[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



                         [H.A.S.C. No. 110-130]
 
    INHERENTLY GOVERNMENTAL--WHAT IS THE PROPER ROLE OF GOVERNMENT?

                               __________

                                HEARING

                               BEFORE THE

                         READINESS SUBCOMMITTEE

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD

                             MARCH 11, 2008


                                     
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                         READINESS SUBCOMMITTEE

                   SOLOMON P. ORTIZ, Texas, Chairman
GENE TAYLOR, Mississippi             J. RANDY FORBES, Virginia
SILVESTRE REYES, Texas               WALTER B. JONES, North Carolina
LORETTA SANCHEZ, California          MIKE ROGERS, Alabama
ROBERT A. BRADY, Pennsylvania        JOHN M. McHUGH, New York
JIM MARSHALL, Georgia                HOWARD P. ``BUCK'' McKEON, 
MADELEINE Z. BORDALLO, Guam              California
MARK UDALL, Colorado                 ROBIN HAYES, North Carolina
DAN BOREN, Oklahoma                  FRANK A. LoBIONDO, New Jersey
NANCY BOYDA, Kansas                  TOM COLE, Oklahoma
CAROL SHEA-PORTER, New Hampshire     ROB BISHOP, Utah
JOE COURTNEY, Connecticut            CANDICE S. MILLER, Michigan
DAVID LOEBSACK, Iowa                 TRENT FRANKS, Arizona
GABRIELLE GIFFORDS, Arizona          CATHY McMORRIS RODGERS, Washington
ELIJAH CUMMINGS, Maryland            DOUG LAMBORN, Colorado
                                     ROB WITTMAN, Virginia
                Cathy Garman, Professional Staff Member
                Lynn Williams, Professional Staff Member
                     Megan Putnam, Staff Assistant
                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2008

                                                                   Page

Hearing:

Tuesday, March 11, 2008, Inherently Governmental--What is the 
  Proper Role of Government?.....................................     1

Appendix:

Tuesday, March 11, 2008..........................................    31
                              ----------                              

                        TUESDAY, MARCH 11, 2008
    INHERENTLY GOVERNMENTAL--WHAT IS THE PROPER ROLE OF GOVERNMENT?
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Forbes, Hon. J. Randy, a Representative from Virginia, Ranking 
  Member, Readiness Subcommittee.................................     3
Ortiz, Hon. Solomon P., a Representative from Texas, Chairman, 
  Readiness Subcommittee.........................................     1

                               WITNESSES

Assad, Shay, Director, Defense Procurement, Acquisition Policy, 
  and Strategic Sourcing, Department of Defense..................     7
Bell, P. Jackson, Deputy Under Secretary of Defense, Logistics 
  and Materiel Readiness, Department of Defense..................     5
Walker, Hon. David M., Comptroller General, U.S. Government 
  Accountability Office..........................................    10

                                APPENDIX

Prepared Statements:

    Assad, Shay..................................................    50
    Bell, P. Jackson.............................................    40
    Forbes, Hon. J. Randy........................................    38
    Ortiz, Hon. Solomon P........................................    35
    Walker, Hon. David M.........................................    61

Documents Submitted for the Record:

     [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    Mr. Forbes...................................................   105

Questions Submitted by Members Post Hearing:

    Mrs. Boyda...................................................   121
    Mr. Ortiz....................................................   109
    INHERENTLY GOVERNMENTAL--WHAT IS THE PROPER ROLE OF GOVERNMENT?

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
                                    Readiness Subcommittee,
                           Washington, DC, Tuesday, March 11, 2008.
    The subcommittee met, pursuant to call, at 2:07 p.m., in 
room 2118, Rayburn House Office Building, Hon. Solomon Ortiz 
(chairman of the subcommittee) presiding.

 OPENING STATEMENT OF HON. SOLOMON P. ORTIZ, A REPRESENTATIVE 
          FROM TEXAS, CHAIRMAN, READINESS SUBCOMMITTEE

    Mr. Ortiz. This hearing will come to order. And good 
afternoon and welcome to each and every one of you.
    This afternoon our subcommittee will try to answer a couple 
of questions that not only concern me, but concern the rest of 
the members of the subcommittee and members of the full 
committee. And this is what is the proper role of government, 
and the companion question: What is the proper role for the 
private sector?
    Dating back to the founding of our country, we have 
understood that we need both government employees and private 
sector employees--to fulfill agency missions, making sure our 
citizens get the services that they expect to acquire and 
require from the government. But the question for today is have 
we gone too far in recent years by perhaps relying too much on 
contractors? I hope our witnesses can shed some light on this 
issue today.
    In the 1990's we were all eager to reap the benefits of the 
peace dividend. We had won the Cold War. We moved forward with 
significant reforms in the way the government bought goods and 
services and to take greater advantage of the commercial market 
as part of the reforms and to get the savings from the peace 
dividend. We decided we could do more with less.
    The Department of Defense (DOD) workforce, from 
headquarters staff to those in field offices, was drastically 
cut, and a lot of experience was lost. But the 25 percent 
reduction in workforce did not mean a comfortable reduction in 
the workload--just the opposite. As technology has become more 
complicated, so is the work of government.
    At the same time, there has been a tremendous growth in 
service contracting, from advanced information technology (IT) 
systems to major base operations contracts. Much of this work 
is commercial, so we have tapped into the expertise found in 
the private sector.
    There are good reasons for turning to private sector. As 
the Government Accountability Office (GAO) has noted, one 
advantage of using private contractors is the flexibility to 
take care of immediate needs. Using contractors allows the 
government to acquire hard to find skills, to have the private 
sector do the work that is not inherently governmental, to 
augment capacity on an emergency basis, and to save money and 
reduce the size of government.
    The downside, as GAO has consistently reported, is that we 
may not be saving as much money as we expected. We also need to 
be aware of any potential conflicts of interest for using 
contractor employees.
    Another downside is that agencies may be turning to 
contractors to fulfill even their own missions. One example is 
the use of lead systems integrators. This is where a contractor 
is actually in charge of putting the entire thing together and 
handling overall contract management. We have seen that with 
the Future Combat Systems.
    We have now published a letter defining inherently 
governmental functions. The Office of Federal Procurement 
Policy issued guidance in 1990 in its Policy Letter 99-1. The 
intent was to ensure the agency employees avoided an 
unacceptable transfer of official responsibility to government 
contractors.
    The Federal Acquisition Regulations have outlined the 
processes for making the determination of what is inherently 
governmental, and Congress codified this section with the 
passage of the Federal Activities Inventory Reform of 1998.
    We also have the statutes. They claim that DOD retain 
certain core logistic capabilities as a matter of national 
policy. Commercial items are not considered core, and the 
private sector does play a big role now in defense maintenance 
in many areas. The Department has turned to the private sector 
in its efforts to improve basic housing, lodging and even 
utilities.
    On Thursday we will hear more about DOD energy policies, 
which is another area where we are tapping into the private 
sector expertise.
    But my question is have we gone too far? I have heard from 
many base commanders that perhaps companies are doing too much 
of the work. The commanders had no arguments about the 
contractors on their particular basis. Their concern is one 
that relates to overall national policy.
    Are the bases losing the ability to do any of the work 
themselves? Just because work is called commercial, does that 
mean only the private sector can or are to do it?
    The flip side to that concern is this. If the needs of the 
warfighter are being taken care of, should we really care who 
is performing the work?
    The Acquisition Advisory Panel in its 2007 report 
highlighted the increasing reliance on buying commercial 
services and using more contractors to fulfill agency missions. 
As a result, the panel stated that federal agencies need to 
maintain sufficient in-house expertise, an expertise to manage 
contractors' performance and the risk that is involved with any 
customer-contractor relationship.
    But, as the panel further stated, agencies are finding it 
hard to recruit and retain the type of skilled professionals 
needed to do the complex work that is now part of their 
mission.
    I have highlighted some of the challenges we face 
embellishing the role of the government with the proper use of 
private contractors, and I look forward to hearing testimony 
from our witnesses today. And I hope you can tell us what 
statutory or regulatory barriers might be in your way to grow 
the workforce and what new assistance might you need.
    Do we need a new definition for inherently governmental? Or 
do we simply need to focus our efforts on getting results and 
giving the work to whomever is the best to get the job done? 
What steps need to be taken to ensure proper government 
oversight when we do use contractors? How do we answer 
fundamental questions of what is the proper role of government 
and the role of the private sector?
    But before turning to my colleague for his opening 
statement, I would like to first say a few words about one of 
our witnesses. Today is a bittersweet day, I guess, since it is 
the last day that David Walker will appear before this 
committee, at least in the role of GAO Comptroller General. 
After tomorrow he will be off to new challenges and new 
adventures.
    David has had a tremendous government career and has had an 
influence on all of us. He was responsible for putting 
accountability back into government oversight. I think that all 
of us owe David a debt of gratitude for his forthright 
leadership at the helm of GAO.
    David, I know my colleagues will agree when I say that you 
will be missed.
    And now I would like to turn to my good friend from the 
Commonwealth of Virginia, Randy Forbes, for any remarks that he 
might want to make.
    [The prepared statement of Mr. Ortiz can be found in the 
Appendix on page 35.]

   STATEMENT OF HON. J. RANDY FORBES, A REPRESENTATIVE FROM 
        VIRGINIA, RANKING MEMBER, READINESS SUBCOMMITTEE

    Mr. Forbes. Mr. Chairman, as always, we thank you for your 
leadership and for holding this hearing today.
    And to all of our witnesses, we thank you for your patience 
as we work through our technological difficulties. But 
hopefully, we are on track now. It is a pleasure to have you 
here, and we are all looking forward to listening to your 
testimony.
    We hope that we can have a substantive dialogue about how 
the Department of Defense determines which jobs to in-source 
and which jobs to outsource. I say ``dialogue,'' because this 
hearing topic is slightly different than most we have at this 
time of the year.
    The subject of inherently governmental functions is not 
linked directly to the fiscal year 2009 budget submission, but 
rather it is an omnipresent question that gets to the core of 
our military readiness. I hope that, through a discussion with 
our panel of experts, the members can learn more about the 
existing authorities governing outsourcing, the long-term 
constraints facing DOD, and the balance of the force today.
    Private contractors have been paid to accompany and support 
U.S. military forces, as the chairman mentioned, since the 
Revolutionary War. The use of such contractors in a peace and 
wartime environment is not new. However, over time the size of 
the contracted workforce has grown significantly.
    Since the end of the Cold War, successive Administrations 
and Congress itself have made calculated decisions to reduce 
the size of the military and civilian workforce. We have 
encouraged the practice of outsourcing, where possible, to save 
money, to gain expertise, and to more easily surge the 
workforce when needed, as we have done over the last five 
years.
    By now, we are all quite familiar with the use of private 
security contractors and contracted logistics support in Iraq 
and Afghanistan, but what has garnered slightly less media 
attention is the prevalent use of contractors back here in the 
United States for functions such as guarding military bases, 
repairing equipment, designing and contracting for weapons 
systems development and providing other acquisition support 
services.
    In and of itself, the use of contracted labor to supplement 
the DOD civilian and military workforce is not problematic. 
Indeed, the men and women who serve as DOD contractors are 
dedicated, patriotic citizens doing an honorable job for the 
taxpayers. They are the backbone of the U.S. military and a 
significant part of what makes our armed forces so capable.
    So the question is not whether these individuals are 
properly or improperly motivated to do some of the jobs we have 
asked them to do. Instead, the question is whether or not it is 
fair to ask them to do some of the jobs we have asked them to 
do. Are we making the best personnel decisions for the long-
term health of our military, rather than for short-term 
benefit?
    We should want private U.S. companies to make a profit on 
honest labor. Therefore, we should think carefully before 
putting contractors in a position where they must choose 
between best value for the taxpayer and maximizing shareholder 
value. The reason we have government is to make those decisions 
for the collective good. It is in the strategic interests of 
this country not to delegate that responsibility.
    I think we can all agree with these sentiments. Therefore, 
the issue really comes down to identifying which functions are 
inherently governmental and ensuring that the Department has 
all the resources it needs to staff accordingly.
    I am aware that the term ``inherently governmental'' is 
defined by the Office of Federal Procurement Policy Letter 92-1 
and has subsequently been codified and incorporated in the 
Federal Acquisition Regulations. The question, then, is one of 
interpretation.
    For example, I note that in recent testimony to the Senate 
Homeland Security and Governmental Affairs Committee, Mr. Bell, 
you stated that security guards defending bases are not 
involved in offensive operations and thus are not performing 
inherently governmental functions. Yet the regulatory 
definition does not specifically address offensive versus 
defensive questions or operations.
    It does state that an inherently governmental function does 
involve determining, protecting and advancing the United States 
economic, political or other interests by military or 
diplomatic action, contract management or otherwise. One could 
argue, at least, that private security personnel are protecting 
or advancing U.S. political interests. This is simply one 
example of the dilemma we face in deciding what is or is not 
inherently governmental.
    We also face these decisions on the acquisition front. Over 
the last several years, this committee has sought to curb the 
use of lead systems integrators for the procurement of military 
hardware. We now struggle with the use of such prime 
contractors on services contracts.
    What is the right way to obtain the expertise and 
efficiency DOD needs without compromising competition and 
fairness? These are difficult choices in the best of times, and 
I recognize that there are budgetary pressures facing the 
Department, and I also recognize how long it takes to recruit 
and train civilian and military personnel. Retention is equally 
as challenging.
    I look forward to understanding more of the facts of these 
problems by the end of today's hearing, and I would like to 
conclude, as the chairman did, by thanking our witnesses for 
their service to our Nation and for being here with us today.
    And in particular I would like to thank Mr. Walker, as we 
all understand this is your last hearing as Comptroller 
General. You have served this Nation admirably, and I wish you 
the very best in your future endeavors. And thank you for being 
here with us.
    And, Mr. Chairman, thank you. And I yield back the balance 
of my time.
    [The prepared statement of Mr. Forbes can be found in the 
Appendix on page 38.]
    Mr. Ortiz. This afternoon we have a distinguished panel of 
experts: Mr. Jackson Bell, Deputy Under Secretary of Defense 
for Logistics and Materiel Readiness; Mr. Shay Assad, Director 
of DOD's Office of Defense Procurement, Acquisition Policy, and 
Strategic Sourcing; and the Honorable David Walker, Comptroller 
General of the Government Accountability Office.
    This is such an important issue that we are not going to 
time you. Just go ahead and finish your statement, because this 
is a very, very important issue.
    And, Mr. Bell, you can proceed.

