[Senate Hearing 110-891]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-891
 
 FEDERAL ACQUISITION: WAYS TO STRENGTHEN COMPETITION AND ACCOUNTABILITY

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



                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 17, 2007

                               __________

        Available via http://www.access.gpo.gov/congress/senate

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs



37-359                    WASHINGTON : 2009
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001




        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas              NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                  Michael L. Alexander, Staff Director
                         Troy H. Cribb, Counsel
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
        Amy L. Hall, Minority Director for Governmental Affairs
                  Trina Driessnack Tyrer, Chief Clerk



                  U.S. GOVERNMENT PRINTING OFFICE


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Collins..............................................     4
    Senator Akaka................................................     7
    Senator Carper...............................................     8

                               WITNESSES
                         Tuesday, July 17, 2007

Hon. David M. Walker, Comptroller General of the United States...    12
Marcia G. Madsen, Chair, Acquisition Advisory Panel..............    14
Stan Soloway, President, Professional Services Council...........    18

                     Alphabetical List of Witnesses

Madsen, Marcia G.:
    Testimony....................................................    14
    Prepared statement with an attachment........................    71
Soloway, Stan:
    Testimony....................................................    18
    Prepared statement...........................................    91
Walker, Hon. David M.:
    Testimony....................................................    12
    Prepared statement...........................................    45

                                APPENDIX

Barry M. Cullen, President, Contract Services Association, letter 
  dated July 17, 2007............................................   103
Questions and responses for the Record from:
    Mr. Walker...................................................   105
    Ms. Madsen...................................................   106
    Mr. Soloway..................................................   109


                          FEDERAL ACQUISITION:



