. [Laughter.]
    Chairman Tom Davis. As the Government security clearance 
customers, what is your assessment of the efforts undertaken 
thus far to fulfill the requirement? Give them a grade.
    Mr. Wagoner. Since the April decision? Well, let's be 
clear----
    Chairman Tom Davis. Well, not since the April decision. 
Let's go back to after the September 11th response by Congress.
    Mr. Wagoner. The respondents in the survey indicate that in 
the last year and a half, 60 percent are saying it's gotten 
worse or not better.
    Chairman Tom Davis. OK.
    Mr. Wagoner. So they're not seeing a significant 
improvement in the last year, I think is how the question was 
phrased. And we'll get this survey to your staff, sir, as soon 
as it's done.
    Mr. Gunst. My personal experience has been they get close 
to an F until 2005. And frankly, I was very encouraged by what 
I heard in the fall of 2005. They were meeting some very tough 
thresholds. And when I first heard of this freeze in late 
April, I frankly thought it was a joke. I could not believe 
that an agency, without warning, would take such a step that 
would affect so many different people. So I would say since 
April they get an F.
    Mr. Karangelen. The real issue I have is that on April 
28th, I think it was, we got the first indication that there 
might be a problem. And what we heard was there was a technical 
problem with JPAS. It wasn't until early in May when we heard 
from a third party that they'd stopped processing clearances. 
And that really--that's the hardest thing to take. Because we 
feel like we've been juggling the system, we've been working as 
hard as we can to work within the system; 6, 8 months, if 
that's what it is, that's what it is. If you're going to stop 
processing clearances and not even tell me you're going to stop 
processing them, that really--that seems very disingenuous. I 
would have preferred to at least have had somebody say, hey, 
we've got a problem. Give us a heads up, even, just like you 
should have been given one.
    Chairman Tom Davis. You heard the previous panel and you 
heard Clay Johnson talk about how things are getting better and 
maybe we haven't seen it yet. I mean, what is your confidence 
level in the future at this point? Give it on assurances and 
legislation.
    And in addition to that, if you can think of one or two 
things maybe that we are not doing that we ought to be doing 
that can add to this.
    And I guess I would add a third thing, is reciprocity 
working? We kind of mandated it, but mandating it and getting 
everybody to buy into it is a different issue.
    I will start with you, Mr. Wagoner.
    Mr. Wagoner. I think the most encouraging comment was from 
Mr. Johnson right there toward the end, when he raised the 
possibility of actually reengineering this process and taking 
feet off the street and getting away from the Eisenhower-era 
processes and looking at automating a lot of these functions, 
looking at a lot of the data. I think that is the only way 
we're going to be encouraged that anything is ever going to 
change, and that is if they start changing the process. Throw 
it out, start with a clean sheet of paper, and really look at 
use of technology and data to get this done.
    As far as reciprocity, we are starting to see some 
reciprocity. I think the best that I personally have seen in 
talking to other colleagues is between CIA and NSA. They seem 
to have gotten the message. In our survey, about a third are 
saying that they still do not see reciprocity across 
Government.
    Mr. Gunst. I think the primary concern I have is that I get 
worried whenever I look at a process that a single person 
doesn't own. It fails in industry, and I think it fails in 
Government. And I know there are a lot of well-intentioned 
people trying to work very hard to fix this situation. But as I 
sat listening to the testimony of the first panel, I was struck 
by the notion that no one has control of this process. There 
are certain people that ask for the clearances, certain people 
that fund them, certain people that perform them, and then the 
remaining group adjudicate them.
    It's difficult for me, on industry's side, to understand 
why it takes 18 to 24 months for a Top Secret clearance, but 
when no one owns the process, it is by definition very fragile 
and no one can bring all the resources to bear to fix it, 
because no single group owns it. That would be my primary 
concern.
    Chairman Tom Davis. What is the difference between large 
and small companies? I think, Mr. Gunst, you would argue you 
don't keep a bench of people, that everybody gets hurt in the 
process. Is that fair to say? When security clearances aren't 
out there, everybody gets hurt. Mr. Karangelen, as a smaller 
company, isn't it harder on you?
    Mr. Karangelen. Having a security clearance can't be a 
discriminator. I mean, it's just--I mean think about it. We're 
trying to buy technology, goods, and services. I want to 
compete with the big guys and my peers. If it comes down to I 
just can't get a security clearance, or a good competitor of 
mine can't get a security clearance, that seems like a terrible 
way to decide who's going to win an important technology 
procurement.
    So I think it hurts everyone. I think it hurts small 
business more because we're just not organized to deal with it. 
You know, it's like creating another bureaucracy inside your 
company in order to manage what is really artificial, is a 
delay, an artificial delay. And again, if you're a big company, 
you add it to the bureaucratic nightmare that you have. But 
when you're a small guy, it means that the president or chief 
operating officer or HR person has got--you know, who's already 
juggling a lot to do, has to do it.
    Chairman Tom Davis. Anybody else want to add anything?
    Mr. Gunst. Well, one of the obvious principal advantages 
any large company has is they have some dedicated staff they 
can post to a particular situation. I think the recent comment 
here is that I--you know, small businesses have a person that 
does HR, they do contracts, they do security, they'll open the 
building in the morning, they'll take care of the light bulbs 
that are out. That's one person. I have the luxury of having 15 
to 20 people that handle security. So when there's an issue, I 
can dedicate some resources to it and try to resolve it. I 
think that is a principle difference.
    Chairman Tom Davis. OK, good. Anything else anybody wants 
to add?
    I just appreciate your being here trying to clarify this 
issue. And once again, I think were it not for this hearing, we 
would not have gotten the action out of the DOD. And I think 
your participation and continued vigilance on this is going to 
be needed if we're going to really make a serious dent in this 
problem.
    Thank you all very much. The hearing is adjourned.
    [Whereupon, at 2:42 p.m., the committee was adjourned.]
    [The prepared statement of Hon. Elijah E. Cummings and 
additional information submitted for the hearing record 
follow:]

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