    STATEMENT OF P. JACKSON BELL, DEPUTY UNDER SECRETARY OF 
   DEFENSE, LOGISTICS AND MATERIEL READINESS, DEPARTMENT OF 
                            DEFENSE

    Secretary Bell. Thank you, Chairman Ortiz.
    Thank you, Member Forbes, other members of the committee.
    It is an honor to be here to appear before you with David 
Walker and to thank him for his terrific, dedicated service to 
this government.
    And thanks for this opportunity to discuss the question of 
inherently governmental functions and the role of government in 
providing services and fulfilling agency core missions. My oral 
testimony today will briefly summarize my written testimony, 
and we will be available to answer questions on that as well.
    DOD's use of contractors, including private security 
contractors, is consistent with existing U.S. Government policy 
on inherently governmental functions. We are guided by three 
main documents, when determining whether an activity is 
inherently government, as has been mentioned already: the 
Federal Acquisition Regulations, or the FAR; the Federal 
Activities Inventory Reform Act, or the FAIR Act of 1998; and 
the Office of Management and Budget (OMB) Policy Letter 92-1, 
which was issued in 1992, later replaced by A-76, but also 
incorporated there by reference.
    Both the OMB policy letter and the FAR define an inherently 
governmental function as a matter of policy, a function that is 
so intimately related to the public interest as to mandate 
performance by government employees. OMB Policy Letter 92-1 is 
actually quite specific, when identifying those functions 
considered to be inherently governmental and those functions 
not considered to be inherently governmental.
    The DOD policy is not to contract out any functions defined 
as inherently governmental.
    As has been pointed out, several factors have shaped DOD's 
increasing reliance on contractor in the last decades: first of 
all, the shift to an all-volunteer force in the 1970's; second, 
an effort to capture a peace dividend following the collapse of 
the Soviet Union, which led to a significant reduction of both 
DOD military and civilian forces; and, of course, the 
increasing technical complexity of DOD weapons systems and 
equipment, which requires a level of specialized technical 
expertise, but of limited scope the DOD does not believe can be 
cost effectively supported by a military force capability.
    The current global war on terrorism deployments of our DOD 
military forces are actually the first major contingency 
operations to reflect the full implications of the shift to 
reliance on deployed DOD contractor personnel.
    For example, as of the end of the first fiscal quarter of 
2008, which ended December 31st, 2007, the U.S. Central Command 
(CENTCOM) reported about 223,221 DOD contractor personnel 
working in the CENTCOM area of operations (AORs). This included 
163,591 DOD contractor personnel in Iraq, 36,520 contractor 
personnel in Afghanistan and 23,110 contractors in other 
CENTCOM AORs.
    These contractor personnel provide a broad range of 
services, including construction, reconstruction, base support, 
transportation, communications, translator interrogator 
support, interpreter support and security. DOD, the GAO, OMB, 
the Congressional Budget Office and the Congressional Research 
Service have all continuously reviewed the expanded use of 
contractors and the appropriateness and the manner in which 
they are employed.
    In 2005 the Congressional Budget Office conducted a study 
of the relative cost of contractors versus military personnel, 
from both a short-term and a long-term perspective. Their 
conclusion was that when all relevant costs are considered, in 
the short term costs are comparable, but in the long term the 
use of military personnel is about 90 percent more expensive.
    It is also worth noting that, using the analytical 
framework of the 2005 Congressional Budget Office study, it 
would take about nine new brigades' worth of military personnel 
to replace the current number of private security contractors 
in Iraq and Afghanistan. This would represent a significant 
challenge for DOD to resource such a requirement.
    DOD has been refocusing efforts not only on the management 
of DOD contractors, but also on interagency management and 
oversight of all U.S. Government contractors deployed forward.
    On December 5th of 2007, DOD and the State Department 
signed a memorandum of agreement, or an MOA, defining a 
framework for strengthening the management of government 
private security companies (PSCs) in Iraq. The scope of this 
MOA is covered in some detail in my written testimony.
    DOD is also working with State and U.S. Agency for 
International Development (USAID) on additional measures to 
meet congressional mandates to improve oversight and management 
of our deployed contractors. These efforts will fully comply 
with the requirements of Section 861 and 862 of the 2008 
National Defense Authorization Act (NDAA).
    Both State and DOD support legislation to strengthen the 
legal accountability of non-DOD U.S. Government contractors 
overseas. The DOD-State effort in these areas builds on the 
DOD's strategic framework already developed for managing 
contractors deployed with our military forces. The framework 
will be issued in final form in April of 2008 in accordance 
with the requirements of Section 854 of the 2007 NDAA.
    We are also strengthening the training and career 
development of our deployable contractor management forces and 
the training of our operational military leaders at all grades 
on the management of contractors deployed with our forces. DOD 
has made significant improvements in the management of our 
deployed contractors, and we continue to focus on strengthening 
our capabilities going forward.
    Subsequent to my submission of my written testimony, we met 
with members of your staff, who indicated an interest in 
discussing other aspects of inherently governmental function, 
including the preservation of core capabilities within DOD. I 
will be happy to address any of these questions on this subject 
that you would like to take up in the Q&A period of the 
hearing.
    In closing, I would like to say DOD does appreciate the 
interest and support that Congress continues to provide for 
this important effort. Thank you.
    [The prepared statement of Secretary Bell can be found in 
the Appendix on page 40.]
    Mr. Ortiz. Thank you, Mr. Secretary.
    Mr. Assad.

    STATEMENT OF SHAY ASSAD, DIRECTOR, DEFENSE PROCUREMENT, 
   ACQUISITION POLICY, AND STRATEGIC SOURCING, DEPARTMENT OF 
                            DEFENSE

    Mr. Assad. Chairman Ortiz, Representative Forbes, 
distinguished members of the House Armed Services Subcommittee 
on Readiness, thank you for the opportunity to discuss the 
question of inherently governmental functions and the proper 
role of government in providing services and fulfilling the 
Department of Defense core missions.
    Before I begin my oral testimony, I have a written 
statement that I would like to submit to the record, Chairman 
Ortiz, and just summarize with brief oral comments.
    Mr. Ortiz. We will include it for the record, sir.
    Mr. Assad. Thank you.
    And also before I begin, I would like to recognize the 
Honorable David Walker for his outstanding government service 
and thank him for the same.
    I serve as the Director of Defense Procurement, Acquisition 
Policy and Strategic Sourcing. In terms of my experience prior 
to assuming this role in April of 2006, I was the senior 
contracting official in the Marine Corps.
    Prior to that I spent 25 years in industry. I served in 
several different roles. I was a senior vice president of 
contracts. I was a president and chief operating officer with 
one of Raytheon Company's major subsidiaries, and finally a 
chairman and chief executive officer of one of their 
subsidiaries.
    I am a graduate of the Naval Academy. I served in the 
United States Navy two tours on destroyers and last served as a 
naval procurement officer.
    Today's hearing goes to the heart of two questions. What is 
the core capability that government must maintain, if it is to 
continue to provide our warfighters the equipment and support 
services they require, while ensuring that taxpayers' money is 
spent wisely? And what is the proper role of contractors that 
are supporting the Department of Defense in that effort?
    We must ensure that government personnel perform the 
inherently government functions associated with the acquisition 
and procurement of defense goods and services. The fact that 
contractors may be performing or appear to be performing these 
inherently governmental functions is a matter of concern to me.
    I would like to focus initially on the role of industry 
versus government employees and military personnel in the 
contracting and procurement mission within the Department of 
Defense. The Federal Acquisition Regulations identify functions 
which are considered inherently governmental, and it is an 
extensive list, but it is also not totally inclusive.
    My perspective centers around the government's business 
decisionmaking process and specifically the personnel and 
processes we use to contract now for over $300 billion of goods 
and services within the Department of Defense. My view is that 
the role of industry must be carefully and particularly 
scrutinized, when contractors are involved in the pre-award 
phases of government procurement and acquisition.
    Among the areas which should be scrutinized are the 
determination of an acquisition approach and our business 
strategies, the selection of who will perform the work, the 
negotiation of cost and price of our contracts, the negotiation 
of contract terms. And except in those cases where technical 
expertise does not reside within the government, what we do 
during the pre-award decisionmaking process should not be 
performed by contractors, in my view.
    The role of contractors in procurement and contracting 
activities should be confined to administrative support, 
whenever possible. Even in those areas, we need to assure that 
anything that provides access to the decisionmaking process in 
the aforementioned areas must be carefully examined.
    At the present time, approximately five percent of the 
total procurement and contracting workforce consists of 
contractors--that is, industry folks. In a number of instances, 
these contractors are providing appropriate administrative 
support.
    However, while not pervasive within the Department, there 
are occasions when contractor personnel are performing 
contracting roles similar to those that I previously described.
    A small number of contracting organizations have resorted 
to utilizing contractors. And why are they doing so? Well, 
among the reasons are increased workload, a lack of billets, a 
lack of experienced personnel and an inability to recruit 
personnel effectively.
    In spite of the aforementioned, I believe that we must find 
a way to enable these organizations to staff their operations 
with government employees, not contractors.
    Examples of solutions are increased billets, where 
justified; use of retired annuitants, when it makes sense; and 
use of interagency contracting services, when that makes sense. 
I can assure you that we are working to change those instances 
where I believe that contractors are performing functions which 
could be inherently governmental in the contracting process.
    It is essential that we in government fully recognize that 
government contracting personnel hold positions of trust and 
have a fiduciary responsibility to our taxpayers. We should not 
outsource that responsibility. We should hold government 
employees accountable to do it.
    We cannot overlook the potentials for conflicts of 
interest, both personal and organizational, when contractors--
that is, industry folks--are working in a contract environment. 
This is a concern that has been raised by the General 
Accounting Office, and we are working to address those 
concerns. Recently, GAO put out a report on this matter, and we 
fully concur with their views.
    There are several significant initiatives, which we have 
taken in the Department, to address the issues of integrity and 
the training and improvement of our contracting workforce. We 
have a panel of contracting integrity, and Section 813 required 
that. We are conducting extensive contracting competency 
modeling, which I will be happy to talk to you about. We have 
also invoked a series of management structures for the 
management of our services contracts.
    The Department's goal is to continuously strive for 
improvement in all that we do. We will not lose sight of the 
tenet that, while we endeavor to provide our warfighters the 
very best, we must also ensure that we do so while being good 
stewards of the taxpayers' funds. Our warfighters deserve 
nothing less, and our taxpayers rightfully should insist on 
nothing less.
    Mr. Chairman, I thank you and the members of this committee 
for your interest in our efforts, and we will be happy to 
discuss any questions, which you may have for me. Thank you 
very much.
    [The prepared statement of Mr. Assad can be found in the 
Appendix on page 50.]
    Mr. Ortiz. Thank you so much.
    Mr. Walker.