                     WAYS TO STRENGTHEN COMPETITION



                           AND ACCOUNTABILITY

                              ----------                              


                         TUESDAY, JULY 17, 2007

                                       U.S. Senate,
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:05 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Akaka, Carper, and Collins.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. Good morning and welcome to this 
hearing. This morning the Committee is going to focus on one of 
the most important parts of our oversight jurisdiction, and 
that is the acquisition of goods and services by the Federal 
Government.
    The fact is that the U.S. Government is the largest buyer 
of goods and services in the world by far.
    The numbers are stunning and demand our attention. 
Government spending on contracts has exploded, while the 
trained workforce that oversees Federal contracting has shrunk. 
This has already contributed to widely publicized--and I would 
have to say infuriating--examples of waste, and the problem 
will only worsen in the years ahead if we do not act together 
to better protect the expenditure of taxpayer dollars for 
Federal contracting.
    Let me give you some of the numbers. Between 2000 and 2006, 
spending on government contracts has grown from almost $219 
billion a year to $415 billion. That is an astounding 89-
percent increase in the past 6 years.
    Yet, the number of Federal acquisition specialists who help 
write and negotiate and oversee these contracts has remained 
pretty much constant over that same period of time, and that 
follows a significant downsizing of the acquisition workforce 
during the 1990s. The numbers are particularly striking at the 
Department of Defense, where the workforce has declined by 
almost 50 percent since the mid-1990s. Government-wide, the 
workforce is about to shrink even further if nothing is done 
because roughly half the current acquisition workforce is 
eligible to retire within the next 4 years.
    So it is imperative we attract fresh new talent into this 
critically important public service profession because the work 
is crucial to the effective and efficient use of taxpayers 
dollars.
    I want to point out something that I have been educated to 
better understand, which is that a successful system for buying 
goods and services is more than just selecting the right vendor 
and signing a contract. Successful purchasing requires, in the 
Federal Government and the private sector, careful planning and 
negotiation of the contract before the contract is signed, and 
then followed by rigorous oversight throughout the life of the 
contract. It requires that government agencies have the 
competence to know what they need and understand how to work 
with the private sector to meet those objectives. And it 
requires government officials whose only allegiance is clearly 
to the taxpayer, and not in any way to contractors who might 
become their future employers.
    If you dig into the causes of some of the most dramatic 
examples of wasteful spending through contracting that we have 
seen in recent years, you can see a very sad story of a system 
breaking down with very bad consequences for the taxpayers.
    For example, TSA's contract for recruiting airline 
screeners grew from an original estimate of $104 million to a 
final settlement with the contractor of $741 million. That 
contract was for the recruiting of airline screeners. Auditors 
identified nearly $300 million in questionable costs submitted 
by the contractor. And TSA itself helped drive up the costs by 
changing the scope of the contract after it was signed, without 
sufficient regard to what those changes would cost.
    The FBI's Trilogy project is very well known, painfully 
known. The project to upgrade the FBI's IT systems grew from 
$380 million to $537 million, due in part to poorly designed 
contract requirements, unrealistic scheduling, and weak 
oversight. GAO also identified over $10 million in questionable 
costs submitted by the contractor. As we know, in 2004 the FBI 
scaled back the project and determined that key elements were 
absolutely unfeasible as originally planned.
    The U.S. Coast Guard turned too much of its decisionmaking 
for the Deepwater Project over to its contractors, with very 
bad results. The costs for the first two National Security 
Cutters alone are expected to increase by more than $300 
million, and that does not include the additional hundreds of 
millions of dollars required for structural redesigns to those 
two ships and future cutters. So what we are talking about 
really matters.
    Insufficient competition in awarding government contracts 
is a trend that is also troubling. Since 2000, the dollar value 
of contracts awarded without full and open competition has more 
than tripled, from $67.5 billion to almost $207 billion.
    Recently, the Office of Federal Procurement Policy reviewed 
awards at major contracting agencies and found that 36 percent, 
more than one-third, of the money spent on contracts last year 
was awarded without full competition.
    The Department of Defense, which is, of course, the largest 
spender on contracts, averaged about 37 percent awarded without 
