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



 
   OMB'S FINANCIAL MANAGEMENT LINE OF BUSINESS INITIATIVE DO RECENT 
       CHANGES TO THE IMPLEMENTATION GUIDANCE CLARIFY THE RULES?

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


                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      FINANCE, AND ACCOUNTABILITY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 28, 2006

                               __________

                           Serial No. 109-224

                               __________

       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

   Subcommittee on Government Management, Finance, and Accountability

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
VIRGINIA FOXX, North Carolina        EDOLPHUS TOWNS, New York
TOM DAVIS, Virginia                  MAJOR R. OWENS, New York
GIL GUTKNECHT, Minnesota             PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
JOHN J. DUNCAN, Jr., Tennessee

                               Ex Officio
                      HENRY A. WAXMAN, California

                     Mike Hettinger, Staff Director
               Tabetha Mueller, Professional Staff Member
                          Erin Phillips, Clerk
            Adam Bordes, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 28, 2006....................................     1
Statement of:
    Combs, Linda, Controller, Office of Federal Financial 
      Management, Office of Management and Budget; and Mary 
      Mitchell, Deputy Associate Administrator, General Services 
      Administration.............................................     4
        Combs, Linda.............................................     4
        Mitchell, Mary...........................................    11
    Soloway, Stan, president, Professional Services Council; 
      Jacque Simon, public policy director, American Federation 
      of Government Employees; and James Krouse, acting director, 
      public sector market analysis, Input.......................    45
        Krouse, James............................................    71
        Simon, Jacque............................................    58
        Soloway, Stan............................................    45
Letters, statements, etc., submitted for the record by:
    Combs, Linda, Controller, Office of Federal Financial 
      Management, Office of Management and Budget, prepared 
      statement of...............................................     6
    Krouse, James, acting director, public sector market 
      analysis, Input, prepared statement of.....................    73
    Mitchell, Mary, Deputy Associate Administrator, General 
      Services Administration, prepared statement of.............    15
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     3
    Simon, Jacque, public policy director, American Federation of 
      Government Employees, prepared statement of................    60
    Soloway, Stan, president, Professional Services Council, 
      prepared statement of......................................    49
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................    90


   OMB'S FINANCIAL MANAGEMENT LINE OF BUSINESS INITIATIVE DO RECENT 
       CHANGES TO THE IMPLEMENTATION GUIDANCE CLARIFY THE RULES?

                              ----------                              


                        WEDNESDAY, JUNE 28, 2006

                  House of Representatives,
Subcommittee on Government Management, Finance, and 
                                    Accountability,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:06 p.m., in 
room 2247, Rayburn House Office Building, Hon. Todd Russell 
Platts (chairman of the subcommittee) presiding.
    Present: Representatives Platts, Duncan, and Foxx.
    Staff present: Mike Hettinger, staff director; Tabetha 
Mueller, professional staff member; Erin Phillips, clerk; Adam 
Bordes, minority professional staff member; and Teresa Coufal, 
minority assistant clerk.
    Mr. Platts. This hearing of the Government Reform 
Subcommittee on Government Management, Finance, and 
Accountability will come to order.
    In 2004 the Office of Management and Budget announced the 
creation of its line of business initiatives which was designed 
to consolidate duplicative functions across the Federal 
Government using a shared services model. Today this model is 
being used on a small scale to consolidate functions within 
departments and to create efficiencies for smaller bureaus and 
agencies.
    Applying the shared service concept on a larger scale--
Government-wide in this case--may present greater challenges. 
In fact, as the financial management line of business has 
evolved, Federal managers and commercial sector hosts have 
raised important questions with regard to the structure of the 
initiative and the competition framework.
    On March 15th of this year this subcommittee held its first 
hearing on the topic and it provided a constructive discussion 
on some of the challenges inherent in such a large undertaking. 
It was evident that Federal managers and commercial host 
providers were eagerly awaiting clear sub-guidelines, and OMB 
released its draft migration planning guidance on May 22, 2006. 
That new guidance made significant changes to the original 
concept, and this hearing will provide OMB with an opportunity 
to outline those changes.
    We will also discuss what these changes will mean for 
stakeholders, including commercial hosts and Federal employee 
unions. If this initiative is to be successful, we must ensure 
that all stakeholders are fully informed and that the user 
community is ready, willing, and able to embrace this proposal.
    We certainly thank all of our witnesses who are going to be 
with us here today. On the first panel we will have the 
Honorable Dr. Linda Combs, Controller of the Office of Federal 
Financial Management at the Office of Management and Budget, 
and Ms. Mary Mitchell, Deputy Associate Administrator of the 
General Services Administration. Our second panel will include 
Mr. James Krouse, Acting Director, Public Sector Market 
Analysis for INPUT; Ms. Jacque Simon, Public Policy Director 
for the American Federation of Government Employees; and Mr. 
Stan Soloway, president of the Professional Services Council. 
We look forward to all of your testimonies.
    [The prepared statement of Hon. Todd Russell Platts 
follows:]
[GRAPHIC] [TIFF OMITTED] 33867.001

    Mr. Platts. We would ask the first panel of witnesses to 
stand and be sworn in.
    [Witnesses sworn.]
    Mr. Platts. The clerk will note that both witnesses 
affirmed the oath.
    While we will give you guidance of roughly that 5 minutes 
as far as opening, we certainly are again grateful for your 
preparation and being here with us today, and if you need to go 
over, that is fine. We look forward to getting into Q&A after 
your testimonies.
    Dr. Combs, we will begin with you.

   STATEMENTS OF LINDA COMBS, CONTROLLER, OFFICE OF FEDERAL 
FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; AND MARY 
  MITCHELL, DEPUTY ASSOCIATE ADMINISTRATOR, GENERAL SERVICES 
                         ADMINISTRATION

                    STATEMENT OF LINDA COMBS

    Ms. Combs. Thank you, Chairman Platts.
    Chairman Platts, Congressman Towns, and members of the 
committee, I thank you for the opportunity to appear before you 
once again to discuss financial management line of business 
initiative. I am pleased to provide you with an update on the 
financial management line of business and describe how recent 
accomplishments bring us closer to our over-arching objective 
of ensuring that Federal managers have accurate and timely 
financial information for decisionmaking.
    Since I last testified, a great deal has been accomplished. 
First of all, we have released a draft of the migration 
planning guidance and received several hundred comments from 
agencies, commercial service providers, and others. We are 
currently reviewing and updating the migration planning 
guidance based on these comments.
    We have released, in conjunction with the draft migration 
planning guidance, a memorandum presenting a competition 
framework for financial management line of business migrations.
    We have continued ongoing efforts with a common Government-
wide accounting code and the standard business process 
projects.
    None of these tasks could have been performed without the 
commitment, support, and input from the Federal financial 
management community, from both the public and the private 
sectors. As always, we appreciate the opportunity to have 
formal and informal discussions with you, Mr. Platts, and your 
staff.
    The migration planning guidance supports the financial 
management line of business vision that I articulated in my 
last appearance here, to improve the cost, quality, and 
performance of financial management systems by leveraging 
shared service providers and implementing other Government-wide 
reforms that foster efficiencies in Federal financial systems 
and in operations. Its purpose is to help agencies prepare for 
and manage a migration of their financial management system 
operations to a shared service provider by outlining provider 
and client responsibilities.
    The Financial Systems Integration Office has received over 
700 written comments on this material and has been working 
feverishly with my staff to respond to each of those comments. 
While we don't have answers, obviously, today for every one of 
those comments, we really look forward to addressing those with 
you as we go through them ourselves, and we certainly have a 
commitment that we will continue to work over the next several 
months until we have addressed all of them.
    OMB believes that the routine use of competition as part of 
the migration process will help agencies to maximize value by 
considering alternative solutions in a reasoned and structured 
manner to select the best available public or private provider 
of financial management services. The approach we have taken 
and continue to take with the financial management line of 
business and all of its underlying projects is one that has 
been open and transparent. We continue to incorporate the most 
current thinking in financial systems and operations, as well 
as to gain buy-in from the individuals, agencies, and 
commercial partners who are responsible for implementing the 
financial management line of business vision.
    As I stated when I last testified, more must be done to 
advance the objective of having accurate and timely financial 
information for decisionmaking, particularly with respect to 
implementing financial systems. The financial management line 
of business is our opportunity to strengthen how we select, 
implement, and operate the Government's financial systems. By 
doing so, the administration is asking that agencies consider 
the investment risk, implementation risk, and life cycle cost 
when they perform their analysis.
    As with any new initiative, there will be questions and 
some uncertainty. I remain committed to answering those 
questions and keeping this initiative open and transparent to 
all of its stakeholders.
    I look forward to our dialog today.
    Thank you.
    [The prepared statement of Ms. Combs follows:]
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    [GRAPHIC] [TIFF OMITTED] 33867.003
    
    [GRAPHIC] [TIFF OMITTED] 33867.004
    
    [GRAPHIC] [TIFF OMITTED] 33867.005
    
    [GRAPHIC] [TIFF OMITTED] 33867.006
    
    Mr. Platts. Thank you, Dr. Combs.
    Ms. Mitchell.

                   STATEMENT OF MARY MITCHELL

    Ms. Mitchell. Chairman Platts, Congressman Towns, and 
members of the subcommittee, thank you for this opportunity to 
participate in today's hearing. As the Deputy Associate 
Administrator for the General Services Administration Office of 
Technology Strategy and the Financial Systems Integration 
Office executive, I also serve as the project manager for the 
financial management line of business.
    As you know, Kathleen Turco, GSA's Chief Financial Officer, 
appeared before your subcommittee recently and testified how 
GSA fully supports the FMLB initiative and is participating in 
the four work streams that we are undertaking under this year's 
activities.
    I am also here looking forward to discuss how the 
initiative has evolved since its inception in 2004 and 
appreciate your subcommittee's interest in this important 
initiative.
    First, let me address GSA's role in this effort. You asked 
about our role, and in December 2005 the Financial Systems 
Integration Office was moved under the GSA Office of 
Government-wide Policy, formerly known as GFMIP, Joint 
Financial Improvement Program, it was placed within my office. 
The financial management line of business responsibility came 
with that move.
    GSA was named as the managing partner by OMB and made 
responsible for the project management, including organizing 
the work effort, which involves really the entire Federal CIO 
community, and seeking to accomplish the schedule set forth by 
us in the priorities established by OMB and our executive 
sponsors.
    GSA's management role and the Office of Government-wide 
Policy is to serve all executive agencies by providing those 
agencies with the tools necessary to succeed in implementing 
the FMLOB concept. We have worked closely with OMB and the 
Chief Financial Officers Council to update the scope of 
activities.
    We continue to support the historical functions under the 
formal JFMIP staff office that came along. I want to review 
just briefly what those responsibilities are.
    The FSIO office is responsible for the requirements, 
development, and testing of Federal financial systems. We work 
with agencies to develop new requirements and also to conduct 
testing and certification of commercial Federal financial 
management systems. Both agencies and vendors are involved in 
this process.
    We also undertake special priority projects under the 
direction of OMB and the CFO Council. The financial management 
line of business is just one of those, only a very large 
special project. So our office is responsible for really 
planning and managing those work activities and organizing the 
work teams to accomplish the work.
    We have brought together subject matter experts from the 
vast majority of the Federal agencies and focused their efforts 
to develop, review, and upgrade tools that will be used in 
helping agencies make better decisions about migrating to a 
shared service provider concept. Some of these tools Dr. Combs 
has already mentioned, migration planning guidance, but also 
performance measures and the important standards efforts and 
business process standards and a common Government-wide 
accounting code.
    Our last major responsibility is outreach. We conduct 
annually a financial management conference and related 
activities that are aimed at improving the core competencies of 
the Federal financial community.
    Historically, JFMIP, and now under its new name, FSIO, we 
have served as a well-respected, impartial intermediary between 
Federal agencies and the private sector; in other words, the 
honest broker that seeks to balance the interests of key 
stakeholders.
    We operate separately from the Office of the Chief 
Financial Officers Federal shared service provider effort known 
as the Federal Integrated Solutions Center, and their mission 
is really to provide best value on products and services for 
other Federal agencies.
    The FMLOB governance structure was also an area of your 
interest. We have brought together the key stakeholders in 
really the following structure. The Office of Management and 
Budget is the central authority that sets policy and works with 
us to set our priorities. They also and we also interact 
heavily with the Office of Electronic Government. They both 
participate in all of our management meetings. We have an 
Executive Steering Committee that has been stood up, and that 
is comprised of myself and the chairman of the CFO Council 
Transformation Team, as well as six Executive agency CFOs or 
deputy CFOs.
    The next level down is a transformation team that operates 
really at the advisory level. It is made up of representation 
from all of the CFO Act agencies. We really rely on this team 
and have called them to help us maintain the credibility of the 
work products we are producing, participating and drawing in 
their own agency into the internal review function and 
forwarding and formulating recommendations for consideration by 
the Executive Committee.
    I wanted to spend a few minutes talking about the original 
business case and how that concept has evolved into today's 
effort. The concept basically is formed around consolidating 
financial management systems across the Federal Government into 
Federal shared service providers, both Federal and commercial. 
At a minimum, these services were to provide the IT hosting and 
application management for the financial service products that 
agencies use. Further, the initiative called for 
standardization of core business processes that would 
facilitate really that consolidation.
    Some of the goals and efficiencies we hoped were really 
long-term reduction in cost in maintenance and operations, the 
ability to retire stovepiped and outdated agency financial 
systems, really facilitating more reliable and accurate 
financial information coming out of those systems in a standard 
format; in other words, to help agencies make better decisions 
and improve their financial systems.
    The original concept really is unchanged. We have made 
minor refinements, but the concept is still firmly in place. 
The concept calls on leveraging shared service solutions and 
implementing Government-wide reforms to foster efficiency in 
Federal financial operations.
    The goals include: providing timely and accurate data for 
better decisionmaking; facilitating stronger internal controls; 
reducing cost by providing better competitive alternatives for 
agencies; standardizing systems, business processes, and data 
elements; and achieving seamless data interchange between those 
systems.
    We have evolved this concept in a few ways that I think are 
important. The scope of agency migrations was initially to 
limit the migration really to that technical architecture, the 
IT hosting environment. The current approach encourages 
agencies to evaluate their end-to-end financial operations and 
select appropriate additional services. The initial business 
case called for new Government-run SSPs and running an open 
competition with the commercial sector, thereby driving the 
service and cost and performance improvements across all of the 
shared service providers with the private sector competing for 
shared services among those agencies.
    The current approach allows for, on the term and timing of 
the migration, the current approach allows for the business 
process standardization to be delivered on a timeline that is 
really driven by the agency financial replacement instead of 
driving that standardization prior to migration.
    The scope of the migration: currently there are 84 
executive branch organizations and 4 legislative branch 
organizations that have migrated or are in the process of 
migrating to the shared service provider concept. In addition, 
when we look at commercial experience with the shared service 
provider concept and State and local experience, the evidence 
is really compelling. If done right, this is really an easy 
case to be made.
    One other difference in the original business concept was 
it was really based on an assumption of six shared service 
providers. Currently, we have designated four Federal shared 
service providers, and commercial shared service providers are 
being identified through an open competition at the agency when 
they determine it is the right time to migrate. Our four 
Federal shared service providers are the Department of 
Treasury's Bureau of Public Debt, the Department of Interior 
National Business Center, the Department of Transportation 
Enterprise Services Center, and the GSA Federal Integrated 
Solutions Center.
    Prior to selecting these Federal shared service centers, a 
couple of agencies had already made this decision. The Small 
Business Administration began its migration to a commercial 
financial service provider, Corio, in 2003, and more recently 
the Department of Labor selected an Oracle solutions provider, 
Mythics.
    Let me also address the timing of the business process 
standardization work. This is a major thrust of the 2006 work 
program. We have looked at what is the best time and what is 
the appropriate time for agencies to begin adopting these 
standard business processes that we are developing and have 
determined that what should be done is that agencies should 
look at their own enterprise architecture once we have 
finalized on these standards and evaluate the right path for 
them to evolve into implementing these standards.
    We expect to have the exposure draft for these detailed 
business process standards and data standards to be released in 
the fall, and then we will begin working with agencies on an 
implementation strategy. The OMB migration policy calls for 
agencies to conduct a public/private competition in determining 
what migration path is appropriate.
    In summary, we believe that the FMLOB has great promise, 
significant participation and momentum. The tools that are 
being developed under the FM line of business will give 
agencies the tools to make better decisions.
    I wish to thank you for the opportunity to appear here 
today and am delighted to answer any of your questions.
    [The prepared statement of Ms. Mitchell follows:]
    [GRAPHIC] [TIFF OMITTED] 33867.007
    