 STATEMENT OF HON. DAVID M. WALKER, COMPTROLLER GENERAL, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Walker. Thank you, Chairman Ortiz, Ranking Member 
Forbes, other distinguished members of this subcommittee. Thank 
you for your kind comments. It is a pleasure to be back before 
this subcommittee for what will be my last hearing as 
Comptroller General of the United States.
    I am pleased to be here today to discuss the increased 
reliance of the United States Government in general and the 
Department of Defense in particular on the use of contractors 
in connection with government related activities.
    In fiscal 2007 the Federal Government spent about $254 
billion on contractor services. That amount has doubled over 
the past decade. The Department of Defense's obligations for 
service contracts, for example, expressed in constant, 
inflation adjusted dollars, rose from $85 billion 1996 to $151 
billion in 2006, a 78 percent increase.
    DOD has become increasingly reliant on contractors, both 
overseas and in the United States, to perform a wide variety of 
services and other activities. For example, DOD has recently 
estimated that the number of contractors in Iraq and 
Afghanistan is about 196,000 individuals, roughly the same as 
our deployed forces.
    In addition to the support contractors provide the military 
forces overseas, we are also having an increased use of 
contractors for other services, including for various aspects 
of weapons systems logistics support and depot-level 
maintenance.
    While contractors, along with military personnel and 
civilians, are part of the total force employed by DOD, it is 
important to focus on which types of activities are appropriate 
for contractors to use, and which are not.
    And if I can, I would ask, Mr. Chairman, that my entire 
statement be included in the record, and I will now move to a 
few comments that I think would be particularly interesting to 
this subcommittee.
    I think when you are talking about the Department of 
Defense, you are talking about military personnel, civil 
servants and contractors. Those represent the total force.
    There are a number of factors, I think, that are causing 
the Defense Department to use contractors to a greater extent, 
one of which, as has been mentioned, is the move to the all-
volunteer force. The military, especially the Army, is 
stretched and strained. It has a capacity problem. And 
therefore, if it doesn't have adequate capacity to be able to 
perform certain functions, it must look to alternatives.
    Second, candidly, the Federal Government's hiring 
practices, classification and compensation systems in some 
cases do not facilitate being able to hire the number and type 
of people that you need as quickly as you need them.
    With regard to the issue of inherently governmental, in my 
mind you should never contract out any representational role 
for the United States in whatever way it might be, and second, 
you should never contract out any role or function that can 
involve the discretionary use of government power. And that 
includes financial resources, both as to value and risk, as 
well as enforcement, regulatory interpretation and other types 
of activity. These are inherently governmental. Those should 
not ever be contracted out.
    On the other hand, when you look at a broader sourcing 
strategy, once you define what those are, then you have to look 
at, for what is left of government, what is core and what is 
non-core. And if it is not core, in general you should contract 
it out, because the government should not be in the business of 
competing with the private sector in the normal course.
    And many times when you are talking about non-core 
capabilities, because of the competition that exists in the 
private sector and because of the ability to leverage 
investments, because they have a capital budget and the ability 
to achieve economies of scale and benefit from new technologies 
quicker than typically the government does, one can obtain cost 
effectiveness and efficiencies.
    And then last, but certainly not least, one has to look at 
what is a recurring need versus a non-recurring need, because 
if it is a recurring need, generally you want to provide for it 
within the government, but if it is a non-recurring need, such 
as a surge need, a contingency operation, there will be 
circumstances where it is prudent and appropriate to go to 
contracting, because it is not a recurring need. It is not 
something you are going to need in the long term.
    Three thoughts on what the Federal Government needs to 
think about doing in this area. First, extra flexibility for 
the Defense Department and other government agencies to be able 
to hire a limited number of civil servants at any level for up 
to a stated period of time for a maximum percentage of the 
workforce on a noncompetitive basis to do whatever needs to be 
done.
    The Comptroller General of the United States has this 
authority. I have the authority to hire up to one-half of one 
percent of our allocated account to do whatever I think needs 
to be done noncompetitively for up to three years, and if they 
want status, they have to convert after that. Think how that 
could have helped in an Iraq situation, in a Katrina situation 
and in others.
    Second, we need to use re-employed annuitants to a greater 
extent to try to achieve two objectives: number one, to deal 
with the retirement wave and transition to a new workforce; and 
second, to deal with surge and contingency needs in order to be 
able to tap that capacity.
    And third--last, but not least--most fundamentally, the 
Federal Government needs to re-examine its entire 
classification and compensation systems, because they are not 
market-based, they are not performance-oriented, they do not 
generate the type of value for money that the taxpayer should 
expect and demand.
    So with that, Mr. Chairman, I am happy to answer any 
questions that you might have, and the other members of the 
subcommittee. Thank you.
    [The prepared statement of Mr. Walker can be found in the 
Appendix on page 61.]
    Mr. Ortiz. Thank you so much for your testimony. And I am 
going to ask a question, and maybe all of you will have a 
chance to respond. My question is have you been able to 
determine if the Department of Defense has saved money by the 
extensive use of contractors?
    For example--and this is just an example--if it cost $1 
billion to build an active duty brigade, and the Army will need 
three brigades of military police (MPs) to replace contractor-
provided personnel protective security now used in Iraq and 
Afghanistan, couldn't we afford more military police instead of 
using contractors? And this $1 billion is just an example.
    Mr. Walker. Well, I will start, Mr. Chairman. It really is 
all facts and circumstances. It really depends upon what are 
the skills and knowledge that you are talking about. The simple 
fact of the matter is the Federal Government has generous 
benefits. The Federal Government, depending upon what level you 
are in the government, either pays competitively, underpays as 
compared to market, or in some cases overpays as compared to 
the private sector.
    So depending upon what are the roles and functions you are 
talking about, you either can save the Federal Government 
money, or in some cases could cost the Federal Government 
money, a lot more. But then you have to ask yourself, ``Okay, 
is this going to be something that we are going to need to do 
on a recurring basis, or is it something we just need 
temporarily?''
    And so I think you need to consider the cost, but you need 
to consider all the factors that I talked about, because, 
depending upon the facts and circumstances, it may be best 
value to pay somewhat more, but it doesn't make sense to do 
that over an extended period of time for a recurring need.
    Mr. Ortiz. Anybody else here?
    Secretary Bell. Congressman Ortiz, as I indicated earlier, 
Congressional Budget Office did do a study on this in 2005. It 
was focused specifically on logistics personnel, and their 
analysis--and again, as Comptroller General Walker has said, it 
is a matter of facts and circumstances and skill sets--but 
looking at logistics personnel, their conclusion was in the 
short term it was a wash. In the long term, because of the 
career benefits, retirement benefits, health care benefits and 
such, it cost about 90 percent more.
    So that is an envelope within which we work. But in many 
cases we are talking about--particularly as we are looking at 
the situation in Iraq--a situation where we got greater 
responsiveness out of the private sector for certain key skills 
and capabilities that we needed by mobilizing contractors than 
we would have, for example, by attempting to mobilize Reserve 
or National Guard forces for those missions.
    Mr. Assad. I think, Mr. Chairman, that it really does boil 
down to what are the skill sets that you need and how long are 
you going to need them for? As Comptroller General Walker said, 
if you need them over a sustained period of time, then you 
really have to examine are these decision making processes? Are 
these roles where we are obligating the government to do 
certain things?
    If the answers to those questions are yes, then I think we 
need government employees to do that kind of stuff. On the 
other hand, if it is a specialized capability that is a short-
term response, as Mr. Bell mentioned, the reality is that we 
are probably better off using contractors to do that. But I am 
not aware of any study that has been done within the Department 
to measure that.
    Mr. Ortiz. All right. I have been here 26 years, and one of 
the battles that we have fought has been the A-76 studies. And 
what those studies would do is they would go inside the 
civilian workforce at the depots to see what they could 
contract out. But I never did see them going out to see what 
they could bring in to the depots.
    But, Mr. Walker, when you called for a fundamental re-
examination of the use of contractors to support agency 
missions, how do you think the Congress can support such a re-
examination? And I believe we need to do that.
    Mr. Walker. Well, first, Mr. Chairman, as you may recall, 
the Congress had asked me several years ago to chair the 
Commercial Activities Panel, and I did that, and we put 
together a very prestigious group and submitted a report to the 
Congress, which made recommendations to Congress and the 
Administration. I would commend to you and other Members of 
Congress to take another look at that.
    It dealt with the A-76 issue. And one of the concerns, 
frankly, that I have about the A-76 process is it only deals 
with functions and activities that we are thinking about 
engaging in competitive sourcing activities about. And, 
frankly, that is a small fraction of the Federal Government.
    We ought to be trying to achieve most efficient 
organizations throughout the Federal Government, even though we 
may not ever go through a competition process. And we ought to 
be asking ourselves not just what might be able to be done more 
efficiently and cost effectively externally, but what might 
make sense that is being done externally that should be 
considered to be done internally.
    So I think one of the things that we recommended, as it 
relates to DOD, is that DOD needs to engage in a more 
formalized, possibly like a Quadrennial Defense Review (QDR) 
type of process, where it learns lessons from the existing 
contingency operations--namely, Iraq and Afghanistan--and that 
it fundamentally reassess what makes sense on a going forward 
basis. We don't know what the next contingency operation will 
be, but we know there will be one. We don't know when and where 
it is going to be.
    But more fundamentally, I think, we need to kind of 
periodically re-examine what are we doing in this area and does 
it make sense? We have also recommended in the past that the 
Office of the Secretary of Defense should have somebody who is 
focused on this issue, as well as contractor oversight, because 
contractor oversight is a problem now.
    That deals with DOD. Frankly, I think it is a 
governmentwide issue. I just think it is particularly 
significant in the Defense Department, because it is the 
biggest contractor of any department of the Federal Government.
    Mr. Ortiz. Anybody else would like to----
    Secretary Bell. I would like to make a follow-up comment on 
that, Chairman Ortiz. What David has pointed out there is 
something we actually began addressing in 2006, which is the 
question of how should we structure, from a strategic point of 
view, putting together a framework for managing contractors on 
the battlefield going forward?
    It did not look at the issue of whether the types of 
contractors were appropriate, but it made the assumption that, 
given roughly the level of contracting and scope of contracting 
activities we have, we recognize that we have to fundamentally 
change the approach strategically for how we approach even 
using contractors to accompany the military forces.
    That is the report I indicated earlier will be submitted to 
Congress here in April, our final report and our final 
recommendation on how we plan to proceed going ahead.
    Also, to the point of appointing an individual, I am the 
senior DOD official responsible for management of deployed 
contractors. Shay Assad is the senior official responsible for 
contracting policy for DOD. And so we are moving in the 
direction that he is suggesting that we need to.
    I think, though, that he is raising a more fundamental 
strategic question, which is appropriate roles for contractors, 
compared to the government functions.
    Mr. Ortiz. Anybody else? If not, let me yield to my good 
friend, Mr. Forbes. We are having some motions to adjourn. 
Somebody wants to go home. Who wants to stay here?
    Mr. Forbes.
    Mr. Forbes. Thank you, Mr. Chairman.
    And once again, let me thank all of you. I am honored just 
to have your wisdom in here, and maybe by osmosis we can pick 
up some of it today.
    But, Mr. Walker, as I understand one of your comments, we 
have about 196,000 contract employees currently in Iraq. Was 
that----
    Mr. Walker. My capable staff has told me, and my testimony 
includes, that that is a recent estimate by the Department of 
Defense--196,000 personnel.
    Mr. Forbes. The question I would ask for any of our 
witnesses is do we currently in our war plan take into account 
an immediate withdrawal of the United States forces from Iraq 
and how it would impact those 196,000 contractors that are 
there--not which plans we may be looking at now, but what 
currently we have in our war plans--how would we deal with them 
if we made a decision to load our troops on ships tomorrow and 
bring them home?
    Secretary Bell. Actually, we have been doing a number of 
detailed studies on that subject exactly, looking at both the 
specific contractor taskings that would need to be accomplished 
to support the drawdown of forces, as well as the repositioning 
of the contractor personnel themselves.
    Mr. Forbes. Mr. Bell, Mr. Secretary, my question, though, 
is, with all due respect, not what we are looking at, but do we 
have a plan in place now, if we were to have an immediate 
withdrawal of our troops today, of how we would deal with those 
contractors that are in Iraq?
    Secretary Bell. How we would deal with them operationally 
in terms of their withdrawal?
    Mr. Forbes. How do we make sure that they are protected, 
their safety, we get them back today? Do we have an operational 
plan to deal with that, if we pull the plug, we quit, we walk 
away tomorrow?
    Secretary Bell. My understanding--the last time I was over 
there and talked with General Petraeus was in November--is such 
planning was in an advanced stage at that point in time.
    Mr. Forbes. And again, without picking words, planning is 
one thing. Do we have that in place now? It is one thing to be 
planning for it, but if we made the decision today to withdraw 
our troops, do we have a plan in place today as to how we could 
protect the contractors that are there?
    Secretary Bell. I would like to take that as a question for 
the record (QFR) to make sure that the planning that was done 
has reached the state you are actually looking for here.
    Mr. Forbes. If you could get that to us, because obviously 
that is a big concern for a lot of us. If somebody makes the 
decision to talk about pulling our troops out immediately, 
where does that place these 196,000 contractors that are out 
there?
    Secretary Bell. I understand the question. I would be glad 
to take that for the record.
    [The information referred to can be found in the Appendix 
beginning on page 105.]
    Mr. Forbes. Thank you, Mr. Secretary. The other thing I 
would ask is what are some of the unintended consequences that 
have resulted from previously enacted legislation aimed at 
streamlining or reforming the acquisition workforce? Are there 
particular statutes that in your judgment--either the three of 
you--make that difficult?
    Secretary Bell. I would certainly defer to David on that 
one for the beginning.
    Mr. Assad. I don't think it is an issue of statutes that 
have been enacted by Congress that are causing the problem. I 
do believe that, as we look back on a number of the things that 
have been done in terms of acquisition reform, you have to 
wonder if in retrospect, now that we have gotten some time to 
look in hindsight at several of the things that have happened, 
did we get the benefits of several of the intentions of 
acquisition reform?
    Certainly, one could argue that it has made things easier 
to do in terms of getting things under contract. I say that 
anecdotally, although I have no factual basis for that. But I 
do believe, however, that it did not result--I haven't seen any 
evidence that we are in fact paying less for the goods and 
services that we procure as a result of acquisition reform.
    It is also not clear to me that--I liken it to if you have 
a football field, and it has got all the lines on it, it has 
got goalposts and has hash marks on it, people understood when 
the ball landed, where it should be and how to play the game. 
When I spoke to Mr. Creve about this before he left government 
service, I likened it to removing all of the lines from that 
field, and you have folks on board, who--somebody has got a 
baseball bat, someone has a basketball, somebody is dressed up 
in a hockey uniform, someone has a football uniform on, and 
they are not quite sure how the game should be played.
    What acquisition reform did was it was a perfect 
environment for a very experienced and seasoned workforce to 
operate in. But that experienced and seasoned workforce over 
time has diminished. We have got a bathtub right now in the 
procurement contracting environment.
    We have over 22,000 folks who do contracting, both military 
and civilian. And if you look at that workforce, a significant 
portion of it has got 15 years of experience and beyond. We are 
doing a pretty good job of bringing some of the younger folks 
in, from 0 to 5 years of experience--younger in terms of 
experience, not necessarily age--but between 5 years and 15 
years of experience, we have got this huge dip. And that is the 
element of the workforce that, in retrospect, we depended upon 
to be very experienced.
    And so we have got a somewhat inexperienced workforce 
trying to deal in an environment that requires significant 
experience. That is why we are doing the competency modeling 
that we are doing right now. We are trying to get a sense of--
recognizing that that has happened, we are looking in the 
mirror and saying, ``Well, where are we? What is our capability 
to do procurement and contracting in the Department of 
Defense?''
    And so we have established a competency modeling process. 
We had over 400 very experienced contracting officers put that 
model together. We have had over 5,000 contracting people go 
through the model already. We will have another 5,000 go 
through it this month of March. By the end of June, the entire 
contracting workforce will have gone through that process.
    It will give us a better sense of what our level of 
capability is in the environment of acquisition reform that we 
have created, and then it will allow us to do three things: 
number one, to carefully examine the acquisition environment to 
see if there are suggested changes that we can ask Congress to 
consider; to look at our capabilities and experience levels to 
see what we need to do in that regard; and then, third, to 
examine our capability to actually do work and decide how many 
folks do we actually need over and above that which we 
presently have.
    Mr. Forbes. And, Mr. Walker, if you don't mind, if you 
could submit yours for the record. The only reason is we have 
to get over for this vote, and I want to yield back.
    Mr. Walker. No problem.
    [The information referred to can be found in the Appendix 
beginning on page 105.]
    Mr. Forbes. And the last thing I would just leave with you 
also for the record. We are not just talking about acquisitions 
on the battlefield, but we are also talking about training 
capabilities. And I am just concerned, too, that we don't find 
ourselves in the position where we are not able to train the 
way we need to. So any of your comments that you could put in 
the record later on that, asking how we protect there, we would 
appreciate that.
    Mr. Chairman, thank you. I yield back.
    [The information referred to was not available at the time 
of printing.]
    Mr. Ortiz. Thank you. We are having an adjournment vote, 
and we might have another one, but we will try to come back 
very quick, because this is a very, very broad issue that, 
hopefully, by working together we can get a hold of it and try 
to put the genie back in the bottle so we can work it out. But 
we will be right back. We will have a short recess. Thank you.
    [Recess.]
    Mr. Ortiz. We are going to continue with our hearing.
    And Ms. Boyda, do you have any questions?
    Mrs. Boyda. Thank you very much, Mr. Chairman. This is 
obviously an issue that is of huge importance to our entire 
country, and in some respects it has some issues in Kansas that 
I think people are asking me, ``What is going on?''
    In Kansas we have a Parsons Army Ammunition Plant that we 
have now contracted to Canada. We closed the plant and 
contracted to Canada. We have a tire facility that was built in 
World War II, and we basically contracted the whole procurement 
of our tires for the Humvee to a French company, Michelin. We 
are looking at clearly an issue that has hit Kansas right 
between the eyes, and that is Boeing.
    As we keep moving away from our industrial base and letting 
our industrial base leave the United States, what is the 
impact, Mr. Bell, we were talking about? What is the impact 
that that has on our ability to respond in a timely manner?
    Secretary Bell. Thank you for the question. The issue we 
have been facing, as I think everyone knows here, for the past 
several decades has been largely the multinationalization in 
manufacturing, with a lot of the actual physical manufacturing 
moving offshore. And that does, in some sense, challenge our 
capabilities in that most manufacturers, particularly very 
large manufacturers of complex systems, are sourcing key 
components outside the U.S.
    And we were just talking earlier about the Mine Resistant 
Ambush Protected vehicle (MRAP) situation, where obviously a 
decision was made within the Department of Defense to maximize 
the production of these vehicles, because they are saving lives 
over in Iraq and Afghanistan.
    What is not as well known is the challenges that we faced 
in terms of the capabilities of our domestic industrial base to 
produce key components for those vehicles. Even though they 
were being produced by a number of different companies, they 
shared many of the same components.
    For example, we, during the critical period of ramping up 
manufacturing, basically were consuming almost all of the 
globally available--at least free world globally available--
ballistics steel armor, thin ballistic sheet steel. The tires 
for the load range of MRAPs were only being produced by 
Michelin in France at that time, and in fact, some of the key 
axle and transmission castings were being produced in France.
    So we increasingly have to look at the global industrial 
base to support our requirements in DOD, and the MRAP program 
is a good case in point of how we have to reach out and manage 
the complexity of that.
    Mrs. Boyda. Thank you very much.
    Again, let me just state again in Atcheson, Kansas, we have 
got a foundry that would be happy to make those castings for 
you. We have got a facility--as I said, the World War II 
facility--that could make those tires, have made them for 
years--my point being, as I think your point is, that as we 
have just said, we are going to turn our backs on the 
industrial base here in the United States. It actually affects 
our readiness in ways that I think America is beginning to 
understand on a daily basis.
    And my personal belief is that this committee needs to 
address some of those and to make sure that we have an 
industrial base left that is in fact ready to respond when we 
need it at any time.
    Let me just go back at the larger issue of the number of 
contractors that we have. And the chairman and I were speaking 
during the break here that we have 196,000 contractors in Iraq 
and Afghanistan and 150,000 or 160,000 active duty in Iraq.
    Secretary Bell. It is about a one-to-one ratio both in Iraq 
and Afghanistan.
    Mrs. Boyda. Basically, when you look at that, tell me how 
that affects the long-term viability of our Army and our 
Marines, our Air Force and our sailors, when in fact when we 
are trying to recruit men and women into our armed forces--and 
I am on the Personnel Subcommittee as well--what is the impact 
there?
    I hear from our DOD active duty that in fact they can make 
so much more in the short term, but they can make much more 
money as a contractor. Would each of you respond to what that 
means again to our military readiness?
    Secretary Bell. Let me answer that question, if I may, in 
several parts. One of the challenges that I think we deal with 
in sound bytes that you hear from time to time about 
compensation for the people is that clearly the people who are 
the most highly compensated over there, other than technical 
specialists, tend to be the private security contractors, which 
is in fact a very specialized skill that our normal military 
personnel, while they are trained in combat operations, are not 
trained in security operations. And that has been the most 
sensitive.
    I think in terms of the real cost, most of the other 
functions, other than technical functions and private security 
functions, tend to be reasonably comparable, and that is in 
fact what the Congressional Budget Office study was in 2005.
    It is, as Comptroller General Walker said, when you look at 
the total all end cost, not just the differential in salary 
cost, one of the things the 2005 study indicated is only about 
43 percent of the total compensation of a military person is 
actually their cash compensation, where for many of these 
contractors, their only compensation is their cash 
compensation. So the differential, while it is accurate, is not 
representative of the total compensation issue. So that is one 
of the issues that I think we face.
    The other one, of course, is the important flexibility that 
we get from being able to hire contractors. While we might and 
initially may have had some concerns about the willingness and 
the ability of the private sector to step up and deploy 
personnel with us, side by side with us in our forward 
operating bases, we have actually found, much to our surprise 
and satisfaction, that they have been very responsive, and we 
have had relatively few, very short term personnel shortages.
    We find there are a lot of former military personnel that 
are happy to be back, engaged with the troops, and they are 
very patriotic. And so, in addition to having the contracting 
for, let us say, basic work services, we actually have embedded 
technical personnel with many of our fighting units. Our Apache 
units, our Stryker units have a high component of technical 
service personnel actually embedded in the combat units, but 
they typically stay on the forward operating bases.
    Is that responsive?
    Mrs. Boyda. Yes, it is. And actually I will come back. I 
wanted to just follow up with the conversation, so I will 
yield. And thank you very much.
    Mr. Ortiz. Mr. Jones.
    Mr. Jones. Mr. Chairman, thank you very much.
    And to the witnesses, I had a chance to say hello. Thank 
you for your service to our Nation. Many of you have been in 
the military. Thank you for that service as well.
    And to my good friend, David Walker, thank you for still 
trying to convince the American people that this country had 
better wake up before it goes broke. I will leave it at that.
    My question is a general question about the contractors. 
And I understand and I have no problem with the fact that 
contractors are being more and more a part of the world we live 
in with terrorism, and they do have a place. I want to make 
that clear.
    My concern is the checks and the balances. And I will tell 
you why. Mr. Bell, I know you were in the Marine Corps. I 
believe I understood that.
    And I will never forget back in 2006 I was at Camp Lejeune 
to visit the base and see some of the good things that were 
being built at Camp Lejeune, and I met a gunny sergeant who had 
been to Iraq three times. And it was late in the day, and I 
just happened to be introduced to him, and something he said to 
me I have never forgotten. ``Will this country ever know how 
much money Halliburton has made off the war in Iraq?'' And I 
thought that was so profound. Obviously, I haven't forgotten 
it, because I just brought it up.
    The issue of that is what has concerned me. Recently, I 
took the Marine that I went on the floor for five weeks and 
defended--Ilario Pantano. He was the Marine that had been 
charged with murder in Iraq, and the Marine Corps did drop the 
charge--not because of anything I did. I will make that clear. 
But I have gotten to be very close with him, and he had just 
returned from working with a foreign contractor, and at this 
point, since I don't have his permission, I am not going to say 
the name of the company.
    And he came, and with documentation after documentation, 
that the contractor has been paid by American taxpayers. It is 
a foreign entity. And he was in charge of this company for 