full and open competition. NASA let half of their contracts 
without full and open competition, and the Department of 
Homeland Security slightly more than 50 percent.
    The Federal Government is also increasingly using contracts 
not just to buy goods, which is how we think of as contracting 
conventionally, but to provide services to an array of 
agencies. Now, I understand that this can provide government 
with increased flexibility to meet urgent or unforeseen needs, 
and it also can provide access to expertise that might not be 
resident within the government agency. But the amount of 
contracting for services does raise questions as to whether our 
Federal Government has retained sufficient in-house capacity to 
effectively manage and oversee contracts and whether the 
Federal Government is ensuring that contractors do not perform 
what is inherently, and ought to remain, a government function.
    Expanding the role of contractors providing services has 
created separate management challenges, and there is an irony, 
at least to me, to the fact that contractors are now being 
hired to oversee other contractors and to assist agencies with 
the process of awarding contracts.
    We have actually even heard recent examples of contractors 
being retained to write Federal regulations, which, of course, 
we think of as an inherently Federal Government responsibility, 
therefore to be performed by full-time employees.
    Looking back, in the 1990s Congress enacted a series of 
reforms to Federal procurement law to streamline the 
government's purchasing and to encourage the purchase of goods 
and services that are readily available in the marketplace. 
While I would say that these reforms have given our Federal 
Government greater flexibility as a purchaser, the level of 
inefficiency and waste definitely is still unacceptable, and 
for that reason I am pleased to join with Senator Collins who 
has taken the lead in drafting legislation to address some of 
these procurement problems. The proposal is known as the 
Accountability in Government Contracting Act of 2007, S. 680.
    I think that the evidence is so strong that there is a lot 
that ails Federal contracting procedures today that I intend to 
do everything I can as Chairman of this Committee to make sure 
that we do not just oversee and investigate, but that we 
legislate in this area to try to improve the status quo. And I 
think S. 680 is a good place to start.
    Over the past 2 years, the Committee has held numerous 
hearings that have addressed contracting challenges, for 
instance, in rebuilding the Gulf Coast, executing 
reconstruction contracts in Iraq and Afghanistan, and acquiring 
services to protect the Nation from acts of terror or to 
facilitate recovery from natural disaster. All of those 
efforts, unfortunately, have been marred by some wasteful, and 
occasionally fraudulent, contracting practices.
    Contractors are essential to the functioning of our 
government. No one expects the government, for instance, to 
produce its own computers or build its own fighter planes or 
perform services that are better provided by the private 
sector. But with billions and billions of dollars of taxpayers' 
money at stake, both the government and contractors have a 
responsibility to do a better job than we are now at seeing to 
it that the taxpayers are getting their money's worth. And that 
will be the focus of this Committee and this hearing and 
beyond.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman, and thank you for 
holding this important hearing this morning.
    As you have mentioned, the challenge of overseeing Federal 
contracting has grown over the years. Spending under Federal 
contracts now exceeds $400 billion a year. As you pointed out, 
Mr. Chairman, that makes the U.S. Government by far the world's 
largest purchaser, and the government purchases a huge variety 
of goods and services, ranging from staplers to studies to 
satellites.
    During the past two decades, Federal purchasing has 
undergone several waves of reform. As a Senate staffer many 
years ago, I helped to draft the Competition in Contracting Act 
of 1984, and I look out at the audience today and I see many of 
the people who were on the Committee staff at the same time 
that I was. Who would ever have guessed that I would be here 
today and that we would be working together once again on 
contracting reforms? As you mentioned, Mr. Chairman, there were 
other major procurement reform laws enacted in 1994, 1996, and 
2003, on and on.
    Unfortunately, many of the problems that we have sought to 
correct over the years are still with us, like a drug-resistant 
virus that defies a doctor's best efforts.
    This Committee firsthand has heard truly alarming reports 
on acquisition problems, particularly in the response to 
Hurricane Katrina and also in the reconstruction efforts in 
Iraq and Afghanistan. But it is not just the big emergency 
projects that run into acquisition problems. Oftentimes even 
routine Federal acquisition projects are rife with troubles. I 
want to mention just three examples to supplement some of the 
ones that the Chairman noted.
    The Special Inspector General for Iraq Reconstruction found 
that the Department of Defense's management of $7.3 million in 
contracts relating to the Babylon Police Academy had numerous 