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    Mr. Platts. Thank you, Ms. Mitchell.
    We are pleased to be joined by the gentleman from 
Tennessee, Mr. Duncan. Thank you for being with us.
    Mr. Duncan. Thank you.
    Mr. Platts. We will go to questions. Maybe I will start 
first with just the relationship with GSA and OMB.
    It seems with GSA being basically identified as a project 
manager for the financial management line of business and kind 
of the day-to-day responsibility, and as we move forward 
finalize the migration guidance and everything will the 
agencies and departments be coming to GSA for answers or will 
it be OMB? How is that going to work, that kind of routine 
oversight or interaction with those who are looking to migrate 
or looking to become shared service centers, whatever it may 
be?
    Ms. Combs. Let me address that first, and then if Mary has 
something else to add I am happy to have her do so. One of the 
things that Mary pointed out in her testimony was the fact that 
OMB sets the policy and the priority for the work that her 
group does. I, as Controller of OMB and Chair of the CFO 
Council--that is a joint work product setting venture.
    We do work that the other CFOs believe is going to be 
important to them across Government, and having been a 
participant in the CFO Council for many, many years as a CFO, 
myself, as well as now chairing that group. And as controller 
at OMB, I certainly have a view of how important it is to set 
the right priorities and set the right policies. The policies 
and priority setting is what comes through OMB. Mary and her 
group are the operational support that we rely on in carrying 
out those policies and procedures.
    In reality, the way it works, obviously, because I have a 
dual role as chair of CFO Council and have a very close working 
relationship with CFOs and deputy CFOs, when they have an 
initiative that they want to embark upon, whether it is 
financial management initiative or, as we have talked about, 
our A-123 controls, many of those important cross-cutting 
efforts, the CFOs and deputy CFOs work with me and my deputy, 
Danny Werfel, very, very closely.
    So often we get questions of a policy nature. We get 
questions sometimes of an operational nature, as well. Then we 
rely very heavily on the good work that Mary and her group do 
to carry out all of their duties, not just the special ones 
that they are working with us on.
    Mr. Platts. So the way I hear you or understand is that the 
GSA's responsibility is really not in that policymaking field 
or discretion. It really goes to the issue, because you are a 
shared service center in the sense of any kind of conflict of 
interest, you are really not setting the parameters by which 
somebody could be deemed a shared service center or how they 
will operate as a shared service. That is with OMB as a 
policymaker?
    Ms. Mitchell. Right.
    Mr. Platts. OK.
    Ms. Mitchell. So GSA would be gathering the data, the 
evaluation materials on how the shared service providers are 
doing, and OMB would be then making the decisions.
    Mr. Platts. OK. On the migration planning guidance that was 
put out May 22nd and comments, I realize you are still kind of 
working through those as far as definitive answers. Are either 
of you able to summarize a common theme that you are hearing in 
the responses to the guidance that has been put out?
    Ms. Combs. We have received a number of comments, and we 
are happy to have received a number of comments, because I 
think the more comments we have from the various stakeholders 
the better policies that we can create. I know you folks would 
agree with that. It helps us to work with you all better, too, 
to say, here is what we are hearing from the community.
    I think the comments that we have looked at so far, and we 
did kind of a special look knowing we were going to be talking 
with you today to see if there were any categories comments 
that fell into line here. I think that one of the things that 
we have been asked in some of the comments was: should 
commercial vendors be pre-screened, as well, much like we have 
done our Federal entities?
    One of the things that we have talked informally with your 
staff about, too, that we know has been a concern that has also 
been expressed was, what happens if there are contract disputes 
between Federal agencies if there are public participation 
here?
    I guess one of the other things that we have been looking 
at, as well, in the comments, people have been thinking about 
how they are going to define their performance matrix for 
shared service providers and what kinds of remedial actions 
would need to be taken for non-performers, or what kind of out-
of-the-box performance matrix do the customers need to have and 
what kind of quality measures do we need to make sure that the 
providers have.
    So there are comments from all segments of the stakeholder 
community, and we are quite happy that we have had those 
comments.
    I guess one of the other categories might be what I would 
classify as the level playing field, with potential level 
playing field between Federal and commercial, as well.
    Mr. Platts. I want to expand on that, but I will come back 
to that specific area.
    In your opening statement you talked about, over the coming 
months, working through. Is there a timeframe that you have in 
mind when you hope to have a final guidance revised and issued?
    Ms. Combs. Yes. We are hoping we can work through these 
this summer and that this fall we will have a final guidance 
issued, but we have a lot of work to do with the stakeholder 
community, you folks. We want your full participation in this 
and we want the full participation of the stakeholder 
community, as well. We expect it is going to take us a few more 
months to do that.
    Mr. Platts. And, as our dialog back in March and again here 
today and with staff in between and as we go forward, your 
efforts in soliciting those comments and taking them to heart 
and working through them, because certainly the intent here is 
one that is a worthy intent and it is doing it in a way that 
the buy-in from all participants is substantial so that success 
can be achieved.
    Mr. Duncan, did you have questions?
    Mr. Duncan. Yes, Mr. Chairman.
    Let me ask you this. You know, I have been following the 
Congress and politics and Government since at least the early 
1960's, and then I came here in 1988, and long before I got 
here I frequently heard people say, well, Government needs to 
operate more like business, and I bet everybody here has heard 
things like that. I guess what I am getting at, you know, I 
read through some of this and I see a lot of flowery language 
and I see a lot of bureaucratic language.
    I read here ``a high-level, Government-wide business 
process standardization framework was developed for the 
enterprise architecture level, agency-wide level in 2004. 
Detailed Government-wide business process standardization work 
is still ongoing with the help of agencies due to individual 
agency needs to migrate sooner than completion of the detailed 
Government-wide business process standardization framework. 
Business process standardization is not currently a precedent 
for agency migration.''
    I bet there are very few people here that could tell you 
what I just read. In fact, just in the short time I have been 
here I have noticed four people--I haven't even been counting 
or looking around, but I have seen four people with their eyes 
closed halfway asleep.
    What I am wondering about, can either of you put this in 
plain, down-to-earth, east Tennessee language and tell me what 
we are trying to accomplish here and how we are going to do 
that with an agency? You know, the Government is filled with 
good people. The Federal Government is filled with good people, 
and they think they are working really hard and doing great 
jobs. And so you are going to go to an agency now, XYZ agency, 
and you are going to come in with this new FMLOB process, the 
financial management line of business, I think is what it is 
called.
    How is that going to work? What are we going to be doing 
differently? What are we going to accomplish? I am not against 
it; I am just wanting to understand it better. I want to get it 
in plain, down-to-earth language, 60 Minutes or USA Today type 
language.
    Ms. Combs. Well, Mr. Duncan, let me try.
    Mr. Duncan. OK.
    Ms. Combs. I have been married to a man for 36 years from 
east Tennessee, so maybe I can help.
    Mr. Duncan. Good. He must be a good man.
    Ms. Combs. Oh, my, you just made his day, I am sure. You 
know, I think one of the things that we do lose sight of, and, 
as you say, we try to explain things and we try to explain them 
in a way that maybe is not as clear from time to time as it 
needs to be, but what we really are trying to do here is to 
bring best practices, lowest cost, and higher competition into 
all of the things that we are trying to do in financial 
management.
    Now, one of the things that I would share with you is we 
have standards in many of the departments, but we haven't 
escalated that to a higher level. We haven't escalated it 
across Government-wide. So in some departments you will find 
accounts payables and accounts receivables being done in a very 
consistent way, much like you would find in a small business in 
east Tennessee. But in some departments it is going to be done 
differently.
    We are trying to make consistency across Government-wide on 
doing that because, one, that helps us with all of our 
employees Government-wide. I think if you were running a 
worldwide business you would try to be doing that, and that is 
what we are doing. We are running a worldwide business.
    Mr. Duncan. Right.
    Ms. Combs. My vision is that we would be able, eventually, 
to exchange seamlessly information, financial information, 
across Government agencies. That is one of my visions. Right 
now we are not able to do that, and in order to get a 
Government-wide clean opinion at some point in time, as well as 
be more productive and have more useful information to the 
managers in these departments and agencies that manage these 
programs that our taxpayers pay good money for, we need to be 
able to have more standardization and more consistency across 
Government than we have right now.
    Mr. Duncan. I guess, you know, what I was kind of getting 
at, I don't know when this program was first created. When was 
it? A year ago? Two years ago?
    Ms. Combs. I believe it was created before I came on the 
scene, and I believe that was in 2004.
    Mr. Duncan. All right. What I was getting at was trying to 
see, you know, I wonder if people from those agencies in 2003 
would have said, well, you know, we are already doing this or 
attempting to do this under a program by a different name. Are 
you going to have problems doing that when you have departments 
and agencies doing such different functions? I mean, the 
Defense Department and what they do is totally different from 
what the National Park Service does, and the National Park 
Service is totally different from the Social Security 
Administration, and on and on and on.
    Ms. Combs. Before I became Controller I was the CFO at EPA 
and the CFO at the Department of Transportation. Those are very 
different entities. Yes, within those two entities we did have 
some very similar things that we needed to do, however, and 
they related to the financial management functions of those 
departments or agencies, regardless of their mission. I like to 
say debits are debits and credits are credits.
    We have to figure out ways to put those in ways of arraying 
the financial information that is going to be useful to the 
program managers who are managing those specific programs, 
whether it is air and water in EPA or whether it is trains and 
planes in DOT. In all simplistic terms, that is what we are 
trying to do. We are trying to create a more simplistic system 
for every department and agency that would be more standardized 
across all of the Federal Government.
    Mr. Duncan. Well, I tell you this, those sound like good 
goals. Some people know I was a lawyer and a judge before I 
came here. Even in the legal community, though, I think we need 
to get away from some of the legalese in certain situations. 
But all I am saying is this: I certainly am for lower cost. 
Every group up here rates me one of the most fiscally 
conservative Members of Congress.
    One article said that the main question I always ask at 
some of these hearings is how much does it cost. Not enough 
people ask that. And so these sound like good goals, but what I 
am saying is I hope, because I have seen things like this, 
initiatives or programs like this in the past that seem to 
leave us right where we are today, and I hope that we can get 
beyond the bureaucratic and flowery language and actually 
accomplish some of these things.
    Ms. Combs. Thank you. That is a very good suggestion. We 
are all about results and accomplishments at a reduced cost.
    I think one of the things that may help us talk about this 
and have a conversation about it, as well, is, when we think 
about the cost, we are not asking agencies or departments to do 
anything until they have a need to upgrade their systems. That 
helps, as well, with the cost, because there are certain life 
cycles of some of these initiatives that they have had before 
in financial management, for example, or certain financial 
systems that they are already working with. They may not be 
consistent Government-wide right now, but they are working for 
that department. We are not asking them to do anything right 
now until that life cycle cost and life cycle of that 
particular endeavor is over. Then when they do that is when the 
trigger would start for some of these other standardizations.
    Mr. Duncan. Let me ask you one last thing. You set me off 
on another thing when you said upgrade the systems, because, 
you know, every time a Government agency messes up they always 
say one of two things or both. They say they were underfunded, 
when they are getting way more money than they were getting 5 
or 10 years ago, or they say their computers are not talking to 
each other or are out of date.
    Well, you know, they tell me that the computers are 
obsolete the day they are taken out of the box. So are we going 
to run into this situation before we can implement this? You 
said they can't really do it until they upgrade their systems. 
Now, are we going to have one agency that has upgraded its 
system or its computers and then another one hasn't done it 
yet, so then you can't get it system-wide? Do you see what I am 
getting at?
    Ms. Combs. I see exactly what you are getting at because 
that is where we are right now. We have various departments at 
various stages of implementation, and we are not saying to 
them, you need to upgrade your system in order to keep 
controls, for example. We don't listen to that argument when 
they come in and say, I can't get a clean audit because I don't 
have a good financial system to help me do that. No. You can 
keep control of your financial systems whether you have a good 
financial system or not. People did it for years before we ever 
had such.
    Mr. Duncan. Right.
    Ms. Combs. What I am saying though--and if I mis-spoke, I 
apologize--we are not asking agencies to invest any money to do 
these simple things that they could be doing anyway. We really 
have a mixture right now of agencies at various levels, and we 
will have for a while. We can't do this overnight. It is very 
complicated.
    Mr. Duncan. Well, I have to say you have done a pretty good 
job explaining a very complicated thing even to somebody like 
me, so thank you.
    Ms. Combs. Thank you. I told you I have had 36 years 
experience.
    Mr. Duncan. You did all right.
    Mr. Platts. I thank the gentleman for his questions and 
participation, as always.
    It really is a point where I want to pick up on the life 
cycle issue, Dr. Combs and Ms. Mitchell. One, I think the OMB 
envisions this is really about what we think is a 10-year 
project because people are going to come into line with the 
FMLOB as they do make these major life cycle changes. I guess 
where I would like to come back to is: what do you envision or 
how do you define a major life cycle change that kicks in the 
requirement that they either become a shared service center or 
migrate to a shared service center?
    Ms. Combs. Yes. That trigger that Congress can see is that 
request for development, modernization, and investigation 
funds. That is the trigger that tells you that the agency has 
decided it is time to replace the financial system or the 
operating environment that runs in with more modern technology. 
That is the trigger.
    Mr. Platts. Is there a dollar value on what they request, 
or is it more the program they are using is going to be 
replaced?
    Ms. Combs. It is really out of date. They need to do 
functions that are no longer being supported or aren't being 
supported adequately in the product and environment they have. 
That determination of what is the appropriate time is something 
an agency does need to consider. And this migration strategy 
really was aimed at getting around the fact of doing 
duplicative investments to upgrade and modernize. By migrating 
to a shared service center, they are already gaining that 
modern technology. They are already gaining the experience and 
the skill base to lower the risk in that migration that 
typically has been troublesome in many agencies.
    I guess a couple of questions here. One, how defined is 
that going to be in the guidance for that trigger? Again, it is 
probably subjective, because I think every department agency is 
probably every year making capital investments with technology 
and program, the new version of whatever program.
    Ms. Combs. Sure.
    Mr. Platts. So if it is very subjective, that is a big 
issue. Again, when does the trigger kick in?
    Ms. Mitchell. Some of them are very obvious. When they want 
to migrate from one major financial system to another or a 
major release, that is a clear, easy trigger. When they need to 
replace or add major components that are costly components, 
that is another obvious choice. It is when you get down to, 
well, I want to upgrade and do some minor enhancement, that is 
where that level is not--that needs to be a discussion that 
happens. You can't just arbitrarily set a dollar limit, because 
these systems are tied together. You have financial feeder 
systems, and so you need to consider the big picture in making 
that decision.
    Mr. Platts. Who will that discussion occur between, GSA and 
the entity or OMB?
    Ms. Mitchell. OMB. So we would provide the tools that would 
make it clear what options are available to them and what some 
of the considerations, what some of the industry practices are, 
and OMB would work with that agency.
    Mr. Platts. OMB would say, yes, you either need to migrate 
or become a shared service based on this action that you are 
looking at taking?
    Ms. Combs. Yes. We tell people the very, very first thing 
you should do if you are even thinking about either an upgrade 
or a change in your financial management system is come talk to 
us, come talk to OMB. That is the No. 1 tenet that has to take 
place. We have, of course, such great working relationships 
with our CFOs that happens automatically.
    Mr. Platts. And once that conversation happens and there is 
a decision, yes, this is a major life cycle change, so the 
trigger kicks, they need to do the exhibit 300 analysis.
    Ms. Combs. Correct. Yes.
    Mr. Platts. And I guess I would like to maybe go back to my 
colleague's approach about the simple layman's understanding. 
The way I have come to look at the financial management line of 
business is more of a process re-engineering than just simply a 
capital investment. You are making a change on your process 
approach. So, whereas exhibit 300 seems to be more of a capital 
inventory analysis can you explain why that is a good match for 
this initial review internal?
    Ms. Combs. Yes. Yes, we can. So first of all that major 
business process re-engineering, that is a significant part of 
this initiative, but it really is a recommended practice for 
any major IT investment, right? You shouldn't begin by plowing 
the cow path again. You should do that. But the 300 really does 
include some fairly significant technology investments. You are 
talking about the hosting environment, the financial system, 
all of the ability to interface other systems to that system.
    All of those things really do fit well within that summary 
OMB 300 exhibit. But that exhibit is just a summary. All of the 
analysis and examination of alternatives really goes behind and 
happens behind the scenes before an agency comes to prepare 
that capital investment plan.
    Mr. Platts. So it is not just the 300; it is really a 
broader analysis that really gets to the cost/benefit issue 
here.
    Ms. Combs. Correct.
    Mr. Platts. That is what we are really after.
    Ms. Combs. Correct.
    Mr. Platts. Let me stay here. I want to recognize that we 
are glad to be joined by the gentlelady from North Carolina, 
Ms. Foxx. We will come to you if you have questions shortly.
    The business case assumes that, for somebody who is going 
to migrate, on average a $5 million cost for the migration. Do 
I understand that assumption correctly? And, if so, how is that 
arrived at?
    Ms. Combs. I understand that was in the original business 
case. I don't know that we have any updated information on that 
yet relative to anything specific. The original business case 
that was done back on 2003 and 2004, probably we need to look 
at that and we will do that as part of our ongoing effort here.
    Mr. Platts. I guess I'd encourage----
    Ms. Combs. Yes.
    Mr. Platts [continuing]. Because certainly that is part of 
the cost/benefit analysis----
    Ms. Combs. Absolutely.
    Mr. Platts [continuing]. For the whole plan, not just the 