about four months. The issue came down to this. They were 
buying their weapons--AK-47s--from Afghan gun dealers. That was 
their policy.
    He, obviously, was very concerned because of two reasons. 
One, the weapons many times didn't work. They would pay $400 
for a weapon, knowing that $200 or $250 would go back to the 
Taliban. So he goes to the State Department and reaches an 
agreement with the State Department that this is how they would 
be buying their weapons from this day forward. Well, by the 
company he was terminated. I have seen all these emails.
    Now I am going back to the point. Mr. Walker has been going 
around this country, and I am sure you and Mr. Assad know this 
as well. We owe China $447 billion right now. We are borrowing 
money from China each and every day. You work with the 
Department of Defense. There is one thing the Constitution says 
for sure--that we must have a military, that we have got to 
have a defense for this country.
    But yet this country continues to get more and more into 
debt. You made the point about steel, I believe, that you were 
trying to meet the responsibilities of building the MRAPs, and 
the fact was you are running short on resources, so you go 
overseas and buy.
    My point to all three of you is this. Not because of your 
position, but as American citizens, are you concerned that this 
Nation has gotten too weak that we are borrowing money to pay 
our bills that we are having to outsource? And again, I am not 
talking about the contractors. We have go to outside sources to 
get materials to build weapons and machinery for our military. 
Is there going to be a point--in both of those I have made--of 
no return?
    And I will start with you, Mr. Walker.
    Mr. Walker. Well, the issue that I have been talking about 
the most, as you know, Congressman Jones, is there are a lot of 
areas where we are having to rely upon foreign players, not 
just with regard to providing critical goods and materiel that 
we need. We are having to rely upon foreign players to provide 
capital. Sovereign wealth funds are now starting to invest in a 
lot of American enterprises.
    They are doing that because the dollar is in the tank, 
because a number of enterprises need capital infusions and 
because, frankly, in many ways America's on sale right now, and 
second, because Americans generally are pretty good at 
spending. They are generally pretty lousy at saving.
    And as a result, when you are running huge deficits like we 
are, you have to get the money from somebody, and so 
increasingly we are relying upon foreign central banks and 
other investors to be able to lend us the money. That is a very 
high-risk strategy, because if, for economic or political or 
other reasons, they decide they don't want to continue to do 
that, then our interest rates will go way up, and that will end 
up causing a vicious cycle.
    The bottom line is I am so concerned about the 
unsustainable path that we are on in a range of areas, not just 
fiscal, that I am resigning my job as Comptroller General of 
the United States, and I am going to go to a new position where 
I will have more flexibility, more discretionary financial 
resources to be able to be more specific about what I think 
needs to be done and to engage in more proactive efforts, 
because I think we have got 5 to 10 years as a country to start 
dealing with some of these serious sustainability challenges, 
or we could end up having economic disruption like we haven't 
seen in decades--much, much worse than any recession.
    By the way, I didn't get the memo that the business cycle 
was repealed. Nobody likes recessions. We may or may not be in 
one now. We may or may not be able to avoid one now. We want to 
avoid them forever.
    Mr. Jones. Mr. Assad, would you pick up on what Mr. Walker 
said and also on what I was saying, that this could be a 
security issue of great magnitude that we cannot protect this 
country, and we cannot take care of our--if you would speak to 
your concerns, if you have those concerns.
    Mr. Assad. Well, I think from my perspective, what we are 
interested in is ensuring that we do have the adequate 
companies that can compete for the goods and services that we 
are buying. My focus in life is to, frankly, ensure that we 
have got competition whenever we can get it. That means we have 
to have a sustainable industrial base to do that.
    Now, as Mr. Bell mentioned, this is a global economy. There 
are very few major corporations that don't have business 
relationships with companies outside the United States. It is 
just a fact of life. And so we can't ignore the fact that we 
are in a global economy.
    I do share many of the concerns as a private citizen, 
frankly, that Mr. Walker has talked about. But from my concern, 
I just want to make sure that we are doing what is necessary, 
that when we wake up in the morning and we decide we want to 
buy something for our warfighters, that I can compete it, 
because at the end of the day, when American industry--frankly, 
when world industry--is in competition, they are at their very 
best. When we don't have that environment, it costs the 
taxpayers dearly.
    Mr. Jones. Mr. Bell, I would like for you to answer that 
question. What Mr. Assad said is the whole issue--that he said, 
``as long as we can buy.'' The problem to many of us in both 
parties is that you get to a point that the dollar has no 
value, you can't really buy.
    This is what my concern is and why again I appreciate the 
chairman and the ranking member holding this hearing, because 
quite frankly, I think this country is getting exactly where 
Russia was when President Reagan made Russia compete with us in 
the arms race. And they had a war in Afghanistan for 10 years, 
and they got into such an economic condition that for about 8 
to 10 years--they are coming out of it now--they couldn't even 
buy bread on the streets of the Soviet Union.
    I don't want to see that happen to this great Nation. 
Anyway, if you want to speak, I guess I have got that much 
time.
    Secretary Bell. My comment on that--and I have been an 
observer of this from my private sector experience for some 35 
years--is we have all watched the economy switch from a 
national industrial base to a global industrial base. We 
actually encouraged it. We congratulated ourselves on shifting 
from a manufacturing-based economy to a service-based economy.
    During the period that was happening, we were not heavily 
engaged in military conflict. We watched many of the 
significant industries that were at one point in time a 
significant component of our economy move offshore--at least 
the manufacturing capability to move offshore.
    So I think the question we have to ask ourselves is in 
order to supply and support our national military needs, as 
well as our national government needs, is the whole question of 
what core capabilities need to be resident within the United 
States. And I think that is a very significant policy issue 
that the legislative branch and the executive branch need to 
address over time.
    Mr. Jones. Thank you, Mr. Chairman.
    Mr. Ortiz. The lady from Arizona, Ms. Giffords.
    Ms. Giffords. Thank you, Mr. Chairman.
    Mr. Walker, is today your last day?
    Mr. Walker. Tomorrow.
    Ms. Giffords. Tomorrow is your last day.
    Mr. Walker. And I am taking Wednesday night off, before I 
start my new job.
    Ms. Giffords. I want to thank you and other members of the 
panel for being here today.
    Mr. Walker came down to southern Arizona and did a 
presentation on the fiscal wake-up tour that he has done around 
the country, and I am still hearing very, very positive 
feedback from the people in southern Arizona about the message 
that we don't do a good job of getting out here in Washington.
    I think people feel it. They see the headlines. They feel 
it in terms of the layoffs and their families, the foreclosures 
they see. But we do have a spiraling situation, a downturn of 
the economy.
    And I am concerned, as we move into even the earmarking 
process right now that we are going through--and there has been 
a lot of debate on both our side and the other side of the 
aisle about how we are going to handle this--so I guess my 
first question for the three of you, starting with you, Mr. 
Walker, is your time here in government--now you are headed to 
the private sector--if you could realistically, knowing the 
constraints that we have to deal with it, how would you 
recommend that we change the earmarking process, knowing that, 
for example, I have a district with Fort Huachuca in it.
    I have got Davis-Monthan in it as well. I have got some 
real needs for military installations. I also represent a 
district that is on the border in terms of national defense.
    So how would you recommend that we go through this process 
in a way that would be equitable, be fair, but also be fiscally 
more prudent?
    Mr. Walker. We recently issued a report, meaning the GAO, 
that hopefully all of you have received--and if not, I would be 
happy to send you another one, if you let me know--on 
congressional directives, a.k.a. earmarks. And it came out in 
January, because it sought to try to help separate the wheat 
from the chaff and the fact from fiction on what they are and 
what they aren't.
    As you know, congressional directives or earmarks by 
themselves don't increase federal spending. Rather, what they 
do is they tell people how you have to spend the money that the 
Congress has appropriated. All earmarks aren't created equal.
    Some earmarks are a result of a considered process, where 
members, such as yourself or others, may consult with state and 
local officials and try to understand what are the most 
critically important transportation projects, for example, that 
might exist within the state and are trying to make an attempt 
to make sure that the Department of Transportation or some 
other entity in government allocates resources based upon what 
the states and localities think are most important, rather than 
up here.
    Others, on the other hand, represent circumstances in 
which, frankly, people want federal money for things that 
frankly may not have any federal purpose whatsoever.
    My view is more transparency and the possibility of not a 
line item veto, which would be unconstitutional, as the Supreme 
Court has said--a line item rescission, an expedited line item 
rescission where the President, whomever he or she might be, 
could say, ``I am concerned about this. Send it back to the 
Congress.'' And then the Congress could override it with a 
simple majority vote--not a two-thirds vote, but a majority. I 
think that would be constitutional.
    I think we have to realize that we have got a problem much 
greater than earmarks--much greater. We are in the hole $53 
trillion. And let me give you one last example.
    If you look at our budget of the United States Government, 
the 38 percent that is in discretionary spending that you 
decide on every year includes every express and enumerated 
responsibility envisioned by the Founding Fathers for the 
Federal Government--every one: national defense, homeland 
security, judicial system, treasury, foreign policy, Congress 
of the United States, executive office of the President, 
postal--every one, every major function.
    So we have got 62 percent of the budget on autopilot. We 
promised a lot more than we are going to be able to deliver. 
And that 38 percent, which is core in government, is getting 
squeezed. And so, yes, I think we need earmark reform. I just 
gave you some thoughts on it. But I think we have much more 
fundamental problems than earmarks.
    Ms. Giffords. Mr. Assad.
    Mr. Assad. I fundamentally agree with Comptroller General 
Walker. My view--again, this is going to sound like a broken 
record to you--is enable us. If in fact Congress decides that 
it is appropriate to earmark funding for a particular purpose, 
what we need to have is the flexibility to conduct that in the 
best way we can to ensure that we get the taxpayers the best 
deal we can get.
    And again, in my world that means competing. So I get very 
nervous when I see an earmark that, while it may not have a 
company's name on it, it makes it very difficult for us to 
award a contract to anybody but a specific company, because it 
has been so directed in the sense of how we should go about it.
    So my view of life is that when these decisions are made by 
Congress, and appropriately so, what we need to have is the 
flexibility to ensure that we can execute it on your behalf and 
in the best interests of the taxpayer.
    Secretary Bell. Following up on both of those comments, my 
view is that if earmarks were individually approved by the full 
Congress, they should have the full weight in the legislation, 
the appropriation.
    I think the problem we are talking about here indirectly is 
the problem where individual Members have the ability to insert 
earmarks that suit their particular interest and their 
particular congressional districts or their states, which 
generally don't get the studied consideration of the entire 
Congress, but it is a process that has been allowed to 
continue.
    There are areas where earmarks might be appropriate, if 
they were congressionally approved individually, such as if the 
Congress in its wisdom decided that there were an element, let 
us say, of equipment reset for the materiel readiness of our 
armed forces, which normally would come into an operations and 
maintenance (O&M) fund, which could get reprogrammed.
    If Congress as a whole thought it was important to make 
sure that all of that money got spent on reset, and that were 
directed, then that might be a useful expression of 
congressional intent.
    I think the concern we all have that we haven't really 
articulated is about the individual earmarks and whether those 
really serve the interest of the Federal Government.
    Ms. Giffords. Mr. Chairman, members of the panel, my 
concern is going through this process, and I am a new member 
just like Congressman Boyda here. We are brand new. We 
obviously work very hard to represent our constituency.
    And I sit back, and you look at the big picture in terms of 
national defense, and you wonder if this is the best strategy 
for us, with every member looking out for his or her own area, 
working very hard to represent their constituency.
    But in terms of directing money away from, perhaps, a 
larger national strategy, I just have some real concerns about 
it. Hopefully, transparency, I think, is helpful. At least it 
brings the information out into the open. I, for one, have 
publicly made available every request so people--not just with 
funding, but the request as well.
    But I am just concerned, in terms of a national strategy, 
when our military is being stretched extraordinarily thin, we 
have national security interests as well, dealing with 
immigration, people coming in and out of the border, and I just 
wonder if this is really the best road to be going down.
    Mr. Walker. If I can, real quickly, Mr. Chairman, I share 
your concern. If everybody is focusing on what they can do to 
maximize the benefit to their district or their state or 
employers therein or individuals therein, and we are not 
looking out for what is in the collective best interest of this 
Nation and its citizens as a whole, based upon a more forward 
looking, cross-cutting, strategic and integrated approach, we 
are going to be in trouble. We are going to be in trouble.
    And to me the worst of all worlds is when the crunch 
comes--notice I said when, not if, the crunch comes--when the 
crunch comes, arguably the worst of all worlds is reduced 
resources and increased earmarking that reduces the ability of 
people to allocate every world-limited resources based upon 
value and risk, based upon some strategic approach.
    The Congress realistically can't be expected to do that 
strategic and integrated plan. That is inherently an executive 
branch function, all right? You should demand that they do it 
and hold them accountable for it.
    But my comment also assumed that the type of directions 
that would be followed would be ones that would be in statutes, 
because arguably you don't have to follow anything that is not 
in statute. Now, obviously, the appropriators have ways they 
can encourage people to do things, whether they are in statute 
or not, as we all know.
    Ms. Giffords. Thank you, Mr. Chairman.
    Mr. Ortiz. Thank you so much. When I first came here, we 
had a big Army--thousands of people in the Army and all 
services. I have seen that dwindle down.
    But, Mr. Assad, how do you plan to meet the challenges of 
recruiting and retaining adequate numbers of government 
contracting staff to meet acquisition workload demands? When I 
visit depots throughout the continental United States, I see an 
aging workforce--down, down, down. And I see more contractors 
coming in.
    And I was just wondering if last year's language for 
acquisition workforce fund--if that helped. Did that help any?
    Mr. Assad. Definitely. It definitely will help us. One of 
the reasons why we are going through--I mentioned--this 
competency modeling assessment for you is so that we can get a 
picture of the entire workforce.
    This will enable us to look at every specific command, and 
then across the Army, Navy, Air Force, the other defense 
agencies, and then collectively as the Department, as to what 
is the capability that we have versus what is the capability 
that is needed to serve our warfighters.
    And the issue here, from my perspective--and there is a 
bell tolling--the fact is that well over half of our 
contracting workforce in the next five years is eligible to 
retire. That doesn't mean they are all going to walk out the 
door, and in fact individuals like myself--I am looking to 
ensure that the senior professional folks within the 
contracting workforce remain, when it makes sense.
    Now, there is going to be a period of time when it is time 
to go be with your grandchildren and go fishing, and I 
understand that. But the fact is we do need to retain more of 
our senior workforce, as we fill that bathtub.
    I mentioned to you that we have got about 5,000 of our 
22,000 folks in the experience level of 0 to 5 years. But 
between 5 and 15 years, we have got a paucity of experience. 
And then after 15 years we have got this incredibly capable 
workforce.
    And so while we fill that bathtub--and we are doing okay 
recruiting people and bringing them in, because this profession 
is tremendously exciting--there is a lot of opportunity in 
Federal Government for folks who want to do contracting.
    It is a very challenging and rewarding professional career. 
One of the differences between industry and government is in 
this particular profession we give our younger folks a lot more 
responsibility--and we hold them accountable--than they would 
ever see in industry.
    The Defense Acquisition University, and now the Federal 
Acquisition Institute, is coming forward. And we provide a 
level and degree of training like no industry has. No company 
can come forward and bring the kind of training that we bring 
to the federal and Department of Defense workforce.
    Having said that, it is very inviting for industry to look 
at that well-trained, young workforce that we are growing and 
pick them off. So what we do--my job, and one of the things 
that I have been doing--is going out in town hall meetings, 
meeting with all 22,000 folks that do contracting in a town 
hall setting, to talk to them about what we are trying to do 
and where we are going as a Department and the opportunity that 
they have within government to succeed.
    The fundamental underpinning that we have, as you know, is 
that sense of service. And really have to play to that sense of 
service and the degree of added responsibility. As Mr. Walker 
referred to, there isn't necessarily this wide gap in 
compensation across the entire spectrum of folks that do 
contracting. But there are some, and they need to be addressed.
    And so I think that as we go forward, we have got a great 
set of training programs. We need more. I mentioned to you 
beforehand that basically what the world of acquisition reform 
set up was an environment where a seasoned, well-trained 
professional contracting administrator could function. But the 
fact is that we don't have that kind of a workforce right now.
    So we are looking at changing some things in terms of how 
we are doing business, putting some lines on that playing 
field, setting up some goalposts so people understand the game 
and how to play it, but also taking advantage of looking at 
where are the skill sets--for example, contract pricing.
    We are very concerned that our ability to price contracts, 
to understand what should we be paying on behalf of the 
taxpayer--that skill set has deteriorated. So we already know 
that not only do we need increased training, but we need to 
take a look at what is the collective capability that we have 
and how we are going to transform that capability so that 
others can take advantage of it.
    Mr. Ortiz. What I have seen, too, and this is sometimes we 
place limitations on the civilian workforce. At ages 55, 56, 
you are going to have to get out. Like somebody stated, they 
walk out the door, and they come back with a contract.
    And you remember we had a bunch of buy-outs. Do you 
remember that? We gave you $25,000-$30,000 and just leave the 
civilian workforce. So it is an accumulation of events that 
have happened throughout the years, where now we are looking to 
see if we have made the non-civilian workforce, who have the 
expertise, the knowledge, to keep an eye on the contractors, if 
you have got 150,000-some-odd troops and 198,000 contractors.
    And I was just wondering should the definition of 
inherently governmental be given a different definition? Should 
it be changed for the better?
    Mr. Assad. When I look at the Federal Acquisition 
Regulations, I see a lot of, frankly, flexibility in 
interpreting what is inherently governmental. And it concerns 
me. I do think the time has come when we need to step back and 
take another look--a hard look--at how we are defining 
inherently governmental.
    I would just like to say one other thing. I have been 
talking about workforce and the fact that we need a more 
seasoned or more experienced workforce. I do want to assure 
you, however, that the contracting workforce that you have is 
executing contracting in the largest and most complex 
contracting organization in the world. And they are doing a 
very fine job at it. But the issue is we need to do a lot 
better for our warfighters and for our taxpayers.
    Mr. Walker. Mr. Chairman, I would say that, as you probably 
recall, the Commercial Activities Panel, which I had the 
privilege to care several years ago, was not asked--in fact, it 
was beyond the scope of our authority--to look at the issue of 
the inherently governmental question.
    I do, however, agree with Mr. Assad that the time has come 
to do so. There is a lot of flexibility in how one might define 
that term, and I think in many cases what is happening is that 
people are going to contracting as a first resort, rather than 
through a considered process.
    I would also come back to something you said before, Mr. 
Chairman, and that is you talked about the fact that somebody 
might end up leaving--retiring, I think you said--and then 
going to a contractor. Well, if we can end up having for 
critical skills and knowledge--not as right, not as an 
entitlement, but for critical skills and knowledge, including 
areas that are on GAO's high-risk list, for example--if we 
could allow re-employed annuitants on a broader basis, I think 
you would find a lot of people would rather be a civil servant, 
would rather be a re-employed annuitant, than to go out and be 
a contractor.
    So there are a lot of things that we can do that we haven't 
done, and I think we need to pursue those.
    Mr. Ortiz. Thank you so much.
    Randy.
    Mr. Forbes. I just have two quick comments, and then one 
question for Mr. Walker.
    First of all, one of the things that we are grappling with 
today is the word ``balance''--trying to get a balance in all 
this. When the gentlelady from Arizona was raising the earmark 
questions, we all agree with that. There is abuse to that 
process. But at the same time, we don't want to deceive 
ourselves and think that just because we don't get over to the 
executive branch, that there is not going to be any self-
interest there.
    We have all heard discussions at times about making one 
state better than another state for electoral purposes and 
everything else, and sometimes we serve ourselves better by 
having that debate here, where it is open, transparent, as you 
talked about, and knowing what it is before we vote on it. So 
that is at least something we have to get in the mix, when we 
are talking about earmark reform.
    The other thing is when we are talking about these private 
contractors, it is true we have got to get to balance. And we 
have to recognize our goal in using them sometimes is saving 
money, and the saving money is not just so we put it in a can 
somewhere, but it is because we have got a lot of balanced 
issues, and we have to worry about how we afford aircraft 
carriers that we need, how do we afford planes, how do we do 
personnel. The importance of saving that money is so we can get 
the right mix to be able to buy these other items.
    And those contractors have a goal of making money. We 
sometimes look like it is a horrible situation, but if they 
don't make money, they don't stay in business, and they are not 
there to do those jobs for us down the road.
    And sometimes I think we may be focused wrong when we ask 
how much do the contractors make on this, how successful they 
are versus how successful they have been for us. And that ought 
to really be our touchstone. Are they doing the jobs that we 
want them to do, and are they doing those jobs well?
    But we have this tendency in America if somebody is doing a 
good job and they are doing it well, we just point at them and 
say, ``Oh, look how much money they are making,'' as if there 
is somehow an evil or a sin involved in that. And it is not 
always.
    And, Mr. Walker, the question I would like to ask for you 
is a little bit off subject, but I just don't want to lose the 
opportunity we have with you here, since this is your last 
hearing.
    You talked about the crunch that is coming--not if it is 
coming, but when it is coming. What are the suggestions that 
you would offer to us as a Congress--Mr. Chairman, if I could 
just bump a little bit off of our hearing topic today--that we 
should be doing to either survive that crunch or minimize that 
crunch? What should we be looking at as a Congress in terms of 
dealing with that?
    Mr. Walker. Well, first, let me touch on your comment on 
congressional directions, or earmarks. I would respectfully 
suggest that we don't necessarily have an open, transparent 
process right now. Yes, right. Most of them are not. It is in 
the law, all right? You may be able to vote on the ones that 
are in the law, but you may not have the law and enough time to 
actually even read it before you are voting on it.
    And again, while line item veto has been ruled as 
unconstitutional for understandable reasons, because the 
Constitution is clear that the Congress has the power of the 
purse, and that is a fundamental change in the separation of 
powers and the balance of power, expedited line item rescission 
would not be. And it would provide more transparency and 
accountability and checks and balances in the process.
    With regard to the overall challenge, I think the time has 
come for there to be a fundamental review and reassessment of 
what the proper role of the Federal Government is, getting back 
to basics as to what the Founding Fathers intended.
    I think it is very important that we also look at a number 
of the transformation challenges the different departments and 
agencies have, including the Defense Department, the many 
recommendations we have made.
    But with regard to the larger issue, I think the time has 
come for something like the Cooper-Wolf bill to be enacted into 
law. The Cooper-Wolf bill is coming out of this body, which 
would create a capable, credible and bipartisan commission that 
would make recommendations to the next Congress and the next 
President for an up or down vote--like Base Realignment and 
Closure (BRAC)--on a number of different reforms--for example, 
budgetary reform; comprehensive Social Security reform, where 
you are not preprogrammed to have to come back; round one of 
tax reform, including which ones of the Bush tax cuts should be 
extended in whole or in part, which ones shouldn't be, what are 
we going to do about alternative minimum tax; and round one of 
health care reform, and a number of elements to that.
    I think it is critical. Regular order is broken. The clock 
is ticking. Time is working against us. We need to use 
alternative approaches and strategies.
    Mr. Ortiz. Like I stated earlier, somebody wants to go 
home. We have another motion to adjourn, so it is going to be 
like this for the rest of the day. If anybody has any other 
questions--I will tell you what.
    This has been a very interesting hearing today, but it is 
so broad that it is not something that we can grasp real 
quickly and try to fix it. But your testimony today and by 
responding to some of our questions, I think that we have a 
better idea, working with you, as to how we can work this out. 
We need to do that.
    We only are looking at contracting out, but there are a lot 
of other things that are involved. We have no idea--at least 
this member has no idea--how do they hire their contractors? 
What criteria? And maybe I just don't have the knowledge. How 
are they hired? What is the pay scale? Do you pay by 
experience? Prior service?
    There are a lot of other things that should be for another 
hearing, but this is why I say that this is so broad that we 
are going to need your expertise so that we can work together, 
because all of us are in the same boat. And this is our 
country, and we need to do better to bring our government 
workers and agencies together to do a better job.
    Randy, do you have any other questions?
    Thank you so much.
    Mr. Walker, again, thank you so much for the great service 
that you have given our country. You are dedicated in your 
loyalty to the great people of America, and we are going to 
miss you.
    To all the other witnesses, thank you so much for the great 
work. And now this hearing stands adjourned. Thank you.
    [Whereupon, at 4:04 p.m., the subcommittee was adjourned.]



