[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
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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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A P P E N D I X
March 11, 2008
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
March 11, 2008
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?
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WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
March 11, 2008
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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.]
?
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
March 11, 2008
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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.