individual migrations but there has to be some determination of 
when it is wise to migrate, even if the trigger kicks in, that 
you need to make the analysis, migrate or not, and what does an 
average or expected migration cost versus the long-term benefit 
of the migration? So I think that is something that needs to be 
fleshed out a little more.
    Ms. Combs. We will definitely do that. Mary may have 
something else to add, but I would just say that in those 
initial development stages, that, of course, is a very 
important step.
    Ms. Mitchell. Right. I can talk to the work process that 
happened in coming up with that figure, which was the work team 
took a look at the core financial requirements, which include 
really that core financial requirement as well as some very 
common interfaces. This was a rough order of magnitude 
estimate. They looked at a couple of systems that had recently 
migrated and relied really on those figures, and then went back 
to the 15 agencies who were participating in that task force 
effort to say, does this sound about right? It did. That is the 
number they went with as a rough estimate.
    Mr. Platts. Is it fair that in that analysis they were all 
smaller agencies that were involved?
    Ms. Mitchell. Well, it wasn't every interface that every 
agency has across its entire enterprise. It was a few limited 
core interfaces and assuming one instance of an implementation, 
not trying to modernize a whole enterprise agency through all 
of its bureaus and departments.
    Mr. Platts. Is more of a limited migration what you are 
looking at?
    Ms. Mitchell. Correct.
    Mr. Platts. That is something I want to get into in more 
detail later, but as part of that modeling was there an 
assumption that there will be some failures in migration and 
what impact that would have on that cost, that you would plan 
to migrate and seek to migrate but it would not end up playing 
out as hoped?
    Ms. Mitchell. I am not aware. I will have to do some 
further research on that in the historical files.
    Mr. Platts. I have some other questions I want to come back 
to.
    On the original business case again, and you talked in your 
testimony a little bit, but there is originally assumed to be 
six then centers of excellence or shared service centers, and 
we have four identified now. In the original plan was it 
assumed that all six would be Government. Or was six Government 
or private or mix thereof? What was the initial assumption?
    Ms. Mitchell. The assumption was that it would be a mix of 
Federal and commercial.
    Mr. Platts. The fact that we only have four now and are 
moving forward has an impact on how quick the migration can 
happen if there are no additional, at least in the near future, 
just in the ability of those four to handle migrations. Ms. 
Mitchell, I believe it was in your comments you talked about 
private sector shared service centers and that the way they 
will come to be is in open competition at basically each agency 
as it decides that it wants to migrate, that then there will be 
an open competition for a private sector entity to become a 
shared service center; is that correct?
    Ms. Mitchell. That is correct.
    Mr. Platts. Can you walk me through what you mean by that?
    Ms. Mitchell. Sure.
    Mr. Platts. Really, in your testimony you reference SBA 
migrating to Corio in 2003 and Department of Labor recently to 
Oracle, an Oracle solutions provider, Mythics. How do those 
migrations happen with private sector entities? And does that 
mean that these entities are shared service centers?
    Ms. Mitchell. Actually, that is a topic that is open for 
discussion. Those decisions were made, particularly the SBA 
one, before the FMLOB concept.
    Mr. Platts. That was prior to the formal FMLOB?
    Ms. Mitchell. Right, so SBA actually is on our Executive 
Board, and they could speak better to whether the requirements 
that we have set for shared service providers are met by their 
provider. The Department of Labor was actually at that point in 
time one of the originators in the financial line of business 
concept, and they had access to all of the information, to the 
degree that it had been formalized when they did their 
competitive selection. There is at least one other agency who 
has been using the materials from the FMLOB and is in process 
of doing an open competition right now. Their decision has not 
been made yet.
    Mr. Platts. But when you referenced SBA and then even 
Department of Labor, it sounded like the individual department 
will get to decide if they are with a shared service center?
    Ms. Mitchell. Currently OMB----
    Mr. Platts. It seems an FMLOB decision.
    Ms. Mitchell. OMB is not designating commercial providers 
currently.
    Mr. Platts. Right, so----
    Ms. Combs. Let me just clarify a minute about what happened 
with the Department of Labor. They held an open competition at 
the Department of Labor.
    Mr. Platts. An A-76 competition?
    Ms. Combs. An open competition with public and private both 
competing. The private won out in that particular case.
    Mr. Platts. When you say open competition, though, was it a 
formal A-76 with most efficient?
    Ms. Combs. It was not an A-76. No.
    Mr. Platts. Are they less then 10 employees? It sounds like 
yes.
    Ms. Combs. Yes, they are.
    Mr. Platts. I am seeing a head nod back here. So they are 
less than 10, so they didn't have to do a formal A-76; they did 
some open competition, and that really leads to another area I 
want to get into.
    Ms. Combs. Right.
    Mr. Platts. But let's stay here first on the fact that they 
did a competition and they went to a private provider, but for 
that to be OK under financial management line of business that 
private provider needs to be a shared service center designated 
to be approved under the plan, right? It is not just having a 
competition; it is having a competition that you are going to 
be either shared service, yourself, or you are going to migrate 
to a shared service center?
    Ms. Combs. Well, what we have said is that we want a 
limited number of stable, high-performing service providers.
    Mr. Platts. Public or private?
    Ms. Combs. Public or private, that are providing 
competitive alternatives, because we know with competitive 
alternatives we will get the best for the American taxpayer. 
And we want these agencies, as they invest in these 
modernizations of their financial systems, we want them to, 
first and foremost, be competitive and enter into competitive 
processes, public and private.
    Mr. Platts. But the first assessment is just internal of 
whether they cannot compete with somebody else but can they, 
themselves, be a shared service center.
    Ms. Combs. In their own agency.
    Mr. Platts. Correct.
    Ms. Combs. Right. If we can just step back for a minute, 
when we talked about doing the business case 300's and the 
other kinds of considerations that have to take place during 
that decisionmaking time, one of the steps that each agency has 
to look at at that same time when they have decided on the 
business case, OK, this is what I want, this is what I need, 
the very next step they have to go through in their own 
internal agency is to say to themselves, do I have anything in-
house here in my own department or agency that will help me to 
do this? So that is actually the next step.
    Then, if they do, then they say, OK, if this in-house 
solution will work, then does it contain more than 10 FTEs? We 
can talk about that a little bit further, too. I am sure you 
may want to get into that. But if the answer is no at that 
point, that they don't have anything in-house to help them do 
what they want to get done and share the service within their 
own internal department or agency, then they have to look at a 
private/public competition, and they would go out to the market 
at that point and do a public/private competition. Public and 
private competition, I should say.
    Mr. Platts. I guess first within house.
    Ms. Combs. Right.
    Mr. Platts. They say, we believe we can stay in-house. To 
do that, my understanding is OMB is then going to have to say, 
OK, we designate you as a shared service center, yourself, so 
you don't have to migrate to another shared service center.
    Ms. Combs. If that makes sense at that point in time, but 
remember----
    Mr. Platts. Who makes that determination?
    Ms. Combs. We, talking with the department and agency, will 
make that determination. Obviously, the department or agency 
will have a great deal of thought, because they will have gone 
through, by that point, a lot to determine what they actually 
need. They will realistically be able to look at what they've 
got in-house to determine whether or not they can be capable of 
doing that.
    Mr. Platts. Right. Using the specific example of the 
Department of Labor, they went through their analysis, decided 
we are not going to stay in-house. We are going to go outside 
and compete, selected a private sector that they've now gone 
with, but that private entity has not yet been deemed a shared 
service center. So how did they know that they could go to that 
entity and comply with the requirements of FMLOB?
    Ms. Combs. We are very smart. We have a lot of expertise. 
One of the things that we have done is we do work very, very 
closely with these departments and agencies, and we do help 
them understand what is out there that has already been 
designated. If they could fit the bill at that point in time, 
they could become--we haven't hit that particular scenario yet.
    Mr. Platts. But they have migrated since you started in 
2004. They are recent migration, so Mythics has not been 
designated, right, as a shared service center?
    Ms. Combs. Well, the agency would make the call at that 
point. Of course, they'd consult with us, but they make the 
call whether or not what they could do in-house would be 
supported by their business case.
    Mr. Platts. But we come back to a little bit where we were 
in March. Some of it is maybe getting the cart ahead of the 
horse because we are doing migrations and we haven't finalized 
the terms, the guidance for those migrations, and we are doing 
migrations to entities that have not been deemed a shared 
service center.
    So if I am going to compete and do an open competition, 
there is no use for somebody to compete that is not going to be 
deemed a shared service center. What's the use of having them 
in the competition? So I need to know that this entity is a 
shared service center and eligible to compete for my migration. 
But that has not happened, yet the migration has happened. So, 
Ms. Mitchell----
    Ms. Mitchell. Could I address that?
    Mr. Platts. Please do.
    Ms. Mitchell. Yes, OMB has not designated commercial shared 
service providers. We do not have a pre-qualification process 
that looks at all of the requirements and says, you meet them 
all, you are on the list. However, those requirements, the 
agencies that are competing for these migrations are 
incorporating those requirements in their request for proposal, 
so the requirement to have service level agreements and the 
requirement to go through some of the same due diligence items 
that the Federal agencies were evaluated on before they were 
designated, that is the process that is currently in use. The 
guidance will formalize that a lot more than it was. The two 
agencies, the one that has selected, Labor, and the one that is 
in the process of making that determination, we are working 
very closely with the FMLOB project and we were reviewing those 
documents before they were put out under their request for 
proposal.
    Mr. Platts. Is there a reason to not wait for the migration 
to occur and to finalize your guidance so you know exactly what 
is required prior to continuing to migrate agencies to entities 
that may not end up being designated shared service centers? I 
guess if they are designated a shared service center and in 
this manner with the competition that is not A-76 compliant 
because it is not required, it was less than 10, but once they 
are designated as a shared service center, if an entity that is 
competing that is larger than 10, how is that going to impact? 
I mean, again it gets in to some of the details. Good or bad, I 
am a stickler for details in whatever I am engaged in or 
involved with. How does that work?
    Ms. Combs. Let me just add one thing. You know, we have 
been doing a lot of shared service provider work across 
Government for many, many years. People have been doing it on 
their own. They have been able to determine what they need and 
go out and find it in many, many different places and have been 
engaging in that for quite some time.
    So when the agency determines that if a private provider, 
for example, can do this work for them, then they would do an 
open competition. But the agency has to know what they need, 
first and foremost. That is very, very important. Often we are 
able to help them with that because we have seen a lot of 
different people who have engaged in either upgrading their 
financial management--having done it myself, I am keenly aware 
of what it takes, but it takes a very, very long time to do 
these.
    I think the point of not stopping something in order to 
start something else is one we can't lose here in our 
discussion, because people do have needs. They have things that 
they have worked on for a very, very long time. That is why in 
our original guidance, both in December and even in the one we 
are working on that we will be coming out with now, we are 
offering flexibility and some exceptions to doing some things 
here that we know people need to do because they are in various 
stages of integration and movement from one system to another, 
for example.
    Mr. Platts. That raises a couple of issues. One is it 
sounds like the importance of deference to the agency because 
they know what their needs are, and that kind of came back to 
where I started on this question with Ms. Mitchell's comment 
about an open competition in agencies in looking at private 
sector, that in some way they would have that discretion as 
part of their competition to say this private entity does 
fulfill the requirements of the guidance and meet our needs. So 
the agency will decide that, as opposed to OMB actually being 
the arbiter of that.
    Ms. Combs. Well, we certainly should consider this as we 
are moving forward here. We are very much appreciative of that 
concern. We have that concern, as well. We share that with you.
    The other thing I think we have to keep in mind, though, is 
we have some very, very important projects that are underway 
right now that we can't just stop in the middle or tell 
agencies you must stop these or do something else, because they 
have been involved in these for a very, very long time.
    Ms. Mitchell. If I could just add to that, yes, you have an 
agency who has a significant need now, or in all reality a year 
or two ago when they decided, it is time for me to modernize. I 
need to make a decision and move forward. They decided, along 
with OMB, to use the best available guidance to help them make 
that decision. And yes, the guidance will be finalized and 
published, but the reality is we will continue to incorporate 
the best practice and experience as we have learned from these 
migrations. So those tools will never be perfect and we can't 
stop making improvements while waiting for perfection.
    Mr. Platts. So is it assumed that those migrations that are 
happening are deemed shared service centers because the 
migrations have been allowed to go forward, that Department of 
Labor, Mythics, is a shared service center?
    Ms. Combs. I don't think that is an appropriate assumption.
    Mr. Platts. When will the Department of Labor know if it is 
an absolute fact and not just an assumption? Because if they 
are not, it seems that they have contradicted the whole intent 
here, which is to migrate to a center with certain standards 
that are required.
    Ms. Combs. Well, they have a business need for doing what 
they are doing right now. That is why they are embarking upon 
the process that they are on right now. They haven't embarked 
upon this in order to become a shared service center. They have 
embarked upon this to satisfy the business needs that they have 
at the Department of Labor.
    So one of the things that I think we have learned and we 
have talked about and we have engaged in some conversation is 
how much stability do these places need in order to become a 
shared service center. Well, everybody isn't going to be a 
shared service center just because they are getting together 
their own business case and they have the needs for themselves. 
They may not choose to provide service for someone else in 
another agency or department.
    Mr. Platts. Is it fair to say that those at Department of 
Labor, and I think there was another one ongoing right now, 
that because the guidance is not yet finalized they are not, in 
a technical sense, under the financial management line of 
business requirements, and that they are where they need to be 
for the time being, and that they are going to be allowed to 
stay there, and the next time they need to make a major life 
cycle change, whether it is 5 years from now or 10 years from 
now, and the guidance is finalized by then, that then it would 
be a more definitive treatment of that provider being yes or no 
shared service center or not?
    Ms. Combs. Obviously, as we clarify specific things in the 
guidance, as the guidance becomes more complete, we will 
obviously hold those standards to the agencies that are using 
them at that time.
    Ms. Mitchell. The other thing I would like to point out is, 
as those agencies take advantage of those commercial entities, 
these are acquisitions that have option years, that have the 
ability to put requirements as they are defined by the 
financial management line of business into those agreements so 
that we have this common set of performance matrix and 
measures, service level agreements, and all of the requirements 
so that----
    Mr. Platts. Not set in stone.
    Ms. Mitchell. Correct. On an annual option year, or 
whatever their term, their acquisition contract term is, they 
have the ability to improve on those requirements.
    Mr. Platts. OK. Go ahead.
    Ms. Combs. I was just going to say also, as you recall, in 
the previous discussions we have had, we have talked about 
exceptions to some of these policies, as well, and how we don't 
know that all the lights are green along the way. We may come 
upon some things where we need to have some limited exceptions 
in some of the ways that we are doing business.
    Mr. Platts. I was going to go to a different area, but that 
raises something that was further down on my list, and that is 
the possible exception or a flexibility in how you deal with 
the question we talked about in March. We dealt with GSA and 
the clean audit, or you not getting a clean audit.
    Is there more thought to what happens if a designated 
shared service center that has had entities migrate to them 
then loses their clean audit, which was a requirement to become 
a shared service center? What happens to those that have 
migrated there and its status as a shared service center once 
it has lost it, especially if the audit problems relate to the 
operations that pertain directly to it being a shared service 
center?
    Ms. Combs. Right. I think one of the things we talked about 
in our previous discussion is that the department in one 
specific case lost their clean audit, but the particular entity 
had not had specific problems, as well. But even if it did, the 
departments and agencies, as they are preparing to move into 
the new financial system that they are trying to acquire, and 
as they start developing their business case and doing the work 
necessary to do that, that is obviously one of the things that 
they are to look at, and that is important for them to consider 
for any shared service provider.
    Mr. Platts. So the entity that is looking to migrate 
should, in the terms of their agreement with the shared service 
center, individually spell out in that agreement what the 
ramifications are if they lose their audit? It will not be a 
standard OBM, that you are responsible then for the cost of 
them migrating to somebody else if they choose?
    Ms. Combs. Well, that is one of the things we are looking 
at in our documents right now. I think that was one of the sub-
avenues of one of the things I pointed out to you earlier.
    Mr. Platts. Failed, and the need to re-migrate or, you 
know, to change who covers that cost?
    Ms. Combs. Well, my opinion is that if we do a good job in 
spelling out both what is important for the provider in terms 
of specifics and what they are required to do, and we spell out 
what are some of the things that the people who are seeking 
service should be looking for, if we do a good job with both of 
those we will have hopefully none of those scenarios that we 
know are potentially out there, but we hope, if we do a good 
job spelling out the requirements and holding the providers to 
those specific requirements, and holding the people who are 
seeking the service accountable for keeping quality very, very 
high, that then we will be in good shape.
    Mr. Platts. Somewhere, either in the overriding guidance 
and requirements or in those individual agreements, though, you 
need to account for--if it remains that a requirement to be a 
shared service center is having a clean audit, which I believe 
is still the case or was in the previous guidance. If that 
remains a requirement, then somehow you have to spell out 
definitively what happens if you lose your clean audit for 
future years. I appreciate that is something that is still part 
of the mix as you go forward in trying to finalize.
    Ms. Combs. We appreciate your thoughts on that, as well.
    Mr. Platts. One of the other aspects of the original 
business case was the development of a Government-wide 
standardization of core business processes, and that would 