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


              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                             March 11, 2008

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

      
             RESPONSES TO QUESTIONS SUBMITTED BY MR. FORBES

    Secretary Bell. DOD is developing a comprehensive plan for 
repositioning its personnel and material from Iraq, as well as 
contractor personnel. Over the coming months, planners will analyze the 
allocation of resources available to execute the logistics 
repositioning processes, identify potential shortfalls, and address 
synchronization issues between various operational and strategic 
entities. The role of contractors and their equipment in this planning 
process is to support both the repositioning of military forces and to 
be supported by security forces as needed during the repositioning 
activities. [See page 15.]
    Mr. Walker. During the hearing, Representative Forbes asked Mr. 
Bell how the Department would deal with the 196,000 contractors in Iraq 
in the event of an immediate withdrawal of U.S. military forces from 
Iraq. Mr. Bell stated that he believed that the Department had specific 
plans related to the withdrawal of contractor personnel from Iraq, but 
agreed to provide additional information on this issue for the record. 
On its own initiative, at the request of the Chairmen of the House and 
Senate Armed Services Committees, GAO is looking at many issues related 
to the drawdown of military forces from Iraq including the planning for 
drawing down contractors. Our work is well under way and we plan to 
issue a report in the upcoming months. [See page 16.]
    Mr. Walker. Prior GAO work reported that for the period from 1980-
1994 the civilian workforce in DOD's acquisition organization had 
declined without a commensurate decline in civilian payroll costs. 
Additionally, even with the declines in the civilian workforce, the 
number of acquisition organizations remained relatively constant, and 
the occupational fields were not unique to an acquisition 
organization's mission. As a result, GAO reported that there might be 
opportunities to improve efficiencies in some areas. Subsequent 
legislation further reduced the size of DOD's acquisition workforce. 
More recently, we have identified challenges related to creating a 
capable acquisition workforce and holding it accountable, noting that 
the acquisition workforce's workload and complexity of responsibilities 
have been increasing without adequate attention to the workforce's 
size, skills, and knowledge, and succession planning. At the same time 
that the federal acquisition workforce has decreased in numbers and the 
size of its investments in goods and services has increased 
significantly, the nature of the role of the acquisition workforce has 
been changing and, as a result, so have the skills and knowledge needed 
to manage complex contracting approaches. One way agencies have dealt 
with these circumstances is to rely more heavily on contractor support. 
We have noted that DOD's acquisition workforce must have the right 
skills and capabilities if it is to effectively implement best 
practices and properly manage its acquisitions. In DOD's contracting 
environment, the acquisition workforce must be able to rapidly adapt to 
increasing workloads while continuing to improve its knowledge of 
market conditions, industry trends, and the technical details of the 
goods and services it procures. GAO has on-going work reviewing the DOD 
acquisition workforce and plans to report on related issues in March, 
2009. [See page 16.]
?

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


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                             March 11, 2008