deficiencies, including $1.3 million wasted on duplicate 
construction and unneeded equipment, $2 million in 
unaccountable spending, and, indeed, examples of outright 
fraud.
    FEMA, in a well-publicized case, spent more than $900 
million to buy manufactured homes for the victims of Hurricanes 
Katrina and Rita that was largely wasted. More than 2,000 of 
the units did not fit FEMA's size specifications, and FEMA's 
own floodplain rules prevented the large-scale deployment of 
these manufactured homes in the most heavily damaged areas of 
Louisiana and Mississippi. This was an example where literally 
the left hand did not know what the right hand was doing within 
the same agency.
    The Department of Energy contracted with Bechtel to build a 
$4.3 billion waste treatment plant at the contaminated Federal 
nuclear facility in Washington State. GAO has reported this 
year that the cost estimate now exceeds $12 billion and that 
completion is likely to be 8 years later than originally 
scheduled.
    Mr. Chairman, I do not cite these examples to question the 
goals or the importance of these programs and these contracts. 
Instead, I cite them precisely because they are important for 
advancing our national interests, for enhancing the 
capabilities of our armed forces, for protecting our citizens. 
And that is why, beyond the concern for wasted dollars and 
delayed deliveries, it is so troubling that the contract 
management functions at Defense, DHS, and the Department of 
Energy, are all on the GAO's high-risk list.
    We know that just as the problems are varied, so are the 
causes. They include a severe and growing shortage of qualified 
acquisition professionals, an overreliance on sole-source 
contracts, inadequate specification of requirements and 
delivery dates, too many award fees in the face of poor 
performance, a lack of transparency in the process, deficient 
monitoring and evaluation, and, sadly, in some cases 
decisionmaking corrupted by individuals accepting gifts or 
seeking future private employment.
    That is why you, Mr. Chairman, along with Senators Coleman, 
Carper, and McCaskill, and I have introduced S. 680, the 
Accountability in Government Contracting Act of 2007. This is a 
strong, bipartisan package of reforms that would tackle many of 
the problems we have seen in the Federal acquisition process. 
It would help to strengthen the acquisition workforce, improve 
oversight of contracts, and promote more competition and better 
transparency.
    Mr. Chairman, the rest of my statement goes into many of 
the provisions of the bill. In the interest of time, I am just 
going to focus on one, and that is a growing practice of 
contracting officers awarding what are called ``undefinitized 
contracts,'' and by that I mean contracts that are actually 
missing key terms, such as the price or the scope or the 
schedule. This practice is out of control, and it creates 
considerable problems. So the legislation that we have 
introduced would help mitigate the award of those kinds of 
contracts by requiring the contracting officer to unilaterally 
determine the missing terms within 180 days if it cannot be 
worked out. But, obviously, those kinds of contracts, which are 
missing such key elements, pose great risks.
    I also want to just briefly focus on the shortfalls in the 
rank of Federal acquisition professionals. This may not be the 
most glamorous of issues, but, arguably, they are the most 
important provisions of this bill, because no matter how we 
tighten up the law, if we do not have well-trained 
professionals in adequate numbers administering these 
contracts, then all of the legal reforms will be in vain.
    I am eager to hear the ideas from our witnesses for making 
our bill even more comprehensive and effective. You have 
invited, Mr. Chairman, a superb panel today. This is a vitally 
important subject for the Committee. Delays and defects in 
procuring goods and services frustrate our goals and can 
actually endanger the lives of our citizens and our soldiers. 
And every dollar that is lost to waste, fraud, abuse, or 
mismanagement is a dollar denied to some other worthy 
objective.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Collins follows:]
                 PREPARED STATEMENT OF SENATOR COLLINS
    The challenge of overseeing Federal contracting has grown over the 
years. Spending under Federal contracts now exceeds $400 billion a 
year, making the U.S. government by far the world's largest purchaser 
of goods and services, from staplers to studies to satellites.
    During the past two decades, Federal purchasing has undergone 
several waves of reform. As a Senate staffer years ago, I helped draft 
the Competition in Contracting Act of 1984. More recent reform efforts 
were enacted in 1994, 1996, and 2003.
    Unfortunately, many of the problems we sought to correct over the 
years are still with us, like a drug-resistant virus that defies a 
doctor's best efforts.
    This Committee has heard truly alarming reports on acquisition 
problems such as arose in the response to Hurricane Katrina and in the 
reconstruction efforts in Iraq and Afghanistan. But even routine 
Federal acquisition projects are often rife with problems.
    I will mention three examples from a regrettably long list of 
candidates:

      The Special Inspector General for Iraq Reconstruction 
found that the Department of Defense's management of $7.3 million in 
contracts relating to the Babylon Police Academy had numerous 
deficiencies, including $1.3 million wasted on duplicate construction 
and unneeded equipment, $2 million in unaccountable spending, and 
possible fraud.

      FEMA spent $915 million to buy manufactured homes for 
victims of Hurricanes Katrina and Rita that was largely wasted. More 
than 2,000 of the units exceeded FEMA's size specifications, and FEMA's 
flood-plain rules prevented large-scale deployment in the most heavily 
damaged areas of Louisiana and Mississippi.

      The Department of Energy contracted with Bechtel to build 
a $4.3 billion waste-treatment plant at the contaminated Federal 
nuclear facility in Hanford, Washington. GAO reported this year that 
the cost estimate now exceeds $12 billion, and that completion will 
likely be in 2019 or later, 8 years later than originally scheduled. 
GAO points to contractor performance, DOE management and oversight, and 
technical issues as problems.

    Mr. Chairman, I don't cite these examples to question the goals or 
importance of the programs. I cite these programs precisely because 
they are important for advancing our national interests, for enhancing 
the capabilities of our armed forces, and for protecting our citizens. 
That is why, beyond the concern for wasted dollars and delayed 
deliveries, it is so troubling that the contract-management functions 
at Defense, DHS, and the Department of Energy, are all on GAO's high-
risk list.
    We know that just as the problems are varied, so are the causes. 
They include a severe and growing shortage of qualified acquisition 
professionals, an over-reliance on sole-source contracts, inadequate 
specification of requirements and delivery dates, too many award fees 
in the face of poor performance, a lack of transparency in the process, 
deficient monitoring and evaluation, and even decision-making corrupted 
by individuals accepting gifts or seeking future private employment.
    That is why I, along with Chairman Lieberman and Senators Coleman, 
Carper and McCaskill, introduced S. 680, the Accountability in 
Government Contracting Act of 2007, earlier this year.
    This strong, bipartisan package of reforms would tackle many of the 
problems we have seen in Federal acquisition. It would help to 
strengthen the acquisition workforce, improve oversight of contracts, 
and promote competition and transparency.
    Among other reforms, S. 680 would mandate competition for task or 
delivery orders that are currently not subject to competition. To 
increase the quality of competitive bids and bring additional 
transparency to task or delivery order competitions, the bill 
establishes the right to post-award debriefings for unsuccessful 
bidders on orders valued over $5 million. This will help vendors shape 
better offers for the future and sharpen competition.
    S. 680 also lessens the risks inherent in sole-source contracts by 
requiring prompt, on-line publication of notices of all sole-source 
task or delivery orders above the Simplified Acquisition Threshold.
    The bill would mitigate the practice of awarding contracts missing 
key terms, such as price, scope or schedule--that is, ``undefinitized 
contracts''--by requiring the contracting officer to unilaterally 
determine missing terms within 180 days or a specified completion 
percentage.
    Equally important, several measures in S. 680 would address the 
shortfalls in the ranks of Federal acquisition professionals. 
Mechanisms include an acquisition internship program and a government-
industry exchange program; an Acquisition Fellowship Program offering 
scholarships in exchange for a commitment to Federal service, 
requirements for human-capital strategic plans by chief acquisition 
officers, and a new senior-executive-level position in the Office of 
Federal Procurement Policy to manage this initiative.
    I am eager to hear ideas from our witnesses for making our bill 
even more comprehensive and effective. As Comptroller General, Mr. 
Walker has performed a great service to the country by overseeing GAO's 
numerous and insightful reports on government programs, and in 
publicizing the high-risk list. Ms. Madsen's legal background in 
contracting and her service with the SARA Panel establish her as a 
particularly acute diagnostician in this area. And Mr. Soloway's 
government experience in earlier reform programs and his private-sector 
expertise will give us valuable insights in how we can improve the 
contracting process while taking into account legitimate business 
concerns.
    This is a vitally important subject for the Committee. Delays and 
defects in procuring goods and services frustrate our goals, and can 
endanger the lives of our citizens and our soldiers. And every dollar 
lost to waste, fraud, or abuse is a dollar denied to some other worthy 
objective.