occur prior to the migration. I believe when we talked in March 
that the hope was to have the goal of developing that common 
accounting code by September 30th of this year. I was just 
wondering where we are on that and how does that relate to the 
hope of finalizing the guidance before this fall, as well.
    Ms. Combs. We are doing very, very well with that. Mary 
will be able to speak about the specifics, but we are 
definitely on target for defining our standards and the common 
data definitions and standard processes that we have and Mary 
and the very, very broad group that meets monthly with dozens 
of agencies to spell this out will definitely be defining those 
standards by the end of September. So we are going to have a 
very, very busy fall. I think we have really some very, very 
good work that is going on across Government relative to that. 
We have a very large group of stakeholders from the Federal 
financial community that are working through this.
    One of the things though I think we need to step back and 
understand is that, while we may have the standards set out and 
the standards in place, that it is probably going to take a 
number of years for all of the departments and all of the 
agencies to actually be working under the standards that we 
have.
    Mr. Platts. So the hope is still, by later this year, to 
get an across-the-board standard, but that won't necessarily be 
in place or in use across every department or agency for 
several years?
    Ms. Combs. Right. Putting this in use entails an awful lot, 
as you can imagine, of work.
    Mr. Platts. Does that impact the guidance at all? No?
    Ms. Mitchell. No. So yes, overall standardization will make 
a tremendous amount of difference, and it is not something you 
do overnight but it is a very worthwhile goal.
    Mr. Platts. I agree.
    Ms. Mitchell. But yes, once we get the standard in place we 
really need to bring both the Federal agencies, along with some 
of the industry, together to determine what the best 
implementation strategy is, because there can be some major 
differences in the speed and success of really implementing and 
adopting those standards. That may be one of the factors that 
draws agencies to a shared service provider, success in already 
having implemented those new sets of standards.
    Mr. Platts. The variation of the standards on accounting is 
the standards for the competition, and we have touched on a 
little bit the issue of A-76 and how standardized this process 
is going to be. I want to make sure I understand what is 
envisioned by an entity, an agency wanting to make a major life 
cycle change and therefore trigger to make the evaluation to 
become a shared service center or migrate, and, if you migrate, 
public versus private. So they are going to do the 300 cost/
benefit analysis on the exhibit 300 and review of that data and 
make an analysis that we are going to stay in-house and have 
the ability to do it or no, we are going to openly compete it. 
Is that the first step?
    Ms. Combs. You have it.
    Mr. Platts. OK. When they've decided we are going to 
compete, is it up to that agency whether they are just going to 
compete within the Government, public to public, or are they 
required to open it up to anybody, public or private, to 
compete for the work, regardless of size?
    Ms. Combs. Well, right now we are asking them to do as much 
competition as they possibly can because we realize more 
competition, both public and private, will lead to better 
pricing, thus better savings for the taxpayer. So we are asking 
them to do both public and private.
    Mr. Platts. But that is not something you are asking them 
right now, are you?
    Ms. Combs. Well, we have people at all stages, so if 
somebody came to me today I would say competition is good.
    Mr. Platts. This may sound like we are going backward a 
little bit here----
    Ms. Combs. That is all right.
    Mr. Platts. If I am going to compete it, I would think as 
an agency I want to compete it with designated shared service 
centers, and right now there are only four and they are all 
public. There is no private designated shared service centers. 
So, again, am I just asked to do it but if I want to keep it 
in-house and think, hey, I am just going to do it with the 
public sector, that is my agency choice, how much of an 
individual choice is that for the agency versus a requirement 
versus a request? And then, if it is you have to do it with 
private included, who do they compete with now without any 
private entities that have been designated?
    Ms. Combs. Well, because private entities have not been 
designated doesn't mean they are not out there offering shared 
services. There are private companies out there that do shared 
service, obviously.
    Mr. Platts. But they are not a designated shared service 
center in fulfilling the requirements of the financial 
management line of business program?
    Ms. Combs. Correct. They are not designated.
    Mr. Platts. That is who I am supposed to migrate to, right? 
I am supposed to migrate to an approved shared service center?
    Ms. Combs. You are supposed to do a public/private 
competition.
    Mr. Platts. Among designated or approved shared service 
centers, right? Or among anybody?
    Ms. Combs. Competition. We haven't said that if you are in 
the private sector you can't come in and bid.
    Mr. Platts. So it is not a requirement that I have to 
migrated to a shared service center; I just have to migrate to 
whoever will give me the best deal?
    Ms. Combs. No. In the public there are four public shared 
service centers that are identified.
    Mr. Platts. Right.
    Ms. Combs. And if one of those four meet your needs, then 
you go to the next step of several laws that come into play at 
that point, you know, one of them being section 842. So we have 
several steps along the way after you decide, OK, in-house we 
can't do it. OK?
    Mr. Platts. Right.
    Ms. Combs. So if we can't do it in-house, then we decide 
does it have 10 FTE or more, and if it has more than 10 FTE 
then we go into another step which says public/private 
competition that includes we look at the A-76, we look at 
section 842, both of those. We have to make a decision at that 
point then whether we would select a shared service provider 
from those or whether we would have a non-shared service 
provider from in-house.
    Mr. Platts. It seems like we still don't have an answer, 
though. That basic premise from where we started in March--and 
I continued to be under the understanding--is if I am the 
agency and the trigger kicks in, I have to migrate to a shared 
service center if I am not to be one myself, an approved shared 
service center.
    Ms. Combs. We have four public shared service centers to 
date.
    Mr. Platts. So if I am going to compete today, openly 
compete, I am only going to have those four public shared 
service centers compete for my work, because that is the only 
four that are out there, public or private, at this point in 
time? That is where we are?
    Ms. Combs. We are not restricting public competition.
    Mr. Platts. But how do you compete a private entity if they 
are not a designated shared service center? Why would I include 
them in my competition if OMB, GSA, somebody hasn't said, yes, 
they are an approved shared service center that you can migrate 
to? I mean, somebody has got to make that determination or 
there is no use having them spend money to compete with me in 
the competition.
    Ms. Mitchell. Right. So under the one that is underway 
currently, what was done is they incorporated all of the 
requirements that are stated for shared service provider, 
service level agreement, use blah, blah, blah, blah.
    Mr. Platts. In their request for proposals----
    Ms. Mitchell. Right.
    Mr. Platts [continuing]. You had all those requirements.
    Ms. Mitchell. Correct.
    Mr. Platts. With the understanding that if you meet all 
these you are, therefore, a designated shared service center, 
which is the requirement to get my competition, get my work 
under financial management line of business?
    Ms. Mitchell. So they are technically evaluated to have the 
experience and meet those requirements. OMB is the one who 
would designate. Right now the agency does not designate.
    Mr. Platts. Because in our last hearing we had a private 
entity, CGI, and they said they were a shared service center. I 
said, well, how did you get that designation? And they said, we 
were just deemed it. We were just made a shared service center.
    Ms. Combs. They gave it to themselves.
    Mr. Platts. But it doesn't----
    Ms. Mitchell. This is one of the issues that is under work 
and this is one of the ones that Linda mentioned that we are 
still working on.
    Mr. Platts. And I think that is clear that if I am a public 
entity and I am required to compete, and I am encouraged to 
compete publicly and privately, that I am only going to 
compete, have people compete for my work that I know at the end 
of the day are going to be shared service centers as required 
by the financial management line of business.
    Ms. Combs. Well, let me just say this. We have not, as I 
mentioned before, we have not pre-screened any private sector 
shared service providers.
    Mr. Platts. Is that envisioned?
    Ms. Combs. Let me carry it one more step before I answer 
that question.
    Mr. Platts. Sure.
    Ms. Combs. Agencies can still choose any of the private 
sector entities that are out there that offer them the services 
that they have described that they need in their proposal and 
in their 300's and in their business cases. The agencies have 
an obligation to describe what they need. There are a number of 
private companies that will respond and say they can provide X, 
Y, or Z, and if it is screened out technically, as Mary just 
talked about, in the departments and agencies, and it is 
determined that these private entities can meet the business 
needs, then they would be able to compete with those.
    Mr. Platts. So my understanding though all along from the 
beginning of this program, was that OMB was going to put in 
place standards, you know, to get the efficiencies which we are 
all after, either within the public side, or if it is private, 
but to get the efficiencies in a fair and responsible way, and 
that OMB was going to say these are the standards that we are 
going to have everyone follow. If you want to do a major life 
cycle change, then you have to review internally.
    Can you handle it inside to upgrade your abilities and be a 
shared service center? Then it was called center of excellence. 
And if you can't or don't want to, then you have to migrate to 
a center of excellence/shared service center, and that OMB will 
decide who meets that. But what we are really saying is that if 
you are an agency out there and you are competing your work, 
that as long as that agency can go forward with a total comfort 
level that, in their request for proposals for that 
competition, as long as they put, here are the existing, as we 
best know them today, requirements of a shared service center.
    As long as you meet these requirements or this guidance, 
then we can compete with you or you can compete for us with the 
work and you will be deemed a shared service center, regardless 
of what OMB, itself, really thinks, but because you can comply 
with these requirements or this guidance. So it really comes 
back to that individual entity saying, all right, we want to 
compete, we want these guys to compete, and we have laid out 
the guidance as part of the request for proposals that they 
said they can meet that; therefore, they are a shared service 
center and we can go with them.
    Ms. Combs. Well, that is as it is today. You are exactly 
correct. You described it beautifully. The decisions that we 
have before us now with the comments that are coming in, we 
need to look at this very, very carefully and see whether or 
not the current determinations that we have made, which was not 
to certify shared service providers that are private, we need 
to look at that and see whether or not we should make it either 
a different decision than the current operation that we are 
undergoing or whether we need to maintain the posture that we 
have currently.
    Mr. Platts. I think that is an absolute necessity for the 
final guidance. You need to lay out very clearly when you 
compete, you know, either clearly that private entities can 
pre-screen and be designated so that they are competing as pre-
designated shared service centers so that agency has that 
comfort, or, in the alternative, you need to lay out that for 
the agencies, if you compete, including with the private 
sector, you know, being part of the competition, that as long 
as the requirements of the guidance that are laid out in the 
guidance to be a shared service center, as long as they are 
part of the request for proposal and those requirements are 
met, then you in good faith can move forward and with all 
assurance that OMB is going to sign off on who you went with. 
One or the other has to be in there, or even a variation of 
both, really.
    Ms. Combs. OK. I thank you for those comments and certainly 
that will be one of the areas that we will want to come up and 
have some additional discussions with you.
    Mr. Platts. I will look forward to it.
    I do want to touch on one final area just a little bit 
more. Our second panel has been very patient. It is the issue 
of A-76. The original, from our meeting in March, the way I 
took it, it was not initially envisioned that A-76 would apply 
to these competitions, and the fact that some competitions are 
already happening that seem to be outside of A-76 that maybe 
should have been in, based on where we are today it is clear, 
and I appreciate the actions OMB has taken in making it clear 
that A-76 does comply for 10 or more FTEs.
    The open competition that happens where it is less than 10 
will still emulate the goals of the A-76 as far as the 
competition, the manner in which it goes forward? And also, in 
the language of having at least a 10 percent or $10 million 
savings, is that going to continue to apply even to those non-
A-76 competitions?
    Ms. Combs. We believe that if we generally rely on circular 
A-76, that we can ensure that Federal employees are treated 
consistently in private and public competitions. We also 
believe that is very, very important as we move forward in our 
considerations here to make absolutely certain that we are 
complying with all of the laws and all of the regulations that 
have been set before us.
    I think the nature of the migrations that we expect 
certainly, as we have talked about, we want to hold up the 
spirit and letter of the law, but at the same time we will 
probably run into some few cases where we may need to look for 
some deviations or some methodologies that are going to, on a 
case-by-case basis, as I said, be consistent with laws and 
principles and values that we hold dear in fairness and 
transparency. But we may run into some cases when we haven't 
anticipated some of these and we need some flexibility to work 
through some of that.
    Mr. Platts. I should know the answer to this, or part of 
this. With A-76, if it is a competition internal so it is to 
look at one of the other four existing public shared service 
centers, so it is not private competition, A-76 is not kicking 
in in the sense because you are not going private, correct?
    Ms. Combs. That is correct.
    Mr. Platts. And so if 1 of the 4 or down the road and there 
is 10, and there is a shared service center that is a public 
entity but the work is all by that shared service center 
contracted out, so they did an A-76 competition years back or 
tomorrow or whatever, and so they've got a private contractor 
doing all their work, but then they go and compete for other 
work to have migrated to them.
    Is A-76 going to kick in if the actual work is being done 
by private contractors for that public entity that is the 
shared service center? So if GSA's work is done by a private 
contractor that they are going to get, they are, in essence, 
kind of the front partner, so agency A says, all right, we are 
going to migrate to GSA. In reality, that work is going to be 
done by a private contractor who is contracting with GSA. Is A-
76 going to apply to that competition or not, because the front 
person is a public entity?
    Ms. Combs. If I understand the premise of your question, 
you are speaking of shared service providers that are both 
public and private.
    Mr. Platts. If agency and Department of Defense says, the 
trigger is kicked in, we are going to migrate to somebody. We 
are going to migrate to GSA, and GSA I think contracts with CGI 
actually to do this work. When I look to migrate and have my 
work from Defense agency XYZ, the competition is currently 
within the public entity--GSA is another public entity--but the 
work is really being done by a private contractor, CGI. So does 
A-76 apply to that competition with GSA?
    Ms. Combs. Well, you know, I think you have to go back to 
who the entity is that is actually providing the service. In 
this case it is GSA. So I would say at that point I am not sure 
we have any of those right now.
    Ms. Mitchell. We do have partners that are providing some 
of the services.
    Ms. Combs. Some, but not all.
    Ms. Mitchell. But they tend not to be in the transaction or 
the financial transactions.
    Mr. Platts. But it seems that there is some of that type of 
participation now and potential for a lot more, and it is one 
of those questions that I think we need to think about going 
forward, because if A-76 does not apply, otherwise you could 
have public agency XYZ say, all right, we are going to be a 
shared service center and we are going to contract all this 
out.
    Ms. Combs. OK.
    Mr. Platts. And then go after work. It would be a way of 
circumventing the A-76 requirements, which is not appropriate.
    Ms. Combs. I understand exactly where you are headed, and 
that would certainly not be the intent, to circumvent that.
    Mr. Platts. I appreciate that, because we want to fulfill 
not just the letter of the law but the intent of the laws.
    Ms. Combs. Right.
    Mr. Platts. I would encourage you to look at that in the 
guidance, that if the work that is being contracted out 
migrated to Public Entity XYZ, say GSA, if the work is actually 
going to be by a contractor for GSA, then spell out that A-76 
does apply, whether it legally under A-76 says that, but in 
your guidance you are going to require that as part of the 
financial management line of business. That way the intent of 
A-76 is fulfilled and not circumvented.
    Ms. Combs. Thank you. I appreciate that. We will definitely 
look into that.
    Mr. Platts. I think that is the way we get what we are all 
after--competition in the most transparent, fair----
    Ms. Combs. Right.
    Mr. Platts [continuing]. And the manner in which Congress 
and the executive branch have said we are going to do it where 
it is truly private jobs competing for work that is currently 
public.
    Ms. Combs. OK.
    Mr. Platts. I appreciate both of your patience with me as 
we have worked through the details. As I said, I am a stickler 
for those details. As we go forward we look forward to 
continuing to work with you. I appreciate your testimonies and 
your answers to my questions and, again, day in and day out 
your devotion to our country and trying to improve the 
management of the Federal Government, which is what we 
certainly all share as an important goal for our Nation.
    Is there anything you want to add that we didn't touch on 
or you want to summarize?
    Ms. Combs. I just want to say thank you again for your 
interest in this area. We are trying to do something that 
hasn't been done before and we appreciate your patience and 
your thoughtfulness. Your staff gives us time and energy. We 
appreciate that very, very much because it is working together 
that we will come out with the best product possible. We can't 
do it alone. We thank you for your kindness and your efforts on 
our behalf.
    Mr. Platts. I appreciate the kind words. It is the intent 
here. No question is intended to create a problem, but just to 
avoid a problem down the road by thinking all the scenarios and 
possibilities through that we, up front, give the best guidance 
possible to the agencies as they look to make the right 
decision for their agency and for the taxpayers. So thank you 
again.
    We are going to take maybe a 3-minute recess while we reset 
for the second panel and then we will reconvene.
    [Recess.]
    Mr. Platts. We are pleased to have our second panel and 
especially appreciate their patience with the hearing, 
especially my lengthy questions of the first panel.
    We are glad to have with us Mr. James Krouse, acting 
director of the public sector market analysis for INPUT; Ms. 
Jacque Simon, public policy director, American Federation of 
Government Employees, and Mr. Stan Soloway, president, 
Professional Services Council.
    Would all three of you stand to be sworn in?
    [Witnesses sworn.]
    Mr. Platts. The clerk will note that all three witnesses 
affirmed the oath.
    We are going to begin, Mr. Soloway, with your testimony, 
then we will move across.
    Again, we will use the 5-minutes as a kind of guide, but if 
you need to go over a little bit we understand that.
    Your written testimony was very helpful. I call it my 
homework. I especially appreciate your getting it in early. 
Usually I do it about midnight the night before, and all of you 
were very helpful in getting it to me early, so I actually did 
it during the daylight hours yesterday in preparing for the 
hearing. We appreciate that.
    We are told that we have probably a lengthy series of votes 
probably between 4:45 or 5. Our hope is if we get your 
testimonies and some good exchange, that we will get done in 
the next hour so that you are not sitting here waiting, because 
I think it is going to be a lengthy round of votes.
    With that, Mr. Soloway, if you would like to begin.