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

      
                    QUESTIONS SUBMITTED BY MR. ORTIZ

    Mr. Ortiz. Have you been able to determine if the Department of 
Defense has saved money by the extensive use of contractors? For 
example, if it costs $1 billion to build an active-duty brigade, and 
the Army would need three brigades of military police to replace the 
contractor-provided personal protective security now used in Iraq and 
Afghanistan, couldn't we afford more MPs instead of using contractors?
    Secretary Bell and Mr. Assad. The Congressional Budget Office (CBO) 
conducted a study, Logistics Support for Deployed Forces, in 2005 on 
the relative cost of contractors versus military personnel, from both 
short-term and long-term perspectives. Its conclusion was that when all 
relevant costs are considered, in the short-term, costs are comparable, 
but in the long-term the use of military personnel is about 90% more 
expensive. According to CBO's estimates, obtaining logistics support 
from a Logistics Civil Augmentation Program (LOGCAP) contractor would 
cost about $41 billion (in 2005 dollars) over the 20-year period 
assumed for this study. Obtaining the same services using Army units 
would cost about $78 billion. Also, using the analytical framework of 
this same 2005 CBO study, it would take nine new brigades to match the 
current number of private security contractors (PSCs) in use. This 
would represent a significant challenge for DOD to resource such a 
requirement.
    According to the first quarter fiscal year 2008 U.S. Central 
Command census, there were approximately 6,467 armed DOD private 
security contractors in Iraq, of which only 429 were U.S. citizens. In 
Afghanistan there were approximately 2,745 armed PSCs, of which only 16 
were U.S. citizens. All DOD PSCs in Iraq and Afghanistan are operating 
under restrictive and defensive rules on the use of force (RUF) and not 
the more expansive and offense related rules of engagement (ROE).
    Mr. Ortiz. Please provide examples of functions that you would 
consider inherently governmental that today are being performed by 
contract employees.
    Secretary Bell and Mr. Assad. The Federal Acquisition Regulation 
sets forth at Subpart 7.503(d) the functions generally not considered 
to be inherently governmental functions. That subpart cautions, 
however, that certain services and actions that are not considered to 
be inherently governmental functions may approach being in that 
category because of the nature of the function, the manner in which the 
contractor performs the contract, or the manner in which the Government 
administers contractor performance. I can only address this from a 
contracting/procurement perspective. As I have stated, while not 
pervasive within the Department, there are occasions when contractor 
personnel are performing contracting support roles that are closely 
associated with inherently governmental functions in the pre-award 
phases of Government procurement and acquisition.
    I believe that when the Department performs the inventory of 
services required by section 2330a of title 10 of the United States 
Code, as amended by section 807 of the National Defense Authorization 
Act for Fiscal Year 2008, we will be in a better position to determine 
what services that are inherently governmental, or approach being 
inherently governmental, are currently being performed by contractors.
    Mr. Ortiz. Please give us a picture of the decision-making 
environment in which the Department makes choices for the use of 
contractor services. What criteria are used? What is the proper balance 
of military, civilian and contractor, and how does the Department 
achieve that balance? What trade-offs are involved in the decision?
    Secretary Bell. Through an extensive planning process, the 
Department of Defense builds a force structure appropriate to support 
the National Security Strategy. The department begins with the 
guidelines established in DOD Instruction 1100.22, Guidance for 
Determining Workforce Mix, when making choices for determining the 
proper balance of military, civilian and contractor personnel. DODI 
1100.22 provides criteria and guidance for risk assessments to be used 
when identifying and justifying activities that are inherently 
governmental, commercial but exempt from private sector performance, 
and commercial and subject to private sector performance. Criteria used 
to make the determination include: mission, risk, force availability, 
required flexibility, and cost.
    The DOD has put in place Joint Contract Support Planners in the 
Combatant Commands (COCOMs) to assist in ensuring that contingency 
plans include specific information on the use and roles of contractor 
support. Additionally, the department has developed and exercised a 
concept for an organization to ensure planning for the use of 
contractors in future contingencies is consistent throughout the 
COCOMs. The effect of these initiatives will be to gain visibility of 
contractor requirements and synchronize them across COCOMs and enable 
the department to have a clearer picture of our total force mix.
    Consistent with applicable laws and regulations defining inherently 
governmental functions, the DOD identifies opportunities where 
competitive sourcing of contractor support allows DOD to concentrate 
its manpower on distinctly military activities. The department 
recognizes the extent to which our use of contractors has grown. By 
increasing its reliance on contractor support during contingency 
operations, the department increases its reliance on the ability of the 
private sector to provide essential support and services at critical 
times. We must also grow the contract administration and oversight 
structure commensurate with the increased use of contractors. The 
department gains the cost savings of not having to support a large 
standing military. We continually conduct risk assessments and adjust 
the balance of the force structure to ensure mission readiness.
    Mr. Ortiz. What do you see are some of the unintended consequences 
that have resulted from previously enacted legislation aimed at 
streamlining or reforming the acquisition workforce? How are statutes 
preventing you from achieving your goals for robust contract management 
and oversight?
    Secretary Bell. After the end of the Cold War, DOD reduced the size 
of the DOD workforce, including the acquisition workforce. Downsizing 
of the acquisition workforce occurred as the entire DOD downsized. 
There are, however, no statutes currently preventing us from achieving 
our goals for robust contract management and oversight.
    Mr. Ortiz. What essential (or core) capabilities has the Department 
of Defense lost because it has contracted out these functions? How 
expensive would it be to recover these capabilities? What level of risk 
has the Department created by losing these capabilities?
    Secretary Bell. A core military capability can be defined as a 
desired capability to keep ``in house'' to meet our national security 
needs. These capabilities are not contracted out, but also are not 
necessarily inherently governmental. Examples of non-inherently 
governmental functions that we contract for, but also retain as part of 
our core military capability are: medical, legal, transportation, 
ammunition, food services, maintenance, communication, intelligence 
analysis, and security.
    Consistent with applicable laws and regulations defining inherently 
governmental functions, the structure of our military forces was 
adapted. The DOD identified opportunities where competitive sourcing of 
contractor support would allow DOD to concentrate its manpower to 
distinctly military activities in support of our National Security 
Strategy. The Department of Defense has retained the core capabilities 
it considers essential in order to successfully meet the mission as 
outlined in the National Military Strategy and to remain within the 
constraints of the DOD's authorized Force structure. The numbers of 
personnel trained and available in many of these core functions was 
reduced over time due to authorized force structure limitations. As the 
authorized force structure shrinks, we rely on contractors to provide a 
portion of what previously was considered a core capability.
    The department continually conducts risk assessments and adjusts 
the balance of the force structure to ensure mission readiness. By 
properly planning for and synchronizing our plans for the use of 
contracted services and support during contingency operations, we 
believe we are mitigating any risk associated with our reliance on 
them.
    Mr. Ortiz. Because of the growing use and dependence on contractors 
in military operations, is it necessary to begin thinking about 
developing within the service's readiness reporting systems the extent 
contractors are required to meet mission requirements? If not, how 
would you know if you can or cannot meet mission requirements with or 
without contractors?
    Secretary Bell. The Department of Defense does not believe that a 
readiness reporting system for contractors is necessary. Requirements 
for contractor performance, including readiness, flexibility and 
deployability, are detailed in the terms of a contract and agreed to by 
the contracted company. Contractors currently make up over 50% of the 
DOD effort in the Central Command Area of Responsibility and have 
consistently met or exceeded stated mission requirements.
    The department recognizes the extent to which our dependence on 
contractors has grown. Because of that, the DOD has placed Joint 
Contract Support Planners in each of the Combatant Commands to assist 
the Combatant Commander with the integration of the required contractor 
support into the plans. The ultimate goal is to ensure that the 
majority of contract support requirements for any given operation are 
orchestrated, synchronized and integrated prior to a deployment. This 
is the first step in ensuring that we will receive the support we need 
from our contractor partners.
    Additionally, the planners are facilitating the incorporation of 
contractor and contract support-related scenarios into joint exercises 
and mission rehearsal exercises. Wherever it makes sense and is 
possible, contractors are being invited to participate in such 
exercises. These exercises can help to evaluate contractor readiness 
prior to an actual deployment.
    The department also is establishing a Joint Contingency Acquisition 
Support Command to synchronize requirements with subordinate commands, 
the Military Departments, defense agencies, other U.S. Government 
Agencies, and coalition partners.
    By properly planning for and synchronizing our plans for the use of 
contracted services and support during contingency operations, we are 
mitigating the risk associated with our reliance on them.
    Mr. Ortiz. Have the Army and Marine Corps assessed the scope and 
nature of any needed contractor support as they develop plans to grow 
the force? If so, what are they? If not, why hasn't this assessment 
been done?
    Secretary Bell. Marine Corps Answer: Yes, as part of the initial 
plan to grow the Marine Corps to 202,000 Marines in the Active 
Component, each Marine Corps Base and Station did their own independent 
analyses to determine the quantities of civilians and contractors they 
required in support of the additional Marines. Those contractors and 
civilians are presently being hired at the individual bases and 
stations, and tables of organization were updated as necessary.
    Army Answer: To support the Grow the Army (GTA) initiative, which 
increases the Army end strength across the Active, Guard, and Reserve 
components by 74,200 Soldiers, additional service contract support may 
be necessary. Army Commands have estimated that additional contractor 
manpower equivalents (CMEs) may be needed. The requirements for both 
contractors and civilians will be further analyzed and refined in the 
Total Army Analysis process.
    The proper source for all requirements also must be analyzed in 
light of the National Defense Authorization Act for Fiscal Year 2008, 
section 324, ``Guidelines on Insourcing New and Contracted Out 
Functions,'' which requires that consideration be given to using DOD 
civilian employees to perform new functions and functions that are 
performed by DOD contractors and could be performed by DOD civilian 
employees.
    Mr. Ortiz. Please provide your views on the privatization and 
enhanced use lease efforts of the Department and the military services. 
For utility privatization, in retrospect should this program been 
initially authorized? In privatizing lodging and pushing enhanced used 
leases, the Department is competing for services that the local 
community could otherwise provide. Why was this decision made?
    Secretary Bell. Utilities privatization is an important tool for 
managing the Department's $72 billion utility infrastructure, as it 
allows the Department to leverage private sector expertise and 
financial resources to improve and sustain utility systems supporting 
military operations. As of December 2007, the Department had privatized 
150 utility systems under the current Utilities Privatization 
Authority. The current schedule projects utilities privatization 
program completion by 2015.
    Lodging privatization is authorized under the Military Housing 
Privatization Initiative (MHPI) of the National Defense Authorization 
Act for FY 1996, codified at 10 U.S.C. Sec. 2871, et seq. The 
Privatization of Army Lodging (PAL) will improve the quality of life of 
traveling Soldiers and their families by utilizing private sector 
resources to update and replace on-post transient housing (lodging). 
PAL will provide Service Members with secure, affordable on-post 
lodging while allowing the Army to exit a non-core function by 
transferring this function to the private sector and enable senior 
leadership and commanders to focus on war-fighting missions.
    The Army has worked with its contractor, Actus Lend Lease, to 
finalize a Lodging Development Management Plan (LDMP) for the 
Privatization of Army Lodging, Group A, which includes 13 
installations. Actus has partnered with Intercontinental Hotel Group 
(IHG) for property management. Army notified Congress of its intent to 
execute a lease with Actus for privatization of its Group A lodges on 
May 23, 2008. Army expects to execute a transition agreement with Actus 
in late June 2008, followed by project closing and transfer in late 
October 2008. In most locations there will be little or no increase in 
the on-post lodging inventory as a result of privatization. No negative 
comments have been received from local communities or businesses. In 
addition, Actus and IHG have been actively engaged with the communities 
in an effort to educate them about the program and coordinating for 
over-flow accommodations in off-post hotels when the privatized on-post 
rooms are full.
    Enhanced use leasing is authorized under Section 2667 of title 10, 
U.S.C., which allows the Military Departments to out-lease available 
non-excess land and facilities to private or public entities in 
exchange for the lessee paying no less than the fair market value for 
the property. Leases may be entered into if the Secretary of the 
Military Department considers it advantageous to the United States, and 
upon such terms as he considers will promote the national defense or be 
in the public interest. In addition, the lessee's intended use of the 
property must be compatible with the installation mission. The lessee 
may develop or redevelop the leased property to provide goods or 
services to the market, and local businesses can compete to provide the 
services included in the leasehold.
    Mr. Ortiz. DOD initially reported that it would complete the 
utility privatization effort by 2000. After spending $248 million on 
the program and privatizing 94 of the 1,499 systems, DOD intends to 
complete additional evaluation of the remaining projects by 2010. What 
additional tools does DOD need to support completing a first round of 
utility privatization evaluations? In retrospect, should this program 
have been initially authorized? Is DOD confident that the first round 
of privatization projects will be completed by 2010?
    Secretary Bell and Mr. Assad. As of December 2007, the Department 
of Defense (DOD) has privatized a total of 519 utility systems, 150 of 
which have been under the Utilities Privatization Authority. Utilities 
Privatization is an important tool for managing the Department's $72 
billion utility infrastructure. DOD is committed to utilizing private 
sector innovations, efficiencies, and financing, when economical, to 
improve utility systems supporting military operations, to improve the 
quality of life, and to sustain aging utility infrastructure and keep 
pace with future requirements. Various legal and budgetary challenges 
have led to extending the program beyond 2010. The current schedule 
projects completion of the program by 2015.
    Mr. Ortiz. DOD is on track to privatize 87% of the family housing 
units, including 188,000 units by 2010. Considering that 36% of the 
awarded privatization projects have occupancy rates below expectations, 
will the private partners be able to continue the long-term investment 
to continue this program? What are the challenges that need to be 
corrected? Compared with the larger outlays required in our personnel 
accounts to support Family Housing Privatization, is the overall Family 
Housing program saving money or has it just moved money from a 
discretionary account to a mandatory funding account? Does 
privatization mask the overall cost afforded to General/Flag Officer 
quarters?
    Secretary Bell and Mr. Assad. The Department of Defense (DOD) is 
currently projecting to privatize over 194,000 units by FY 2010, not 
188,000.
    I could not identify from what information the 36 percent number 
was calculated. Of the 87 awarded projects, the average occupancy rate 
is about 90 percent. While there are some exceptions, due to 
construction related issues and general market conditions, only the 
projects owned by American Eagle are in financial jeopardy. Comparing 
occupancy numbers to pro forma provides insufficient information as to 
a projects' financial health, particularly while projects are in the 
initial development period (80 percent of projects). Also, to ease 
concerns about private partners, DOD recently conducted a financial 
analysis of the private housing partners and found them all to continue 
to be financially healthy and solvent. We have every reason to believe 
that the private partners will be able to continue the long-term 
investment needed to maintain the financial solvency of this program.
    We see no major structural challenges in the Military Housing 
Privatization Initiative (MHPI) program that need to be corrected by 
governmental action. While we have recently identified with the 
Government Accountability Office (GAO), eight MHPI projects (five Air 
Force, one Army, two Navy) that are behind schedule or have encountered 
difficulties (construction/renovation schedules not met due to 
financial problems, or environmental/construction issues), the other 79 
awarded military housing privatization projects are significantly 
further ahead in terms of revitalized housing than where they would be 
under a government military construction approach. We need to allow the 
private sector to work through challenges with their projects and not 
intervene.
    Life cycle cost analyses performed on all 87 projects show the cost 
of privatization (including the projected Basic Allowance for Housing 
payments) are typically lower than government ownership, usually in the 
10-15 percent range. The GAO reviewed DOD's cost analysis methodology 
exhaustively in 2001 and agreed privatization was less costly over the 
life of the projects, based on ``should costs'' for government 
ownership vice actual budgeted costs.
    Privatization does not mask the overall cost afforded to General/
Flag Officer quarters (GFOQs). In fact, spending on GFOQs is likely 
more constrained since such spending directly reduces funds available 
for housing lower ranking military members.
    Mr. Ortiz. The Army has awarded an initial project to privatize 
official travel Army lodging. How will priority to service members be 
assured when there is competition with the private sector? To what 
extent will the private partners attempt to attract non-DOD members to 
these lodging facilities? Does the private sector support privatized 
Army lodging competition in the local market? Morale Welfare Recreation 
(MWR) activities typically receive support from this program. Will MWR 
activities suffer as a result of the privatization? What is the long-
term termination liability associated with this program?
    Secretary Bell and Mr. Assad. The Army has worked with its 
contractor, Actus Lend Lease, to finalize a Lodging Development 
Management Plan (LDMP) for the Privatization of Army Lodging (PAL), 
Group A, which includes 13 installations. On May 23, 2008, Army 
notified Congress of its intent to execute a lease with Actus for 
privatization of PAL Group A lodges. Actus has partnered with 
Intercontinental Hotel Group (IHG) for property management. PAL Group A 
transition agreement execution is scheduled for late June 2008, 
followed by project closing and transfer in late October 2008.
    The property lease will encourage the private partner to maximize 
occupancy, but per the legislative requirements of section 2878 of 
title 10 of the United States Code, the lease will include a condition 
specifying that occupancy preference be given to service members and 
their dependents. Further, under the lease terms, the displacement of 
official government travelers in favor of unofficial travelers will 
result in a forfeiture of a portion of the lessee's management fee.
    In most locations, PAL will result in little or no increase in the 
on-post lodging inventory. In addition, Actus and IHG have actively 
engaged with local communities in an effort to educate them about the 
program and to coordinate over-flow accommodations in off-post hotels 
when the privatized on-post rooms are full. Because of this outreach 
effort, no negative comments have been brought forth by the private 
sector or local communities.
    Official travel lodging is a component of the military housing 
program and is not a Morale, Welfare and Recreation (MWR) activity. 
Funds used to operate official travel lodging are strictly segregated 
from MWR finds. Therefore, privatization of official travel lodging 
under the PAL will have no impact on MWR activities.
    Unlike a government contract, the Army cannot terminate the private 
developer for convenience because the legal instrument binding the Army 
and the PAL entity is a lease. Instead, the Army would condemn the 
lessee interest in the leasehold estate and the improvements. In 
addition to the lessee's interest, the Army also would need to consider 
the mortgagees interests because the lessee will further encumber its 
interest with a mortgage. Thus, the long-term liability would be: 1) 
the value of the leasehold estate and improvements at the time of 
condemnation; and 2) the cost to terminate the private loan. These 
values would depend on the loan documents and condition of the project 
at the time of the default action. It should be noted, however, that a 
default by the lessee would not automatically terminate the lease for 
cause. In the event of such, the lenders would step in to replace the 
lessee.
    Mr. Ortiz. The Department has broad authority to obtain a range of 
financial and in-kind considerations for leasing opportunities. The 
inclusion of private investment to support facilities that the 
community may otherwise provide has led to state and local challenges 
at installations. In cases where the Services have entered into leases 
that exceed 50 years, should the real estate be consider as excess by 
the Services and developed under the structure of the local zoning 
authority? Why has the Department elected to compete for services that 
the local community could otherwise provide?
    Secretary Bell and Mr. Assad. The only real or personal property 
that may be made available for leasing is that which is considered 
``non-excess.'' The determination of whether a parcel should be 
considered excess or non-excess is based on a variety of 
considerations, to include whether the property: a) is essential to 
long-term mission flexibility including operational changes or 
mobilization for a national security emergency; b) is affected by 
security or safety restrictions; or c) is required as a controlled 
buffer zone for local community or private interests. Leases may be 
entered into if the Secretary of the Military Department considers it 
advantageous to the United States and upon such terms as he considers 
will promote the national defense or be in the public interest. In 
addition, the lessee's intended use of the property must be compatible 
with the installation mission.
    Section 2667 of title 10, United States Code, authorizes the 
Military Departments to out-lease available non-excess land and 
facilities to private or public entities in exchange for the lessee 
paying no less than the fair market value for the property. The lessee 
may develop or redevelop the leased property to provide goods and/or 
services to the market. Local businesses can compete to provide the 
services included in the leasehold.
    Mr. Ortiz. Have you been able to determine if the Department of 
Defense has saved money by the extensive use of contractors? For 
example, if it costs $1 billion to build an active-duty brigade, and 
the Army would need three brigades of military police to replace the 
contractor-provided personal protective security now used in Iraq and 
Afghanistan, couldn't we afford more MPs instead of using contractors?
    Secretary Bell and Mr. Assad. The Congressional Budget Office (CBO) 
conducted a study, Logistics Support for Deployed Forces, in 2005 on 
the relative cost of contractors versus military personnel, from both 
short-term and long-term perspectives. Its conclusion was that when all 
relevant costs are considered, in the short-term, costs are comparable, 
but in the long-term the use of military personnel is about 90% more 
expensive. According to CBO's estimates, obtaining logistics support 
from a Logistics Civil Augmentation Program (LOGCAP) contractor would 
cost about $41 billion (in 2005 dollars) over the 20-year period 
assumed for this study. Obtaining the same services using Army units 
would cost about $78 billion. Also, using the analytical framework of 
this same 2005 CBO study, it would take nine new brigades to match the 
current number of private security contractors (PSCs) in use. This 
would represent a significant challenge for DOD to resource such a 
requirement.
    According to the first quarter fiscal year 2008 U.S. Central 
Command census, there were approximately 6,467 armed DOD private 
security contractors in Iraq, of which only 429 were U.S. citizens. In 
Afghanistan there were approximately 2,745 armed PSCs, of which only 16 
were U.S. citizens. All DOD PSCs in Iraq and Afghanistan are operating 
under restrictive and defensive rules on the use of force (RUF) and not 
the more expansive and offense related rules of engagement (ROE).
    Mr. Ortiz. Please provide examples of functions that you would 
consider inherently governmental that today are being performed by 
contract employees.
    Secretary Bell and Mr. Assad. The Federal Acquisition Regulation 
sets forth at Subpart 7.503(d) the functions generally not considered 
to be inherently governmental functions. That subpart cautions, 
however, that certain services and actions that are not considered to 
be inherently governmental functions may approach being in that 
category because of the nature of the function, the manner in which the 
contractor performs the contract, or the manner in which the Government 
administers contractor performance. I can only address this from a 
contracting/procurement perspective. As I have stated, while not 
pervasive within the Department, there are occasions when contractor 
personnel are performing contracting support roles that are closely 
associated with inherently governmental functions in the pre-award 
phases of Government procurement and acquisition.
    I believe that when the Department performs the inventory of 
services required by section 2330a of title 10 of the United States 
Code, as amended by section 807 of the National Defense Authorization 
Act for Fiscal Year 2008, we will be in a better position to determine 
what services that are inherently governmental, or approach being 
inherently governmental, are currently being performed by contractors.
    Mr. Ortiz. How does DOD determine an appropriate balance between 
federal and contractor employees in performing missions from an overall 
management perspective or when awarding individual service contracts?
    Mr. Assad. It is difficult to strike the right balance. Many 
factors play in the use of contractors performing mission related 
functions for the Department. A number of organizations have resorted 
to utilizing contractors due to: 1) increased workload; 2) lack of 
billets; 3) lack of experienced personnel; and 4) inability to recruit 
personnel effectively. The Department's challenge is to ensure that it 
is not relying on contractor employees to perform either inherently or 
closely associated with inherently governmental functions when it 
contracts for services.
    It is a major challenge and I can only address this challenge from 
a contracting/procurement perspective. In most instances, these 
contractors are providing appropriate administrative support to the 
contracting workforce. However, as I have stated, while not pervasive 
within the department, there are occasions when contractor personnel 
are performing contracting support roles that are closely associated 
with inherently governmental functions in the pre-award phases of 
Government procurement and acquisition. Except in those cases where the 
technical expertise does not reside within the Department, I believe 
that generally what we do during the pre-award decision making process 
should not be performed by contractors. I believe that we must find a 
way to enable these organizations to staff their operations adequately 
with Government employees so that we can ensure that government 
employees are making the procurement and contracting decisions. The 
role of contractors in procurement and contracting activities should be 
confined to administrative support areas.
    I can assure you that I am working to change those instances where 
I believe contractors are performing functions which could be closely 
associated with inherently governmental functions and I want to put 
measures in place designed to ensure that contractors do not perform 
inherently governmental procurement and acquisition related functions. 
As I have testified previously, it is essential that we in the 
government fully recognize that contracting personnel hold positions of 
trust and have a fiduciary responsibility to the taxpayer. We should 
not outsource that responsibility.
    Mr. Ortiz. What are the challenges that DOD faces with program 
office staffing and expertise, how have those challenges contributed to 
problems DOD faces with major acquisition outcomes, and how do you plan 
to address them?
    Mr. Assad. Program Management Office (PMO) challenges include: 
changing mission and enterprise needs; funding constraints; and meeting 
workforce hiring, training and retention goals. We may have reduced the 
number of organic personnel in the acquisition professional core too 
much as we downsized the Department. PMO staffing is further aggravated 