    Chairman Lieberman. Thank you very much, Senator Collins, 
for an excellent statement and for your leadership in putting 
forth legislation on this subject.
    Normally we would go to the witnesses now, but I would ask 
Senator Akaka and Senator Carper if either wants to make a 
brief opening statement.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Mr. Chairman, I want to thank you very much 
for holding this hearing. Acquisition management has become a 
huge challenge for the government, as you pointed out so well 
in your statement, due in large part to the increasing use of 
contracting that has gone on. Many of the problems in 
acquisition management stem from an understaffed acquisition 
workforce, and that is something that we need to work on.
    I have a statement here, and in the interest of time, I 
will ask that it be placed in the record.
    [The prepared statement of Senator Akaka follows:]
                  PREPARED STATEMENT OF SENATOR AKAKA
    Thank you, Mr. Chairman, for holding this hearing. Government 
acquisition is a very important subject, which I have followed closely 
in my role as Chairman of the Subcommittee on Oversight of Government 
Management.
    Over the past 6 years, the use of contracts has ballooned. In 2006, 
the Federal Government spent over $400 billion taxpayer dollars on 
procuring goods and services--double what was purchased in 2000. At the 
Department of Homeland Security alone, procurement spending has tripled 
since its creation in 2003. Senator Voinovich and I held a hearing on 
DHS acquisition management just last month where we heard about 
progress made in contract management and lessons learned from past 
problems.
    One of these problems, which unfortunately illustrates what happens 
when contracts do not receive enough oversight, is the Coast Guard's 
Deepwater contract for fleet modernization. Due to inadequate oversight 
after awarding the contract, costs soared and deliverables did not meet 
the Coast Guard requirements. The entire contract had to be overhauled, 
showing that the government cannot always rely on contracted support to 
oversee major acquisitions.
    Many of the problems in acquisition management stem from an 
understaffed acquisition workforce. While contract spending has 
doubled, our acquisition workforce has remained steady at around 55,000 
government employees. As a result, contractors are being used to 
supplement the acquisition workforce. Sometimes contractors are even 
hired to study whether or not certain government activities should be 
contracted out. One may wonder, are the foxes guarding the henhouse?
    The terms and requirements of contracts are also too vague. In some 
cases, the government issues requests for proposals that are too broad 
with few specific requirements. Agencies then rely on a contractor to 
tell them what it is the agency needs to achieve its mission. The 
SBInet program relied heavily on such broad terms, and this contract 
must be continually monitored to ensure it is not mismanaged.
    The increasing reliance on certain types of contracts is also a 
serious problem. Cost-plus contracts, in which the government pays for 
the costs of a good or service, plus a percentage, can lead to abuse 
and waste. With these terms, there is little incentive to find the 
lowest cost solutions. The more an item costs, the bigger the 
commission for the contractor. These contracts can also include an 
additional award fee, which is routinely awarded nearly in full, even 
if there was admittedly poor performance, as we have seen with several 
contracts in Iraq.
    Most troubling is the reliance on no-bid and limited competition 
contracts. While time is of the essence for many acquisitions, no-bid 
and limited competition contracts are not always responsible 
procurement options. Such contracts are only meant to be used sparingly 
when there is clearly a single provider of the needed service. However, 
it is more often the case that we ask for so much in umbrella 
contracts; bloated requests for services so large that only a handful 
of companies can deliver. Better planning and a bigger workforce could 
allow government agencies to create manageable contracts that can be 
opened up for more competition which saves the government money.
    Again, thank you Mr. Chairman for holding this hearing. This is a 
very important issue. I hope to work with you, the Ranking Member, and 
Members of this Committee to find meaningful solutions that can improve 
acquisition management. I look forward to hearing from our witnesses 
today, who will offer their expertise as we move forward.