 STATEMENTS OF STAN SOLOWAY, PRESIDENT, PROFESSIONAL SERVICES 
    COUNCIL; JACQUE SIMON, PUBLIC POLICY DIRECTOR, AMERICAN 
 FEDERATION OF GOVERNMENT EMPLOYEES; AND JAMES KROUSE, ACTING 
         DIRECTOR, PUBLIC SECTOR MARKET ANALYSIS, INPUT

                   STATEMENT OF STAN SOLOWAY

    Mr. Soloway. Thank you, Mr. Chairman. On behalf of the 
Professional Services Council we thank you very much for the 
invitation to testify here today to share our perspectives on 
the lines of business initiative. PSC and our more than 200 
member companies are committed to working with OMB and the 
Congress to make the initiative a success.
    My comments today address the entire LOB initiative and are 
not solely related to the financial management element. In the 
interest of time, let me simply just summarize the five major 
points.
    First of all, the foundation for the Government's lines of 
business initiative is sound and rational. It is the right 
thing to do. To its credit, OMB has clearly put a great deal of 
thought and effort into the various initiatives and is 
committed to their success. They also recognize many of the 
steep challenges they face.
    OMB also recognizes that the initiative is a long-term 
undertaking and that full migration could easily take 10 or 
more years as it and the individual agencies struggle with 
decades-old legacy systems, processes, and, significantly, 
cultures, let alone a substantial change management and 
communications challenge. Indeed, this initiative is 
fundamentally not about information technology or even about 
outsourcing. Rather, it is about rationalizing broad agency 
business practices and processes, and achieving that goal 
requires the early and continuing involvement of all 
stakeholders.
    Notwithstanding the sound strategic underpinning of the 
initiative, there are some unresolved questions relating to its 
implementation. First, I think it is fair to ask whether 
entrepreneurial government genuinely serves the public interest 
when agencies build business capabilities unrelated to their 
core mission. It is one thing, for instance, for the Department 
of Interior to share its expertise in natural resource 
management with other agencies; it is entirely another thing 
for that department or any other to build a business line 
completely disassociated from that core mission.
    Questions also abound relative to the competitive playing 
field on which such activities will be conducted. Today, as the 
Government faces severe budget and human capital challenges, it 
is all the more important to carefully assess whether it is 
beneficial to devote the people, technology, and other 
resources required to continuously maintain excellence in a 
function outside of a designated agency's core mission 
requirement. This is particularly true for smaller agencies for 
which these investments are especially onerous.
    As you know, one of the Government's greatest challenges 
for many years has been finding adequate resources to maintain 
pace with rapid advances in technology and associated 
technology skills, resources that companies derive from their 
profits. In today's environment, it is difficult to imagine how 
organic shared service providers are going to be able to 
maintain that currency for a long period of time.
    Second, the success of the LOB is directly tied to the 
creation of appropriate performance measures and matrix and to 
agency and Government-wide adherence to them. The inter-agency 
developed migration guidance issued by OMB contains just such a 
list. Our initial review suggests that the list, itself, might 
be too extensive and could result in some sub-optimization, but 
it certainly represents an important start.
    The more salient and immediate question is whether that 
list, properly streamlined, could as effectively serve as the 
Government-wide baseline requirements for any significant 
investments and upgrades that all agencies must meet, while 
leaving agency implementation to a competitive best value 
procurement conducted among commercial providers, either those 
who have competed to become shared services providers or, where 
appropriate, through an open market procurement.
    As it stands now, OMB's business case process has imposed a 
significant hurdle for any agency investment or acquisition 
decision other than migration to a designated Federal agency 
shared service provider.
    Third, as a result of the fiscal year 2006 Transportation 
Treasury Appropriations Act, OMB has determined that virtually 
all activity conducted under the line of business initiative 
must utilize the procedures under OMB circular A-76. If the 
requirements of A-76 are forced against the LOB initiatives, 
the initiative will face potentially insurmountable obstacles 
to success. There is a reason that industry, by and large, has 
walked away from A-76. It is not because companies are afraid 
of competition, because they face it every day. But A-76 
competitions take 2 to 3 years to complete and are so fraught 
with process inequities and so burdened by unique restrictions, 
including restrictions on the use of best value source 
selections, which are the accepted norm not only throughout 
Federal contracting but in the commercial sector, as well, that 
most companies have determined that, except in rare 
circumstances, the A-76 field is far too tilted to justify the 
expenditure of precious bid and proposal resources. That is why 
most A-76 competitions have no real competition at all.
    For the LOB initiative the problem is further exacerbated 
by the potential need to impose A-76 at two levels, first in 
the competitions among and between agencies and commercial 
companies to be designated as shared services providers, and 
then again each time an agency opts to utilize a designated 
shared service provider for a given requirement.
    There is also an important political dimension to the A-76 
issue that cannot be ignored. Virtually every announced A-76 
competition becomes the focus of a targeted congressional 
amendment to prohibit the competition from going forward in the 
first place. In virtually every case where a private contractor 
has won an A-76 competition, a rare event in and of itself, 
there have been efforts in Congress, sometimes successful, to 
legislatively overrule the procurement process.
    For example, just last week the House adopted, with no 
debate, an amendment to the Defense Appropriations Act that 
would prohibit the implementation of a duly awarded contract at 
Walter Reed Army Medical Center, a contract that was awarded 
only after an almost unprecedented post-award oversight process 
that included GAO protests and detailed reviews by the Army 
Audit Agency. Can you imagine if every LOB agreement were 
subject to that kind of uncertainty, political interference, 
and schedule slippage?
    Without relief at least from the new statutory restriction, 
the effect could be devastating to the entire initiative and 
deny the agencies and the taxpayer the substantial value that 
would otherwise be possible.
    Fourth, as OMB has recognized, the success of the 
initiative is also dependent upon the clarity, quality, and 
firmness of the Government's requirements. It is unfortunate 
but true that the Federal landscape is littered with examples 
of great technological and business solutions that fail to 
deliver the expected and promised results because the 
Government requirements process, itself, was unclear and/or 
constantly shifting.
    For the initiative to succeed and achieve the anticipated 
savings and synergies, it is essential that disparate agencies 
agree on a firm, clear, rational, and common framework for each 
element of the initiative, a framework that meets the needs of 
both the large and small agencies without becoming so riddled 
with individual customer demands that it loses the very 
efficiencies and synergies it was designed to create and, as a 
result, it drives costs upward.
    Further, there is an important cross LOB requirement 
connected to this initiative. For example, HR systems must 
interface with finance, travel, and other functional areas. As 
such, some further explanation or understanding as to how 
business reference models and architectures are integrated 
across the various elements would be helpful for both the 
Government and its industry partners.
    Just last month the Center for Strategic and International 
Studies released a report detailing the critical trends in the 
Federal professional services marketplace relating to the 
nature and scope of Government buying and the ways in which the 
professional services industry is responding to and being 
shaped by the Government's activities. The report clearly 
documents a growing market squeeze on mid-sized firms and 
limited growth opportunities for small businesses. This brings 
me to the fifth and final comment I would like to make.
    There are questions as to whether the LOB initiative could 
serve as a barrier to access to or growth within the Federal 
market for businesses of all sizes, particularly small and mid-
sized firms, especially if shared service providers become 
mandatory or near mandatory sources for their relevant 
functional capabilities. This has not been widely discussed as 
part of the LOB initiative, but we believe it is essential to 
promptly do so.
    Mr. Chairman, we applaud OMB for launching the initiative 
and believe it is the right thing to do. My comments today are 
truly not intended to suggest otherwise. But we do have 
concerns about critical implementation challenges and important 
policy dimensions of the initiative. As such, we continue to 
look forward to working with OMB and this committee on 
strategies to help ensure the long-term success of the 
initiative.
    Thank you for your time. I look forward to your questions.
    [The prepared statement of Mr. Soloway follows:]
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    Mr. Platts. Thank you, Mr. Soloway.
    Ms. Simon.