by limited workforce staffing models to project accurate staffing 
solutions. Future challenges regarding the projected loss of experience 
and knowledge expected from retirements of ``Baby Boomers'' also need 
our attention today.
    While we believe these challenges influence the success of our 
major acquisition outcomes, it is difficult to measure direct 
correlations because of multiple intervening variables. The myriad of 
factors that impact program offices' success include: evolving mission 
needs, varying levels of technology maturity, willingness to accept 
risk, funding stability, workforce hiring and retention capabilities, 
as well as organic-contractor Total Force mix.
    The Department continues to address these challenges with policy 
implementation, oversight, and Component-integrated Defense Acquisition 
Workforce planning. The Under Secretary of Defense for Acquisition, 
Technology and Logistics (USD(AT&L)) is addressing these concerns, in 
part, via a change to department acquisition policy that will require 
Program Managers to include in their acquisition strategies, a 
discussion of the organization and staffing of their program offices 
and to specify the roles of government and non-government personnel. 
The strategy content, and consequently, staffing, will be reviewed by 
the Milestone Decision Authority when the program is initiated. To meet 
adequate staffing, AT&L functional leaders must fully program and 
account for acquisition workforce requirements in the Future Years 
Defense Program (FYDP), reflected in the President's Budget.
    The USD(AT&L) has issued a strategic objective to ensure a 
comprehensive workforce data and analysis capability is available and 
used for all acquisition functional communities. Acquisition Career 
Field Functional Leaders are integrating the results of competency 
assessments, follow-on workload analysis, and force planning to inform 
decision-makers.
    DOD Components are working collaboratively with the Director of 
Human Capital Initiatives on developing a Defense Acquisition Workforce 
Section for inclusion in the DOD Human Capital Plan in accordance with 
section 851 of Public Law 110-181.
    The Department is also working numerous initiatives pursuant to 
section 852, ``Defense Acquisition Workforce Development Fund,'' of 
Public Law 110-181, which provides funding for recruiting, training, 
and retention of the acquisition workforce. A report to Congress on the 
use of the Defense Acquisition Workforce Development Fund is due in 
November 2008.
    Mr. Ortiz. DOD has data on military and civilian FTEs across its 
program offices, agencies, and commands. Why doesn't DOD maintain 
similar data on the contractors in the DOD workforce, and do you plan 
to develop such data? How does DOD manage the risk of contractors 
performing functions that closely support inherently governmental 
functions without having visibility over the number and role of 
contractor employees working side-by-side with DOD's military and 
civilian employees?
    Mr. Assad. We are actively engaged in the implementation of section 
807 of the National Defense Authorization Act for Fiscal Year 2008, 
``Inventories and Reviews of Contracts for Services,'' that amended 
section 2330a of title 10 of the United States Code. This represents a 
major effort for the Department. As a result, we are implementing the 
amended section 2330a in a phased approach and are keeping your 
professional staff informed. The initial phase develops a prototype 
inventory list, to include contractor full-time employees (FTEs), using 
the Army's Contractor Manpower Reporting System. On May 16, 2008, we 
issued direction to the Secretaries of the Military Departments and 
Directors of the Defense Agencies to support the phased implementation 
and meet the planned execution dates. My office is leading this effort.
    The Department manages the risk during pre-award and post-award 
activities. Prior to the award, the Defense Federal Acquisition 
Regulation Supplement (DFARS) 207.503 requires the contracting officer 
to make three determinations intended to lead to proper performance of 
a contract closely associated with inherently governmental functions. 
These determinations are written in accordance with DOD Instruction 
1100.22, Guidance for Determining Workforce Mix. Post award, the 
administration of a contract can have multiple layers of oversight, 
such as oversight by the contracting officer, the Defense Contract 
Management Agency (DCMA), or a Contracting Officer's Representative 
(COR). This oversight team is intended to ensure that work complies 
with the contract terms and conditions. This teaming approach increases 
visibility over contractor employees working side-by-side with DOD's 
military and civilian employees and would highlight potential concerns 
about contractors performing functions closely associated with 
inherently governmental functions.
    Mr. Ortiz. Given DOD's extensive reliance on contractors, what do 
you believe is the appropriate role for contractors in supporting major 
acquisitions, and how do you plan to ensure they are used properly in 
these roles?
    Mr. Assad. As I indicated in my testimony, I believe the role of 
contractors, with specific reference to major acquisition procurement 
and contracting activities in general, should be confined to support 
roles. The role of contractors in other areas, such as requirements 
determination and the design of the acquisition strategy, should be 
carefully scrutinized and limited to support and advisory functions 
vice any activity that might commit the government to one course or 
another. The Defense Department continues to give this issue attention 
during leadership off-sites and acquisition oversight reviews.
    Mr. Ortiz. GAO recently completed a review of personal conflicts of 
interest and recommended that DOD establish additional safeguards for 
certain contractor employees (i.e., the type of advisory & assistance 
support contractors working in many of DOD's facilities performing 
substantially the same tasks as federal employees). DOD partially 
concurred with GAO's recommendations and seems to put off making a 
decision until the recommendations are further studied by the 
Contracting Integrity Panel. Why do you believe further study is 
needed?
    Mr. Assad. The Contracting Integrity Panel is required to recommend 
changes in law, regulations and policy as determined necessary. 
Subcommittee 9 of the Contracting Integrity Panel was established to 
respond to concerns and recommendations voiced in the Government 
Accountability Office (GAO) exit conference prior to issuance of the 
final report. The Department agrees with the intent of the 
recommendations but wants to ensure that each recommendation is fully 
addressed and implemented in the most effective manner. We believe that 
the additional review and focus of the Subcommittee will help to 
determine the way forward as well as to identify other potential areas 
of vulnerability in this regard.
    The Subcommittee has begun the review and provided several 
recommendations to the Panel to include: (1) Issue policy letter 
stating advice from contractor's employees should be free from personal 
conflicts of interest and require each contractor employee sign a 
certification to that effect; (2) Contractors should be required to 
have a written code of business ethics addressing personal conflicts of 
interest for their employees working on certain DOD advisory and 
assistance type services; (3) Contractors should be required to have 
internal controls to identify and prevent personal conflicts of 
interest for their employees working on certain DOD service contracts; 
and (4) Assess need for additional training of Government employees to 
increase their awareness of the risks and mitigation opportunities 
associated with contractors' employees personal conflicts of interest. 
Recommendations (2) and (3) will result in development of changes to 
the DOD Instruction and/or the Defense Federal Acquisition Regulation 
Supplement (DFARS). Each recommendation will be carefully reviewed by 
the Panel on Contracting Integrity.
    The Office of General Counsel-Ethics has offered its expertise in 
developing policy in response to recommendations regarding the scope of 
personal conflicts of interest and related ethics requirements that 
would be appropriate for contractor employees in comparison to federal 
employees.
    Mr. Ortiz. DOD initially reported that it would complete the 
utility privatization effort by 2000. After spending $248 million on 
the program and privatizing 94 of the 1,499 systems, DOD intends to 
complete additional evaluation of the remaining projects by 2010. What 
additional tools does DOD need to support completing a first round of 
utility privatization evaluations? In retrospect, should this program 
have been initially authorized? Is DOD confident that the first round 
of privatization projects will be completed by 2010?
    Secretary Bell and Mr. Assad. As of December 2007, the Department 
of Defense (DOD) has privatized a total of 519 utility systems, 150 of 
which have been under the Utilities Privatization Authority. Utilities 
Privatization is an important tool for managing the Department's $72 
billion utility infrastructure. DOD is committed to utilizing private 
sector innovations, efficiencies, and financing, when economical, to 
improve utility systems supporting military operations, to improve the 
quality of life, and to sustain aging utility infrastructure and keep 
pace with future requirements. Various legal and budgetary challenges 
have led to extending the program beyond 2010. The current schedule 
projects completion of the program by 2015.
    Mr. Ortiz. DOD is on track to privatize 87% of the family housing 
units, including 188,000 units by 2010. Considering that 36% of the 
awarded privatization projects have occupancy rates below expectations, 
will the private partners be able to continue the long-term investment 
to continue this program? What are the challenges that need to be 
corrected? Compared with the larger outlays required in our personnel 
accounts to support Family Housing Privatization, is the overall Family 
Housing program saving money or has it just moved money from a 
discretionary account to a mandatory funding account? Does 
privatization mask the overall cost afforded to General/Flag Officer 
quarters?
    Secretary Bell and Mr. Assad. The Department of Defense (DOD) is 
currently projecting to privatize over 194,000 units by FY 2010, not 
188,000.
    I could not identify from what information the 36 percent number 
was calculated. Of the 87 awarded projects, the average occupancy rate 
is about 90 percent. While there are some exceptions, due to 
construction related issues and general market conditions, only the 
projects owned by American Eagle are in financial jeopardy. Comparing 
occupancy numbers to pro forma provides insufficient information as to 
a projects' financial health, particularly while projects are in the 
initial development period (80 percent of projects). Also, to ease 
concerns about private partners, DOD recently conducted a financial 
analysis of the private housing partners and found them all to continue 
to be financially healthy and solvent. We have every reason to believe 
that the private partners will be able to continue the long-term 
investment needed to maintain the financial solvency of this program.
    We see no major structural challenges in the Military Housing 
Privatization Initiative (MHPI) program that need to be corrected by 
governmental action. While we have recently identified with the 
Government Accountability Office (GAO), eight MHPI projects (five Air 
Force, one Army, two Navy) that are behind schedule or have encountered 
difficulties (construction/renovation schedules not met due to 
financial problems, or environmental/construction issues), the other 79 
awarded military housing privatization projects are significantly 
further ahead in terms of revitalized housing than where they would be 
under a government military construction approach. We need to allow the 
private sector to work through challenges with their projects and not 
intervene.
    Life cycle cost analyses performed on all 87 projects show the cost 
of privatization (including the projected Basic Allowance for Housing 
payments) are typically lower than government ownership, usually in the 
10-15 percent range. The GAO reviewed DOD's cost analysis methodology 
exhaustively in 2001 and agreed privatization was less costly over the 
life of the projects, based on ``should costs'' for government 
ownership vice actual budgeted costs.
    Privatization does not mask the overall cost afforded to General/
Flag Officer quarters (GFOQs). In fact, spending on GFOQs is likely 
more constrained since such spending directly reduces funds available 
for housing lower ranking military members.
    Mr. Ortiz. The Army has awarded an initial project to privatize 
official travel Army lodging. How will priority to service members be 
assured when there is competition with the private sector? To what 
extent will the private partners attempt to attract non-DOD members to 
these lodging facilities? Does the private sector support privatized 
Army lodging competition in the local market? Morale Welfare Recreation 
(MWR) activities typically receive support from this program. Will MWR 
activities suffer as a result of the privatization? What is the long-
term termination liability associated with this program?
    Secretary Bell and Mr. Assad. The Army has worked with its 
contractor, Actus Lend Lease, to finalize a Lodging Development 
Management Plan (LDMP) for the Privatization of Army Lodging (PAL), 
Group A, which includes 13 installations. On May 23, 2008, Army 
notified Congress of its intent to execute a lease with Actus for 
privatization of PAL Group A lodges. Actus has partnered with 
Intercontinental Hotel Group (IHG) for property management. PAL Group A 
transition agreement execution is scheduled for late June 2008, 
followed by project closing and transfer in late October 2008.
    The property lease will encourage the private partner to maximize 
occupancy, but per the legislative requirements of section 2878 of 
title 10 of the United States Code, the lease will include a condition 
specifying that occupancy preference be given to service members and 
their dependents. Further, under the lease terms, the displacement of 
official government travelers in favor of unofficial travelers will 
result in a forfeiture of a portion of the lessee's management fee.
    In most locations, PAL will result in little or no increase in the 
on-post lodging inventory. In addition, Actus and IHG have actively 
engaged with local communities in an effort to educate them about the 
program and to coordinate over-flow accommodations in off-post hotels 
when the privatized on-post rooms are full. Because of this outreach 
effort, no negative comments have been brought forth by the private 
sector or local communities.
    Official travel lodging is a component of the military housing 
program and is not a Morale, Welfare and Recreation (MWR) activity. 
Funds used to operate official travel lodging are strictly segregated 
from MWR finds. Therefore, privatization of official travel lodging 
under the PAL will have no impact on MWR activities.
    Unlike a government contract, the Anny cannot terminate the private 
developer for convenience because the legal instrument binding the Army 
and the PAL entity is a lease. Instead, the Army would condemn the 
lessee interest in the leasehold estate and the improvements. In 
addition to the lessee's interest, the Army also would need to consider 
the mortgagees interests because the lessee will further encumber its 
interest with a mortgage. Thus, the long-term liability would be: 1) 
the value of the leasehold estate and improvements at the time of 
condemnation; and 2) the cost to terminate the private loan. These 
values would depend on the loan documents and condition of the project 
at the time of the default action. It should be noted, however, that a 
default by the lessee would not automatically terminate the lease for 
cause. In the event of such, the lenders would step in to replace the 
lessee.
    Mr. Ortiz. The Department has broad authority to obtain a range of 
financial and in-kind considerations for leasing opportunities. The 
inclusion of private investment to support facilities that the 
community may otherwise provide has led to state and local challenges 
at installations. In cases where the Services have entered into leases 
that exceed 50 years, should the real estate be consider as excess by 
the Services and developed under the structure of the local zoning 
authority? Why has the Department elected to compete for services that 
the local community could otherwise provide?
    Secretary Bell and Mr. Assad. The only real or personal property 
that may be made available for leasing is that which is considered 
``non-excess.'' The determination of whether a parcel should be 
considered excess or non-excess is based on a variety of 
considerations, to include whether the property: a) is essential to 
long-term mission flexibility including operational changes or 
mobilization for a national security emergency; b) is affected by 
security or safety restrictions; or c) is required as a controlled 
buffer zone for local community or private interests. Leases may be 
entered into if the Secretary of the Military Department considers it 
advantageous to the United States and upon such terms as he considers 
will promote the national defense or be in the public interest. In 
addition, the lessee's intended use of the property must be compatible 
with the installation mission.
    Section 2667 of title 10, United States Code, authorizes the 
Military Departments to out-lease available non-excess land and 
facilities to private or public entities in exchange for the lessee 
paying no less than the fair market value for the property. The lessee 
may develop or redevelop the leased property to provide goods and/or 
services to the market. Local businesses can compete to provide the 
services included in the leasehold.
    Mr. Ortiz. Have you been able to determine if the Department of 
Defense has saved money by the extensive use of contractors?
    Mr. Walker. GAO has not determined if the Department of Defense has 
saved money by the extensive use of contractors. Existing OMB policy 
generally does not require a public/private competition for contractor 
performance of a new or expanded commercial requirement and in-house 
cost estimates have not been prepared for most of the contracts used to 
support operations in Iraq and Afghanistan. DOD does maintain data from 
its competitive sourcing, or A-76, program. GAO's analysis of the 
military services' reported information on 538 A-76 decisions during 
fiscal years 1995 through 2005 to contract out work formerly performed 
by uniformed and DOD civilian personnel showed that the decisions 
generally resulted in reducing the government's costs for the work. 
However, the number of A-76 public/private competition contracts is 
relatively small and the results from this program may not be 
representative of the results from all services contracts for new or 
expanded O&M work.
    With regard to contract specialists, recent GAO work found that the 
Army's Contracting Center for Excellence (CCE) was paying up to almost 
27 percent more for contractor-provided contract specialists than for 
similarly graded government employees. This comparison took into 
account government salary, benefits, and overhead and the loaded hourly 
labor rates paid to contractors. CCE has relied on contractor contract 
specialists since it began hiring them in 2003. In August 2007, these 
contractors--who work side by side and perform the same functions as 
their government counterparts--comprised 42 percent of CCE's contract 
specialists.
    Mr. Ortiz. Please provide examples of functions that you would 
consider inherently governmental that today are being performed by 
contractor employees.
    Mr. Walker. Inherently governmental functions require discretion in 
applying government authority or value judgments in making decisions 
for the government, and as such, they should be performed by government 
employees, not private contractors. The Federal Acquisition Regulation 
(FAR) provides 20 examples of functions considered to be, or to be 
treated as, inherently governmental, such as determining agency policy 
and priorities for budget requests; directing and controlling 
intelligence operations; approving contractual requirements; and 
selecting individuals for government employment. Our prior work has 
identified areas where contractors are performing work that may 
approach being inherently governmental, including: formulating budgets, 
analyzing intelligence, defining contractual requirements, and signing 
official offer letters for government employment. The Comptroller 
General testified in February, 2008, about concerns related to 
contractors potentially performing inherently governmental functions in 
the intelligence community. Specifically, while direction and control 
of intelligence and counter-intelligence operations are listed as 
inherently governmental functions, the Director of National 
Intelligence reported in 2006 that the intelligence community finds 
itself in competition with its contractors for employees and is left 
with no choice but to use contractors for work that may be ``borderline 
inherently governmental.'' In addition, the closer contractor services 
come to supporting inherently governmental functions, the greater the 
risk of their influencing the government's control over and 
accountability for decisions that may be based in part on contractor 
work. This may result in decisions that are not in the best interest of 
the government, and may increase vulnerability to waste, fraud, and 
abuse.
    Mr. Ortiz. What factors should federal agencies consider to 
determine an appropriate balance between federal and contractor 
employees when making a decision to use contractors to meet mission 
needs and what tradeoffs are involved in that decision? Are there any 
special considerations for DOD in making this decision?
    Mr. Walker. There are several considerations for federal agencies 
in determining an appropriate balance and making the decision to use 
contractors to meet mission needs. GAO's prior work has focused on a 
few key areas.
    (1) Agencies need to consider developing and maintaining 
institutional capacity to perform critical functions in-house. To 
maintain capacity, agencies need to determine what core functions they 
need to retain and what non-core functions they should buy, and the 
skill sets needed to procure and manage contractors in non-core 
functions. Agencies also need to individually determine what functions 
are appropriate to contract for given their specific mission. For 
example, DOD's Panel on Contracting Integrity, in its 2007 report to 
Congress, noted that the practice of using contractors to support the 
government acquisition function merits further study because it gives 
rise to questions regarding the appropriate designation of government 
versus nongovernment functions. The Defense Acquisition University has 
also warned that the government must be careful when contracting for 
the acquisition support function to ensure that the government retains 
thorough control of policy and management decisions and that 
contracting for the acquisition support function does not 
inappropriately restrict agency management in its ability to develop 
and consider options.
    (2) Agencies need to consider planning for the total workforce 
including government personnel and contractors. Along with determining 
the functions and activities to be contracted out, agencies face 
challenges in developing a total workforce strategy to address the 
extent of contractor use and the appropriate mix of contractor and 
civilian and military personnel. GAO has found that agencies need 
appropriate workforce planning strategies that include contractor as 
well as federal personnel and are linked to current and future human 
capital needs. These strategies should be linked to the knowledge, 
skills, and abilities needed by agencies and how the workforce will be 
deployed across the organization. Deployment includes the flexible use 
of the workforce, such as putting the right employees in the right 
roles according to their skills, and relying on staff drawn from 
various organizational components and functions using ``just-in-time'' 
or ``virtual'' teams to focus the right talent on specific tasks. As 
agencies develop their workforce strategies, they also need to consider 
the extent to which contractors should be used and the appropriate mix 
of contractor and federal personnel. Over the past several years, there 
has been increasing concern about the ability of agencies to ensure 
sufficient numbers of staff to perform some inherently governmental 
functions.
    (3) Agencies need to consider the roles and responsibilities of all 
types of personnel. Agencies have been challenged to define the roles 
and responsibilities of contractors vis-a-vis government employees. For 
example, defining the relationship between contractors and government 
employees is particularly important when contracting for professional 
and management support services since contractors often work closely 
with government employees to provide these services. This definition 
begins during the acquisition planning process when contract 
requirements are determined. We have recommended that agencies define 
contract requirements to clearly describe roles, responsibilities, and 
limitations of selected contractor services. Well-defined contract 
requirements can also help minimize the risk of contractors performing 
inherently governmental functions.
    Our work on contractors in acquisition support functions at DOD has 
found that it is now commonplace for agencies to use contractors to 
perform activities historically performed by federal government 
contract specialists. Although these contractors are not authorized to 
obligate government funds, they provide acquisition support to 
contracting officers, the federal decision makers who have the 
authority to bind the government contractually. Contract specialists 
perform tasks that closely support inherently governmental functions, 
such as conducting market research; assisting in preparing statements 
of work; developing and managing acquisition plans; and preparing the 
documents the contracting officer signs, such as contracts, 
solicitations, and contract modifications. Therefore, it is important 
to clearly define the roles contractors play in supporting government 
personnel to ensure they do not perform inherently governmental 
functions.
    (4) Agencies need to manage and oversee contractors to minimize 
risks. Once contractors are in place, agencies must ensure appropriate 
management and oversight of contractors, including addressing risks, 
ethics concerns, and surveillance needs. However, agencies face 
challenges in all these areas. Contractors in roles closely supporting 
inherently governmental functions create additional risks. Federal 
procurement policy requires enhanced oversight of services that closely 
support the performance of inherently governmental functions to ensure 
that government. decisions reflect the independent judgments of agency 
officials and that agency officials retain control over and remain 
accountable for policy decisions that may be based on contractor work 
products. However, our work has shown that agency officials do not 
always assess these risks to government decision making. Additionally, 
contractor employees are not subject to the same ethics rules as 
government employees even when they are co-located and work side-by-
side with federal employees and perform similar functions. Federal 
ethics rules and standards have been put in place to help safeguard the 
integrity of the procurement process by mitigating the risk that 
employees entrusted to act in the best interest of the government will 
use their positions to influence the outcomes of contract awards for 
future personal gain. Despite these rules and standards, we have found 
potential conflicts of interest when hiring contractors. Moreover, 
quality assurance, such as regular surveillance and documentation of 
its results, is essential to determine whether goods or services 
provided by the contractor satisfy the contract requirements and to 
minimize risks that the government will pay the contractor more than 
the value of the goods and services. However, we have reported wide 
discrepancies in the rigor with which officials responsible for 
surveillance perform their duties, particularly in unstable 
environments, and attention to oversight has not always been evident in 
a number of instances, including during the Iraq reconstruction effort.
    With specific regard to DOD, the Department's guidance recognizes 
that using contractors in a contingency operation increases the risk to 
the mission and directs commanders to do a risk assessment before 
relying on contractors for support. According to the guidance, 
commanders should consider whether or not contractor employees will 
work in a contingency or hostile area. The guidance notes that, in the 
absence of a declared war, contractor employees cannot be required to 
work and are free to quit their jobs.\1\ In addition, commanders are to 
consider the size of the contractor footprint and whether the number of 
contractors could limit the commander's flexibility. Also, the guidance 
reminds commanders of the increased threat to U.S. personnel that comes 
from the use of local national contractor employees. Finally, the 
guidance states that support services that require substantial 
discretion or prudent judgment are inherently governmental and may not 
be legally contracted.
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    \1\ Congress has not voted to declare war since 1941.
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    Mr. Ortiz. When you call for a fundamental reexamination of the use 
of contractors to support agency missions, how do you think the 
Congress can support such a reexamination?
    Mr. Walker. Congress can support the reexamination of federal 
agencies' use of contractors by considering whether the current fiscal, 
legal, regulatory framework supports the mission and the demands placed 
on federal agencies while also protecting the government's interest. 
For example, Congress could consider whether increased use of 
contractors to perform functions also performed by government personnel 
is a cost effective way to achieve intended outcomes. In deciding to 
use contractors, the federal government has not always evaluated the 
costs of hiring additional contractors as compared with the cost of 
additional full-time government positions. Congress could also consider 
whether existing laws and regulations adequately address current 
concerns regarding reliance on contractors. GAO has previously 
suggested that new models and processes may be needed to continuously 
examine what work should be conducted by contractors and what work 
should be retained within the federal government. There may also be 
special considerations for contractors supporting contingency 
operations or emergency situations or in cases where sufficient 
government personnel are not available. Congress could also encourage 
agencies to determine the appropriate mix of government and contractor 
employees for particular mission functions and address how to manage 
and oversee contractor provided services. These considerations should 
help to address some of the key concerns with increased reliance on 
contractors.
                                 ______
                                 