                   STATEMENT OF JACQUE SIMON

    Ms. Simon. Thank you, Chairman Platts, for allowing AFGE, 
which represents more than 600,000 Federal employees across the 
Nation and around the world, the opportunity to present our 
views on OMB's controversial financial management lines of 
business initiative.
    Chairman Platts, AFGE commends you, in particular, for your 
attention to the details and consequences of this initiative, 
your determination to get answers about it from a frequently 
unforthcoming OMB and your interest in hearing a diverse range 
of views on the initiative at today's hearing.
    We started hearing about this initiative in late 2005 in 
the form of warnings from senior procurement officials with 
whom we normally spar over A-76. Official after official and 
agency after agency warned us that an alternative to A-76 was 
being prepared in relative secrecy, and that this alternative 
to A-76 would be used to conduct direct conversions of 
information technology functions.
    Direct conversions is a polite euphemism for taking work 
away from Federal employees and giving it to contractors 
without any public/private competition or even any promise of 
savings; that is, wasting taxpayer dollars and stealing jobs 
from Federal employees. Unfortunately, those warnings have 
proven to be accurate.
    Mr. Chairman, I think we can all stipulate, as the lawyers 
say, that, regardless of whether one supports the FMLOB 
initiative and regardless of how OMB may try to present its 
case to you, its guidance in no way provides for the use of so-
called competitive sourcing. In fact, OMB has repudiated its 
own rhetoric and its own rules in preparing its FMLOB 
initiative guidance on what it alleges is competition.
    Direct conversions, as we said, wasting taxpayer dollars 
and stealing jobs from Federal employees, are encouraged for 
functions involving up to 10 FTEs and are thus inevitable for 
larger functions. Financial management work performed by 
Federal employees can be moved to another agency and then 
privatized without any public/private competition. Agencies can 
use a form of so-called best value that is so subjective, so 
costly, and so extreme that even OMB would not include it in 
its 2003 revisions of A-76. OMB's guidance encourages agencies 
to come up with their own rules for privatization reviews 
which, if passed as prologue, will be contrary to the interest 
of taxpayers and Federal employees. All new Government work and 
all already outsourced Government work related to financial 
management will continue to be a monopoly for contractors.
    There is actually more to this that is even worse. The 
FMLOB initiative is actually a revival of the very worst 
principles of OMB's discredited wholesale privatization agenda. 
In 2001 OMB imposed numerical privatization quotas on all 
agencies, insisting that they review for privatization under A-
76 at least 5 percent of the jobs on their Fair Act inventories 
in fiscal year 2002, another 10 percent in fiscal year 2003, as 
down payments on an OMB dictate that all agencies combined 
review for privatization by the end of 2004 at least 425,000 
Federal employee jobs. Agencies were explicitly encouraged to 
use direct conversions to achieve these infamous numerical 
privatization quotas.
    It is so extreme and so indefensible that it is difficult 
to conceive of today: OMB officials insisting, in a classic 
one-size-fits-all approach, that all agencies, regardless of 
their needs or missions, compete under A-76 or directly 
privatize specific numbers of Federal jobs in all but the most 
extraordinary circumstances, or else face sanctions in the 
budget process. Fortunately, the Congress outlawed the use of 
numerical privatization quotas, and in its May 2003, rewrite of 
A-76 OMB officials were forced to abolish direct conversions 
absent specific authority from OMB.
    As OMB officials reluctantly provide this subcommittee with 
details of the FMLOB initiatives, many Federal employees are 
experiencing a sense of deja vu. Again OMB is insisting that 
all agencies in all but the most extraordinary circumstances 
compete or directly convert a certain number of jobs or else 
face sanctions in the budget process. However, instead of that 
numerical privatization quota being 15 or 50 percent of an 
agency's entire commercial work force, it is, instead, 100 
percent of an agencies financial management work force.
    Indeed, the FMLOB initiative may actually be worse for 
agencies in that OMB has unilaterally determined that financial 
management functions in all agencies, regardless of those 
agencies' needs or missions, are commercial, and that every 
agency's financial management functions are appropriate for 
contractor performance.
    Agencies consequently have no flexibility under these new 
numerical privatization quotas. They certainly cannot decide 
either to compete or convert financial management functions 
which have been outsourced to in-house performance.
    Mr. Chairman, thank you for this opportunity to present to 
your subcommittee AFGE's concerns about OMB's financial 
management lines of business initiative. I would be delighted 
to respond to any questions from you or your colleagues.
    Thank you.
    [The prepared statement of Ms. Simon follows:]
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    Mr. Platts. Thank you, Ms. Simon.
    Mr. Krouse.

                   STATEMENT OF JAMES KROUSE

    Mr. Krouse. Thank you, Chairman Platts. I am honored to 
appear before you and to provide an analytical perspective of 
the Federal lines of business in general and on the financial 
management lines of business in particular.
    In the initial release, the stated goal for establishing 
the lines of business according to OMB was to identify 
opportunities to reduce the cost of Government and to improve 
service delivery to citizens with business performance 
improvement. The concept and rationale behind lines of business 
may prove to be a logical approach for the Government to 
achieve efficiencies in programs and processes, for limiting a 
current array of disparate agency systems, and to leverage the 
relative strengths of some agencies to act as centers of 
excellence or, as we have identified, shared service providers.
    Many questions have remained outstanding since the creation 
of the lines of business over 2 years ago. Perhaps not 
surprisingly, clarifications were expected with the release of 
more formal guidance, such as that supporting the financial 
management LOB issued on May 22nd of this year.
    The mechanics of the lines of business, particularly the 
agency migration plans, unfortunately do raise some questions 
and confusions. In particular, the provisions that will open 
competitions between Federal centers of excellence and private 
sector vendors for the administration of the Government 
business lines appear somewhat unclear. While it may be noble 
to promote fair and open competition between public and private 
entities, the expectation that a private sector vendor can be 
guaranteed fair and open competition or, alternately, that a 
vendor can manage existing contract relations across agencies 
that it may ultimately face as competitors may be feasible in 
theory but may prove different in reality.
    While the Federal management lines of business guidance 
seeks to provide directions for Federal agencies migrating 
financial management systems and services to either a ``public 
shared services center or a qualified private sector provider 
under the financial management lines of business initiative,'' 
some of the most significant language suggests that historical 
OMB circular A-76 processes for strategic sourcing will 
prevail. There remains some question whether the rules of A-76 
can be efficiently and effectively and equitably overlaid on 
the new LOB migration process. Furthermore, it is curious, from 
an analytical perspective, why it took 2 years to determine 
that the standing A-76 rules for competitive sourcing would 
govern the FMLOB migration process.
    For some time suspicion has been that vendors may find 
themselves filling support roles while the prime spots as LOB 
shared service providers go to agencies. To date, this 
certainly appears to be the case, since migrations have already 
begun prior to any competitive guidance having been released. 
The use of A-76 competitive sourcing rules only strengthens 
this theory, especially when considering that, from the period 
between 2003 and 2005, according to OMB, Government employees 
won approximately 80 percent of the work competed through 
public/private partnerships.
    Limitations on the scope of the agency-by-agency migration 
process present additional questions. Agencies are only being 
held to migrate a minimum set of services, and agencies are not 
required to migrate all bureaus at the same time.
    Finally, an agency may simply decide that the path of least 
resistance is to become a shared service provider and avoid the 
migration process altogether.
    In conclusion, while the principles behind the creation of 
lines of business appear grounded in logic to reduce 
inefficient Government services and migrate business processes 
to more efficient shared service providers, be they public or 
private, many questions remain regarding the mechanics of 
guaranteeing free and open competition during the migration 
process.
    This concludes my prepared remarks. I am at your disposal 
to answer any questions.
    [The prepared statement of Mr. Krouse follows:]
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    Mr. Platts. Thank you, Mr. Krouse.
    Mr. Soloway, I think I will start with you. This goes to a 
lot of the questions I had with our first panel with trying to 
get specific answers to the exact nature of where we are and 
how we are going forward.
    In your testimony you identify or you state essential 
predicate steps need to be taken to really succeed. The fact 
that the guidance has not been finalized, that is still a work 
in progress, the core financial or accounting standards still 
in the works, is it a fair reading of your testimony and your 
statements here today that we have put the cart ahead of the 
horse, to some degree, with where we are? Or is it something 
that we can move forward but there is going to be some catch-up 
that has to happen?
    Mr. Soloway. I think it is a fair statement. I think that 
our concern as we look at this is that the strategic 
underpinning is there and a lot of strategic thinking has gone 
into this. You hear, when you listen to Dr. Combs testify, they 
have really thought this through. I am not criticizing OMB. But 
you get to a point of implementation where a lot of the 
questions that you were posing this afternoon you really need 
to have answered before you really understand where you are 
headed. It is not just in the FM lines of business. There are 
other LOB initiatives underway.
    I think clarity around what those procedures and processes 
are going to be is critical, and so when we think about the 
final standards, final regulations, the final migration guides, 
even the issue of the overlay of A-76, which is a relatively 
new one--and the reason it is new is that we have the new 
statutory requirement this year which changed the dynamic a 
little bit. Those are questions that really do need to be 
answered, and particularly looking at it from where I sit in 
the private sector, for all the private sector partners who are 
looking to participate, those are answers they desperately need 
to know because they don't know what they are proposing to or 
around until they have some of those answers, so the risk 
factors go up dramatically.
    Mr. Platts. And specifically the private sector, in really 
yours and Mr. Krouse's testimony, is it fair to say that in the 
private sector there is a belief that private entities could be 
designated, deemed, or in some way pre-certified as shared 
service centers to compete for the work?
    Mr. Soloway. I think that among the folks I have talked to 
that would certainly be the hope. I think that OMB does not 
appear to have made a firm decision on that and, as I said in 
my testimony, the default position today is designation of 
Federal shared services providers. As OMB said, they are not 
yet at a point where they are prepared to designate a 
commercial provider as a shared services provider, although 
there are certainly commercial capabilities along those lines 
available. I know there are folks in the field who would 
certainly see themselves in that position and potentially 
playing that role.
    There are others who are already--and I believe you raised 
the question in another context with the previous panel--there 
are others who are already providing these services to agencies 
that are now being designated shared services providers, but 
there are also those who are providing these services to 
agencies that are not being designated shared services 
providers. It raises an interesting marketplace issue.
    Are you, by virtue of this, inadvertently going to diminish 
the competitive marketplace for other requirements as we move 
forward elsewhere? Folks who are providing financial management 
systems and capabilities are not necessarily just financial 
management systems firms. I mean, they can provide a variety of 
capabilities. So there are a number of different impacts that I 
think we have to look at.
    Mr. Platts. Mr. Krouse, did you have anything you wanted to 
add?
    Mr. Krouse. Well, I would concur. It is interesting that he 
used the word hope, because that is exactly the word I was 
thinking. I think it is the hope of the private sector entities 
that they would be designated at shared service providers. In 
the absence, I think the very real fear is they will be 
subjugated to subcontracting for the primes, which would be 
agencies across the board.
    Mr. Platts. And that kind of touches on a number of issues 
and followup with Mr. Soloway with the entities, that there are 
some private entities that are currently contracting for, say, 
GSA, and they are deemed shared service but they are 
contracting for somebody else who is not a shared service. It 
gets to that inconsistency. What are the guidelines for being a 
shared service center? If the same entity is doing the work in 
reality for two different agencies, why aren't they both? Kind 
of what is going to be the process for deeming someone a shared 
service center, public or private?
    And then the issue of subcontracting, and it relates into 
the A-76 issue and really my final line of questions with Dr. 
Combs of how A-76 will apply if it is a public entity with 
really work being done with a private contractor, Because it 
sounds like her statement of the intent is A-76 would apply, to 
not circumvent it, but I am not sure that is currently a 
correct interpretation.
    Mr. Soloway. I think that there are a couple of different 
aspects and nuances to the A-76 issue. Clearly, if the issue is 
agency A is looking for services and they look at designated 
shared services providers that are Federal agencies as well as 
commercial providers, there is no doubt that A-76 applies 
there. There is no room in the statute that Congress passed, 
which frankly we opposed strongly because it does so restrict 
agency flexibility, even in cases where these kinds of 
competitions don't make any sense for a variety of reasons. But 
leave that aside for a moment. There is no question that it is 
going to apply there.
    I think OMB has been fairly clear of late to folks who are 
looking at the LOB initiative and said, we have no choice, A-76 
will apply there.
    Mr. Platts. That is a surprise, I think, to the private 
sector, and maybe to everybody, because prior to our March 
hearing A-76 was really never mentioned in any of the dialog.
    Mr. Soloway. I think the dynamic that we saw there, in all 
fairness, is that this was an initiative--and I think I 
mentioned this in the written statement--this is an initiative 
that largely emanated from the CIO e-Government community which 
has been doing some really creative and important work. It was 
not necessarily as fully coordinated with the acquisitions side 
of the house as it needed to be, and this is a new statute, and 
I think we had a little bit of crossing in the middle. But that 
issue has now been settled.
    I think the questions that you raised, which were 
interesting, was, one, if I have a shared services provider who 
has outsourced all or a portion of the work being done for that 
provider, does A-76 apply? Our view would be it absolutely does 
because you are potentially converting work, if there are more 
than 10 employees, from a Federal employee to a private 
provider. So we don't see how you could get around that.
    If you are dealing strictly with an organic shared services 
provider, strictly all the work being done by organic Federal 
employees, the statute might not apply but the circular, in our 
view, should because the circular very clearly covers inter-
agency support services agreements, and that was done very 
intentionally to prevent the creation of a perverse incentive 
to create business lines as an excuse not to look at other 
competitive alternatives.
    I think that you do have a pretty strong case to make that 
A-76 overlay does apply. The problem is that, because of the 
problems with A-76, the net impact could be very negative for 
the initiative. I am not advocating that it apply; it is just 
our read of the law and the policy. So if we had our druthers 
we'd like to see the statute changed anyway because it so 
restricts agency flexibility. But right now it is a very, very 
big issue. As I said in the testimony, it could be an 
insurmountable obstacle absent some legislative relief.
    Mr. Platts. On the private side, when you look at A-76, 
because I think 80 percent or so of competitions are in-house 
by the public employees, is that going to be a significant 
deterrent to private sector actually competing for this work 
just because the investment of funds and the odds are of not 
being successful?
    Mr. Soloway. Let me share some basic data. I don't want to 
say this is exact, but it is pretty darned close. First of all, 
the 80 percent is 80 percent of the positions, it is not 80 
percent of the competitions, and so it is a much higher 
percentage of the actual number of competitions. If you take 
out the one large competition the Federal Aviation 
Administration conducted, a very robust one, a year ago, you 
are well over 90 percent.
    As we have looked at all of the A-76 studies that have been 
done, what we have found is well over half, if not closer to 70 
percent, had less than two private sector bidders. There is an 
old business school adage that says it takes three to make a 
market. If I have only got one bidder bidding against the 
Government, you have some competition. You'll drive some 
improvements and efficiencies, but you are definitely not able 
to claim you have optimized because you don't have enough 
pressure on the marketplace to create that.
    So what industry has done is voted with its feet. Looking 
at the restrictions congressionally imposed on this case, 
unfortunately, on the use of best value, and although OMB did 
allow best value competition under the revised circular, it was 
removed by Congress. The Comptroller General has testified 
numerous times that it seems a bit inappropriate to have major 
source selection decisions based on low cost when you really 
want to look at a variety of other factors. He has been a very 
strong advocate of using best value strategies.
    But when you are not able to use a best value strategy, 
which is the norm in industry and particularly in this 
technology world we are talking about with the lines of 
business, where there are so many variables besides low cost--
and often low cost is important but not nearly the only 
factor--those kinds of restrictions, and then all of the 
delays, the length of time the process takes, usually 2 to 3 
years even for small studies, protests, appeals, and so forth, 
and then ultimately potential of a congressional intervention--
and, again, I am being very blunt--as a business person you 
step back and go, the risk factors here are way too high to 
participate. So industry has voted with its feet.
    I fear in the LOB case that large numbers of potential top 
drawer providers will either walk away because they just can't 
tolerate that or what you'll see is some partnering between the 
Government and industry that doesn't involve a public/private 
competition which will help the cause, but, again, you won't 
have that kind of level of competition you are looking for, and 
I think that the initiative really needs.
    Mr. Platts. I would be interested in all three of your 
opinions of A-76. Again, it is trying to think what could come 
down the pike if we move forward in the direction we are going. 
Say one of the current shared service centers, Government 
entity, is doing the work in-house. Bureau of Public Debt is 
in-house, as an example. So the work goes there. They decide to 
contract out. They are now a shared service center getting 
work.
    If they take that work and contract out, they are going to 
have to do an A-76 competition, so that comes back to the 
premise in the statute that if they already had that contract 
in place, even though the front person is Bureau of Public 
Debt, it is still an A-76 competition clearly because the work 
is actually being done. Is that it?
    Mr. Soloway. That would be our read on it.
    Mr. Platts. Everybody?
    Ms. Simon. I think a lot of mis-statements have been made 
today about A-76 and what it would involve and what it would 
require. While there is A-76 in the absence of this financial 
management lines of business initiative policy guidance and 
then there is this policy guidance, and the restrictions in A-
76, this is the version of A-76 that includes the revisions in 
2003.
    Even apart from the Transportation Treasury Appropriations 
language that had further restrictions on A-76 competitions 
along the lines of requiring at least some promised savings or 
something to cover the transition costs and getting rid of 
these completely non-competitive direct conversions, the kind 
of thing that is most glaring in the policy guidance has to do 
with these so-called best value competitions and best value 
opportunities, I should say, for Mr. Soloway's clients.
    I am just right here looking at the language in the policy 
guidance. The A-76 revisions in 2003 put very strict limits on 
the use of best value because best value is so costly. It 
encourages the contractors to add what would be otherwise 
unnecessary and very costly bells and whistles that the agency 
didn't ask for and doesn't necessarily need, and then allows a 
source selection to choose that, even if it is less responsive 
to the solicitation and more costly.
    It is certainly not the case that the new A-76, the 
revisions of 2003 require only low cost and no consideration of 
quality. The quality standards have to be put forth in the 
solicitation. The best value criteria, the non-cost criteria 
that might be used in a decision have to be acknowledged in 
advance. Their relative weight has to be acknowledged in 
advance, and combined they can't account for more than 50 
percent of the factors in the decision.
    Under the policy guidance, anything goes. Cost can be 
completely irrelevant. It is a blank check in best value.
    I know that the contractor community likes to argue and we 
hear a lot of rhetoric about the fact that this is the norm in 
the private sector, but I am an economist by training and, as 
far as I understand the way markets work, a business that gave 
no regard to cost in its procurements wouldn't be a very 
profitable business.
    Mr. Platts. I would be interested, Mr. Krouse and Mr. 
Soloway, in your take on that language of the best value that 
it does, because I think that is a legitimate concern from a 
taxpayer standpoint if cost is not part of it.
    Mr. Soloway. Let's be very clear here. I know the purpose 
of the hearing is not to dig way down into A-76, but it is a 
critical issue because it relates so directly to the LOB 
initiative. Congress mandated the creation of something called 
the Commercial Activities Panel, which the Comptroller General 
chaired, Jacque's then-boss, myself, a number of others were on 
it, public sector folks, industry, unions, and what have you.
    Two-thirds of the panel, a super majority of the panel, 
recommended to OMB that the A-76 process permit what they call 
cost technical tradeoffs, best value competitions, that the 
rules be applicable equally to both the public and the private 
sector, and that effectively what we do with A-76, which is a 
sort of unique animal in Federal procurement, is apply 
traditional Federal procurement standards to it.
    The revisions of the circular in 2003 that came out of OMB 
did not go as far as the panel recommended, for a variety of 
reasons, some of them political, but leaving that aside the 
fact of the matter is that no one has suggested ever that cost 
should not be a significant factor. In fact, the one major A-76 
competition of which I am aware where they requested a waiver 
from OMB--this predates the Treasury appropriations language--
from that cost requirement, the 50 percent must be cost based, 
as Jacque just described.
    OMB came right back and said, yes, but we are not giving 
you a blank slate. No matter how many factors you have, cost 
must be the single most important variable. It doesn't have to 
be 50 percent, because you might have nine variables. In a 
major, complex technology requirement I could have 9 or 10 
really critical factors but cost has to be 50 percent, well 
then the others are 4 and 5 percent each so they don't really 
play.
    So no one is suggesting that cost is not an essential 
element; what we are suggesting is in a high technology, 
complex environment it is not always going to be half or more 
of your decision and shouldn't be mandated as such.
    Mr. Platts. But that language in that case where OMB said 
it still must be the most important----
    Mr. Soloway. Correct.
    Mr. Platts [continuing]. Of 9 or 10, or whatever, that is 
not in the guidance.
    Mr. Platts. No. That was a waiver that OMB issued in that 
specific case.
    Mr. Platts. Because that would go closer in the sense that 
reaffirming that cost is an important factor, you know, as 
opposed to your position.
    Ms. Simon. Right. The two most progressive, if you will, 
restrictions in the new A-76 were the elimination of direct 
conversion authority, because it was embarrassing to the Bush 
administration to have promoted competitive sourcing as one of 
the pillars of the President's management agenda, and during 
the early years of that agenda's life virtually everything that 
went on under the banner of competitive sourcing took place as 
a direct conversion--in other words was not competitive. As 
long as they wanted to be able to continue to call it 
competitive sourcing they had to get rid of these direct 
privatizations that denied Federal employees the opportunity to 
compete in defense of their jobs.
    The other thing, as Stan said, grew out of the Commercial 
Activities Panel's preference for best value. Because there was 
concern with fiscal prudence, restrictions were more severe 
than what is allowed in private/private competitions under the 
FAR were written into the new A-76, and that is what Stan was 
referring to, the fact that together all these non-cost, 
subjective, and very costly criteria couldn't amount to more 
than half of the factors in a decision in an A-76. And it was 
supposed to be limited to IT contracts unless you got specific 
permission for a deviation and had to have a rationale for 
going this best value route, which had never been used for a 
public/private competition before.
    Mr. Krouse. Can I add a comment?
    Mr. Platts. Yes.
    Mr. Krouse. If I may, I think what I take away from the OMB 
testimony and the OMB plans for the financial management line 
of business and line of business, in general, this is a long-
term strategy, a long-term strategy for a major conversion in 
Government. I don't discount that costs are important when you 