                   QUESTIONS SUBMITTED BY MRS. BOYDA
    Mrs. Boyda. A.) The Tire Privatization Initiative was instituted by 
the Defense Logistics Agency to comply with BRAC. However, DLA 
misinterpreted this by giving control of the management of tires to 
Michelin, one of the main suppliers of tires to the military. 
Obviously, this is like putting the fox in charge of guarding the hen 
house. This is a perfect example of how the line of what is considered 
``inherently governmental'' was crossed, but no one really thought 
twice about it until it was brought to our attention. B.) The committee 
in last year's NDAA was crystal clear that the Department needed to 
take a break from awarding contracts for management or logistics 
functions (such as Tire Privatization or Future Combat System) to 
companies that are also suppliers. C.) Does it make sense for the 
federal government to give up control on logistics functions such as 
supply, storage and distribution to a private contractor? D.) Does it 
make sense to do this when the logistics functions contract is given to 
a private contractor who is also a supplier of the commodity being 
managed? E.) How do we move forward to ensure that a conflict of 
interest doesn't arise in the future for something similar?
    Secretary Bell and Mr. Assad. A.) In developing its acquisition 
strategy for Tire Privatization, the Defense Logistics Agency executed 
the Base Realignment and Closure (BRAC) privatization mandate while 
complying with the Competition in Contracting Act (CICA) and at the 
same time constructing a business arrangement in the best interests of 
DOD and the taxpayer. The resultant contract, awarded as the result of 
a full and open competition, protects the industrial base and provides 
fixed prices for its duration, subject to escalation only on the basis 
of factors outside the manufacturers' control. At the same time, the 
contract contains provisions that provide transparency for both the 
Government and the tire producers. The oversight provisions provide 
assurance that the Government will receive the full benefits intended 
and that the integrity of the procurement process will be preserved.
    B.) The Defense Logistics Agency (DLA) awarded its Tire 
Privatization Contracts in December 2006 and January 2007, which 
preceded the fall 2007 report language. DLA is closely monitoring the 
contract to ensure contractual ``competition'' requirements are met and 
has commissioned an independent study of the tire industrial base. 
Further, DLA is going beyond the contract transparency requirements to 
improve visibility for all tire manufacturers. Finally, DLA is 
evaluating other models for future acquisitions.
    C.) The DLA prime vendor programs contracts have outsourced supply, 
storage and distribution of commercial products since 1993, and have 
been favorably reviewed and endorsed by the Government Accountability 
Office. Additionally, the BRAC 2005 language specifically directed DLA 
to ``rely on private industry for the performance of supply, storage, 
and distribution'' for its tire privatization initiative.
    D.) In developing its acquisition strategy for Tire Privatization, 
the Defense Logistics Agency executed the BRAC privatization mandate 
while complying with CICA and at the same time constructing a business 
arrangement in the best interests of DOD and the taxpayer. The 
resultant contract, awarded as the result of a full and open 
competition, protects the industrial base and provides fixed prices for 
its duration, subject to escalation only on the basis of factors 
outside the manufacturers' control. At the same time, the contract 
contains provisions that provide transparency for both the Government 
and the tire producers. The oversight provisions provide assurance that 
the Government will receive the full benefits intended and that the 
integrity of the procurement process will be preserved.
    E.) The tire privatization contract was awarded based on a full and 
open competition fully complying with CICA. If manufacturers are to be 
excluded from consideration for the award of privatization contracts, a 
mechanism for doing so beyond the exclusions currently available under 
CICA would be required.

                                  
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