are contracting these types of initiatives, but I think if you 
look for the long-term return on investment, improving the 
efficiencies, the improvement in program efficiencies, and 
improvement in processes, that in some cases best value may 
make sense, maybe not next week but maybe next year.
    Mr. Platts. Let me followup on that with the premise that 
this is a long-term and a major undertaking and something we 
want to get right. Doesn't the fact that to be able to compete 
and get this work to be a shared service center, whether that 
is the current ones that have been deemed by their conduct or 
those who may yet be, you have to meet a kind of a list of 
criteria that go to your ability, your quality, which does get 
to that low cost isn't the only issue here, you know, because 
to be a shared service center you have to say, hey, we have the 
ability to deliver in a positive way. So we are adding value 
beyond just cost, just by the fact that you can't compete, or 
ultimately you won't be able to.
    In this transition period, as we heard in the first panel, 
obviously there are some people getting the work that aren't 
yet deemed shared service centers, but that does add value 
beyond just cost in and of itself, doesn't it?
    Mr. Soloway. On some level it does. I think that is a fair 
point. But I think Mr. Krouse has touched on a really critical 
issue bringing this whole A-76 question back to the intent of 
the LOB initiative. One of our complaints in the private sector 
for years about A-76 and certainly about mandatory use of the 
circular and the mandatory 50 percent of cost and so forth, we 
can nit pick over the details, but the biggest concern is that 
it takes A-76 fully out of being a really strategic tool and it 
becomes a cookie cutter tool.
    So I can't step back and look within my organization and 
say, what are my human capital resources? What are my skill 
sets? What are my chances of hiring and being able to retain 
the right people? How much will it take to invest to bring my 
work force up? How much technology investment do I need to do? 
And put that over here, and look over here and say the other 
option would be to do an outsourcing, and in so doing I have 
to, because we are firm believers in this, account for and 
protect the interest of the affected Federal employees. And 
there are plenty of strategies to do that that generally 
haven't been utilized.
    That is a strategic decicion I make, any institution would 
make in terms of how do I source and my long-term vision. I 
think what Mr. Krouse said is critical. This could be a 10 or 
11 or 12 year process, and A-76 looks at the immediate 
functional cost. How much does it cost to have that IT shop 
running that IT?
    Well, IT is an enabler for a much broader scope of business 
processes, and so if I can reform those business processes I 
might be able to generate for the agency outside of that 
functional area dramatic savings, even if my costs of 
performing that function go up dramatically. I think that is 
part of the point Mr. Krouse was trying to make. A-76 makes it 
very, very difficult to get to that kind of strategic 
decisionmaking.
    Mr. Platts. But it is not just the cost of that service; it 
is also, as that other entity may bring additional knowledge 
and capabilities that the employees who are there also, their 
wealth of knowledge and experience from being there for many 
years.
    Mr. Soloway. All of those factors play in.
    Mr. Platts. Right.
    Mr. Soloway. But I am saying you can't step back and take 
that broad----
    Mr. Platts. If you guys will indulge me for 2 minutes I 
have a meeting I have to say hello to here in the hallway, but 
rather than wrapping this up before we get to come to a good 
conclusion, if we could stand in recess for 2 minutes I promise 
I'll be right back in and we will continue.
    We are recessed for 2 minutes.
    [Recess.]
    Mr. Platts. I will switch hats here back to A-76 and 
financial management line of business.
    I think where I was going to pick up is, Mr. Soloway, with 
the competition or the in-house decision. I think OMB seems to, 
I think, contend that initially the exhibit 300 analysis in 
cost/benefit is supposed to maybe go after some of what you are 
saying what you want to happen what are my own resources and 
abilities and how can I use them versus going outside and 
competing. Do you think that exhibit 300 approach is 
satisfactory in that sense? Does it really get to a significant 
or substantive cost/benefit analysis to I think get after what 
you said needs to be done?
    Mr. Soloway. It doesn't change the fact that, regardless of 
the outcome of the 300 process, you still have the A-76 issue 
on top of it. So, the 300 is an important process and it has a 
lot of value relative to IT investments and capital planning 
and so forth and business cases, but it doesn't get you to that 
fundamental issue that I was talking about, which is a generic 
A-76 question.
    Again, the issue is a strategic question. I am not going to 
sit here and tell you I think, nor has PSC ever taken the 
position, that A-76 has no place. What we are suggesting is 
that agencies have to have some flexibility to manage in a 
smart management environment, and statutory requirements that 
mandate you do the A-76 every time you have more than 10 
employees are problematic.
    Your question to Dr. Combs about the role of A-76 relative 
to inter-agency agreements where you have an organic work force 
performing the work is an interesting one, because I think 
there, too, there is some concern in the private sector that if 
it is all going to be driven that way because that is deemed by 
OMB to be a way not to do A-76, which, by the way, will be a 
huge disincentive. Forget industry. Agencies don't like to go 
through the A-76 process.
    So then they might be driven to that other solution if it 
is an organic Federal work force, which may be a good solution 
in many cases. I am not suggesting the Federal work force is 
incapable in any way, but you won't know if it is the right 
solution because it may be the only solution that is looked at.
    I think there are a number of problems. I think what we 
need to focus on is, because particularly the purposes of this 
hearing and what you are trying to get at is less how to fix A-
76, but if you can do it we'd applaud, but really how to make 
the lines of business initiative work better and be successful. 
There the issue really becomes if we start overlaying A-76 at 
the first level when we are designating shared services 
providers, and then at the second level every time there is a 
requirement that comes from agency A to a services provider 
where A-76 might apply again, and potentially a third level 
where a shared services provider that was once organic then 
decides maybe I can deliver better service to my customers by 
outsourcing. So you could have multiple layers of A-76 
competitions involving lots of the same players.
    Mr. Platts. But if you don't have A-76 in place, isn't the 
intent there to prohibit that for political reasons you don't 
privatize Federal work that is about either a just general 
belief that privatization is a good thing, beneficial or not, 
or political in the sense of rewarding contributors in that 
privatization is used as a means of giving work to those who 
help put whatever administration into office. A-76, part of 
that is that if you are going to privatize you need to make the 
case for the taxpayer and for the public, in general.
    Mr. Soloway. Absolutely.
    Mr. Platts. So that is the initial premise of why you have 
it, isn't it?
    Mr. Soloway. Yes. It was created as a means of providing a 
fairness to affected Federal employees. I served in the Clinton 
administration. We did probably as much if not more A-76 
competition then than has been done today. This has been for 
many years a major focus of the Defense Department as they have 
been trying to rationalize and transform the Department.
    No one is suggesting, No. 1, that A-76 has no place. More 
importantly, no one is suggesting that the Federal employees 
involved should not be seriously and completely considered in 
the process. What I am suggesting is that there are going to be 
cases where it doesn't make sense, and in those cases there are 
a variety of strategies and tools one can use to ensure that 
the employees impacted by it are not unfairly impacted or 
certainly not lose their positions and so forth, because no one 
wants to do this on the back of Federal employees.
    But that doesn't mean that from a strategic standpoint it 
is the right thing to do to have the competition, particularly 
under the rules of engagement that currently exist within A-76, 
as I am not certain and I don't think most people in the 
private sector believe that the current A-76 structure delivers 
the best answer for the Government, which is ultimately the end 
result that we seek out of our procurement system.
    Mr. Platts. Ms. Simon.
    Ms. Simon. It is interesting to talk about flexibility in 
the context of this policy guidance. The second paragraph in 
the memo that accompanies the guidance tells the agencies that 
they must either migrate, they must consider pursuing becoming 
a shared service center. The word must is used throughout. 
There is very little flexibility here.
    And it is also odd to keep talking about the application of 
A-76 in the context of this initiative because the policy 
guidance is all about deviations from A-76, and deviations in 
ways--I hadn't raised this earlier just because it is so 
awkward given the recent conviction of the former OFPP 
administrator, but the potential for corruption in the context 
of these best value blank checks is enormous.
    When political appointees of either party, of course, are 
in the position of being able to exercise enormous discretion 
and make these kinds of sourcing decisions on the basis of 
subjective factors, not an objective factor, cost, but 
subjective factors, you open the door to politicizing these 
kinds of decisions, you open the door to corruption, and that 
is why it was so controversial to even bring a limited amount 
of best value into A-76. That is why it was constrained so 
strictly. It was only allowed to apply to certain A-76 
competitions, and then it was restrained, and the Congress has 
restrained it even more.
    This document, far from having A-76 be incidental, is 
really all about A-76 and all about providing a new version of 
A-76, a shockingly new version that takes away the kinds of 
constraints that keep politics out of these decisions, that 
keep the lid off costs, and get rid of these direct conversions 
that aren't competitive at all. If we want to find out whether 
the private sector or a public sector service provider is the 
better choice, the only way to do that is to have a competition 
based on objective factors. When you do direct conversion you 
are not having a competition based on objective factors, you 
are just handing it over on the basis of promises that will 
never be verified.
    Mr. Krouse. Can I add a comment? I respectfully disagree 
with the usage of the word must. In OMB's position, if I may be 
so bold, they were giving agencies a choice. They didn't say, 
you must do it this way, period. It is an either/or principle. 
You must either do it this way or this way. There is some 
flexibility allowed to the agencies to get to that point.
    Now, given the history of bureaucracies' resistance to 
change within governments, I mean, the final goal--and I stress 
again the long-term strategy of OMB, which I think is well 
placed--is the ultimate role for an enterprise architecture 
that is going to maximize consolidation, efficiencies, and like 
processes across agencies. If you give them too many options 
you might ultimately never get to that consolidated entity 
known as the EA that we so likely abbreviate it. So I think 
allowing too much flexibility is going to work against you.
    Mr. Soloway. Mr. Chairman, one of the interesting twists as 
we have this whole conversation about A-76 and whether it 
applies or it doesn't is your colleagues are on the floor today 
debating one of the appropriations bills--I believe it is 
Commerce, Justice, and State. Mr. Jones and Mr. Andrews have an 
amendment to the bill that would prohibit any of those agencies 
from implementing A-76 on anything. That would be an 
interesting twist where we have an appropriations bill that is 
still in effect that says you must use A-76 for everything. If 
this amendment were to pass it says you can't use A-76 at 
Commerce, Justice, and State.
    Well, those three agencies have just been taken out of the 
lines of business initiative. It is this kind of backward and 
forth that industry looks at and goes, what are the rules? How 
are we going to participate? How is the playing field going to 
be leveled? And where is the clarity?
    Mr. Platts. I think that is one of the overriding themes 
today with our first panel and the questions and our discussion 
here. For anything to work, all the partners need to know what 
the rules are that you are going to play by, whether it be the 
public entities or the private sector. What are the rules that 
everyone is governed by?
    One of my worries is we heard about exceptions or 
deviations from the rules. What are going to be the rules for 
allowing those deviations or those exceptions? I mean, there 
has to be certainty. If you are going to have that long-term 
success, you can't go into it with this gray area out here. 
That really is something we kind of touched on a little bit but 
not directly, the fact that we are moving forward without the 
standard core business processes finalized and some of the 
things that are in the works that really go to that 
standardization of the process, that we are moving forward 
without waiting for that. If we want that long-term success, my 
worry is we are getting that cart ahead of the horse more and 
more if we want permanent solutions here. Is that a worry?
    Mr. Krouse. I think it is a very definite worry. If I may 
be so bold on your behalf, what I think we are looking for is 
more rules on the rules. I mean, increased guidance without a 
doubt is, I think anybody would agree that is before you today, 
paramount if it is going to ultimately be successful.
    Ms. Simon. I think another problem, however, with this--it 
was interesting to hear Mr. Soloway lobby you, since he can't 
be in two places at the same time--when Congress passes these 
laws that conflict with A-76 or when an agency engages in, for 
example, a direct conversion, even though it is illegal both 
with respect to the laws passed by Congress and the published 
policy guidance of OMB in the form of A-76, at least for the 
past 3 years OMB has not enforced its own circular.
    These deviations, you know, we bring to their attention 
deviations, instances of direct conversion that have deprived 
Federal employees of the opportunity to compete for their jobs. 
I cite two of them in my written testimony and there are 
certainly many more such instances. We bring all the facts to 
the attention of OMB and we never hear from them.
    Congress wonders why are we always trying to have Congress 
respond to these problems in the form of the passage of 
legislation that answers these problems. It is because we don't 
get any kind of response from either OMB or the agencies with 
regard to the application of the so-called rules. That is why 
we have to bring it to Congress, because we can't go to the 
courts and OMB doesn't respond.
    Mr. Platts. It is interesting that in our office, whether 
it be in this type of scenario of a department not being 
responsive from a legal inquiry and therefore is pursued 
legislatively, or the simple example of a case work problem, 
and the reason we have so much case work is a constituent 
trying to get an answer from his department or agency doesn't 
so they come to us, and lo and behold they get the answer that 
they should have gotten in the first place, but they are able 
to, just by some additional public light on the issue through a 
congressional office we get the result that they were after in 
the first place. That is kind of what you are saying is 
happening here legislatively.
    Ms. Simon. Exactly.
    Mr. Soloway. I was just going to say, Mr. Krouse made an 
important point. I didn't want it to slide through without us 
focusing on it a little bit more, this flexibility issue. I 
think it is in my testimony also that we have had a lot of 
experience in the Federal Government over the last 15 or 20 
years doing information technology and other broad 
transformational programs where we have had real problems with 
the requirements process, where we haven't been clear about 
requirements and we haven't stuck to the requirements or we 
have tried to do things across agencies.
    And the Defense Department certainly has had plenty of 
experience with this where they have gone across the various 
military departments and tried to harmonize their needs. We are 
going to do this, and so Army what do you want? Navy, what do 
you want? Air Force, what do you want? Next thing you know you 
have something glommed up and you are redeveloping a whole 
solution set that already existed in the private sector that 
you could have done entirely differently.
    I think OMB clearly recognizes that and they are trying to 
get at that. Whether they've gotten it right yet may be an 
issue, but they recognize that piece of it.
    I think our point would be you don't have to necessarily do 
designated Federal shared services providers to achieve that 
goal. The key is to have a very clear set of performance 
standards and measures that everybody is required to adhere to. 
You could have some flexibility in that piece of it, as long as 
you don't deviate from what those agreed-upon standards are, as 
long as you have built them with all the stakeholders involved.
    Mr. Platts. And that was in my discussion with Dr. Combs 
and afterwards, basically what they are saying the current 
entity that is bidding on a project or migration has really 
done. They took the standards that they believe are the 
requirements for a shared service center, put it into the 
request for proposal that you have to meet these standards to 
get our work, and, in essence, if they do OMB is going to say 
well then yes, you are a shared service. So that is, in 
essence, what they kind of are doing right now.
    Mr. Soloway. Although they are not clear yet on the role of 
commercial providers.
    Mr. Platts. Right. They are not saying that, but that is 
how they are acting. My comment to her is that the agencies 
need to know one way or the other. Either you pre-screen 
private that are going to be able to openly compete so that 
they know they can compete in A-76 or whatever the competition 
is, if it is a smaller entity under 10, or they know that if we 
compete and meet these requirements then we are automatically 
deemed a shared service. I mean, somehow they have to have a 
definitive answer.
    Mr. Soloway. Their guidance is at this point presents a 
pretty high hurdle to go anywhere other than a designated 
shared service provider. I think that is a piece of clarity and 
an additional rule.
    Mr. Krouse. If I may add, I think currently our clientele, 
who are the private sector entities largely that are competing 
for this business, are dumbfounded as to how to develop a 
strategy even to compete in this environment. We get the 
question time and again, how do we even position ourselves? Our 
answer is invariably, we don't know. To your words, it is gray.
    Mr. Platts. And that came through in March, and 3 months 
later it still comes through, whether come to fall and we get 
further definitive guidance, whether it will be clarified more 
for the private sector and for the agencies that are saying, 
hey, we have to either be one or migrate to one how do we do 
that and what are the ramifications, such that we migrate to 
somebody that then goes and turns out they really didn't have 
as good books as we thought and now they are not doing a clean 
audit, so under the supposed requirements, therefore they are 
not shared service center any more. What does that mean for us? 
I mean, there are some very significant questions out there 
that just have to be answered.
    Mr. Soloway. One of the challenges in technology, 
especially, with business as a whole always is when you commit 
to something over the long term do you want to always commit 
and absolutely stick with one player or one capability, because 
there is always something better being invented elsewhere and 
you have to always have the ability to look for alternatives as 
time moves forward.
    It is the Sears Roebuck example. In the 1960's Sears was on 
top of the world, but for whatever reason they didn't keep pace 
with the market and with technology and so forth, so you have 
to guard against that. Companies look at this. They need 
consistency, they need certainty, and they need predictability 
in order to understand what to deliver for their customer in 
any business, and right now I think, what we are looking for 
with the LOB is a little bit more predictability, certainty, 
and clarity.
    Mr. Platts. Well, your input, all three of you, in your 
written testimony for us as we continue to work with OMB and in 
your testimony here today is very helpful. Our hope is that, 
through the hearing today and with our first panel, that we 
will help everybody involved in this process to keep pushing 
down the road as far as what the specifics are to get more 
definitive answers, but this is an ongoing process. As we move 
forward with our staff and your organizations and OMB and 
others involved in this, we look forward to continuing 
partnering with you.
    At the end of the day, if we are going to have this work, 
that we have competition that is in the best interest of the 
taxpayers, that is done in a fair way to Federal employees, and 
in the end gets a good result for the American people in all 
regards.
    Is there anything that any of you want to add?
    [No response.]
    Mr. Platts. We will keep the record open. If there is 
anything that comes up or something to followup you want to 
submit for the record, the record will be open for 2 weeks.
    We are grateful, again, for your patience with the length 
of the first panel. I forget who told me they were here in this 
room until 7:30 recently at a hearing. We are glad to get you 
out early, 3 hours later, early. But thanks. We will keep the 
record open for 2 weeks. We are grateful for everyone's 
participation.
    This hearing stands adjourned.
    [Whereupon, at 5:03 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Edolphus Towns follows:]
    [GRAPHIC] [TIFF OMITTED] 33867.040
    
                                 
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