    Chairman Lieberman. Thanks, Senator Akaka.
    The record should note that Senator Akaka, in partnership 
with Senator Voinovich, has been really persistent in pursuit 
of what Senator Collins quite correctly called the 
``unglamorous'' questions associated with human capital 
management for the Federal Government, including the workforce 
and the acquisition workforce. So I thank you.
    Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thanks, Mr. Chairman.
    It ought to be clear to anyone who has been paying 
attention to the news in recent years that our Federal 
Government has serious problems with the way that we manage our 
contractors and the way we manage our contracts. The U.S. 
Government is the biggest buyer in the world. I am told we 
purchased over the last 7 years or so nearly a half trillion 
dollars' worth of goods and services. That is an increase of 
almost 90 percent. This enormous increase has been triggered, I 
think at least in part, to our support for efforts in Iraq and 
Afghanistan.
    Unfortunately, auditors and investigators have exposed 
extensive waste, fraud, and abuse involving a number of 
government agencies and contractors. In fact, many of the 
contracts involving our government during the past 4 years in 
Iraq and Afghanistan have resulted in profound waste and 
mismanagement, some of which we visited 4 weeks ago. Senator 
McCaskill and I were over there on a mission to look into some 
of it.
    Most of those contracts have been awarded on a no-bid or 
cost-plus basis. As a result, billions of taxpayers' dollars 
have unfortunately been wasted. I just want us to consider two 
examples over the past 2 years alone.
    Last year, the Defense Contract Audit Agency identified 
about $263 million as ``potentially excessive or unjustified'' 
costs charged by Kellogg, Brown & Root, known as KBR--the 
government contracting firm formerly under Halliburton--under a 
no-bid contract known as ``Restore Iraqi Oil.'' Yet the 
Department of Defense chose to pay $253 million of the disputed 
costs, despite the auditors' objections.
    This past May, according to an audit by our own Special 
Inspector General of Iraq, we learned that KBR did not keep 
accurate records of gasoline distribution, put its employees in 
living spaces larger than necessary, and served meals that cost 
$4.5 million more than necessary under its contract to perform 
work in Iraq.
    As I said earlier, Senator McCaskill and I were over there 
about a month ago, and we learned firsthand, when we visited 
Iraq, some of this information. The oversight that our 
congressional delegation performed in both Iraq and Kuwait--
over contractors operating there and the contracts they 
ostensibly oversee--was very constructive.
    Mr. Walker, I was briefed, prior to my trip, by a couple of 
people from your shop, and I think Carole Coffey was one and 
Bill Solis was the other, and they did really an excellent job. 
We thank you and them.
    According to the Department of Defense, there are more than 
127,000 contractors in both countries supporting our war 
effort. These contractors do everything from doing the laundry, 
serving meals, driving convoy trucks, repairing trucks and 
vehicles that have been blown up, and you name it. They 
protected us while we were there.
    The oversight, though, of the contractors who support the 
deployed forces has been a longstanding problem, which GAO has 
reported on since, I guess, 1997. Last December, the GAO argued 
the Department of Defense continues to have inadequate 
contractor oversight personnel in deployed locations, which 
makes it nearly impossible for the Department of Defense to 
receive assurances that contractors are meeting contract 
requirements efficiently and effectively at each location. 
Similarly, the GAO noted commanders and other military 
personnel--integral players in contractor oversight--receive 
little or no training on the use of contractors as part of 
their predeployment training or their professional military 
education.
    This week, I am offering an amendment to the Defense 
Authorization bill to correct that, an amendment that I hope 
Senator McCaskill will join me in offering. Our amendment will 
help ensure military personnel understand the scope and the 
scale of the contractor support they have in contingency 
operations and prepare them for their roles and 
responsibilities for oversight and contingency contracting.
    Over the past 5 months, Congress has started to pressure 
the Executive Branch to end bad contracting practices, and not 
a moment too soon, I might add. However, many problems do 
persist, and the key is to stay on it. We must remain vigilant 
in our congressional oversight of Federal taxpayer dollars 
going to pay contractors, whether it is in Iraq or Afghanistan 
or some other place around the world.
    The questions I hope will be addressed today are these:
    One, how do we make the Federal acquisition process more 
efficient, more effective, transparent, and accountable?
    Two, how do we establish a capable acquisition workforce 
and hold it accountable?
    Three, how can the Congress play a constructive role in the 
path forward?
    Federal agencies, particularly the Departments of Homeland 
Security and Defense, have critically important missions--to 
protect and secure our homeland. Waste and mismanagement 
undermine their missions. Anything that weakens our 
government's quick and effective response to the real threats 
our country continues to face here and abroad is just too much.
    As elected Members of Congress, our greatest stakeholders 
are the American people. We have an obligation to ensure their 
dollars are being used as effectively as possible. That is why 
I am also proud to be an original cosponsor of the legislation 
Senator Collins has offered, along with Senator Lieberman, to 
ensure proper oversight and accountability in Federal 
contracting.
    Last, let me just conclude by saying congressional 
oversight is imperative to make sure that Federal agencies like 
the Department of Homeland Security and like the Department of 
Defense step up to the plate, confronting the waste of precious 
taxpayer dollars and taking immediate, corrective action so we 
protect Americans and our interests abroad as well as the 
nearly 300 million Americans at home.
    I look forward to hearing from each of you. We welcome our 
witnesses and we look forward to continuing to work with our 
colleagues on this Committee and others to provide the 
oversight that ensures these agencies do not shy away from 
their duty to forcefully confront waste and mismanagement.
    Welcome. Thank you for coming.
                  PREPARED STATEMENT OF SENATOR CARPER
    It should be clear to anyone paying attention to the news in recent 
years that our Federal Government has serious problems with the way it 
manages contractors and contracts.
    The U.S. government is the biggest buyer in the world, purchasing 
nearly half a trillion dollars in goods and services over the past 7 
years--an increase of almost 89 percent. This enormous increase has 
been triggered, in part, to support our war efforts in Iraq and 
Afghanistan.
    Unfortunately, auditors and investigators have exposed extensive 
waste, fraud, and abuse involving a number of government agencies and 
contractors. In fact, many of the contracts involving our government 
during the past 4 years in Iraq and Afghanistan have resulted in 
profound waste and mismanagement. Most of those contracts have been 
awarded on a no-bid or cost-plus basis. As a result, billions of 
taxpayers' dollars have been wasted. Consider just a few examples over 
the past 2 years alone:

      Last year, the Defense Contract Audit Agency (DCAA) 
identified about $263 million as ``potentially excessive or 
unjustified'' costs charged by Kellogg, Brown & Root (KBR)--the 
government contracting firm formerly under Halliburton--under a no-bid 
contract known as ``Restore Iraqi Oil.'' Yet the Department of Defense 
chose to pay $253 million of the disputed costs, despite the auditors' 
strong objections.
      This past May, according to an audit by our Special 
Inspector General of Iraq, we learned that KBR did not keep accurate 
records of gasoline distribution, put its employees in living spaces 
larger than necessary and served meals that cost $4.5 million more than 
necessary under its contract to perform work in Iraq.
      We have also learned the California-based Parsons 
Corporation, which has received $186 million over the past 3 years for 
a healthcare center project, has completed construction on only 15 of 
142 planned health care centers. Of those 15 centers, only six are open 
to the public.

    I learned this first-hand when I visited Iraq last month. The 
oversight our congressional delegation performed in Iraq and Kuwait--
over contractors operating there and the contracts they ostensibly 
oversee--was very constructive.
    According to the Department of Defense, there are more than 127,000 
contractors in both countries supporting our war effort. These 
contractors do everything--prepare meals, do laundry, drive hundreds of 
trucks thousands of miles to re-supply U.S. and Iraqi forces, repair 
damaged vehicles, and, even provide protection to congressional 
delegations that come to Iraq on an almost weekly basis.
    Oversight of contractors who support deployed forces has been a 
long-standing problem, which the General Accountability Office (GAO) 
has reported on since 1997. Last December, the GAO argued the 
Department of Defense continues to have inadequate contractor oversight 
personnel in deployed locations, which makes it nearly impossible for 
the Department to receive assurances that contractors are meeting 
contract requirements efficiently and effectively at each location.
    Similarly, the GAO noted commanders and other military personnel--
integral players in contractor oversight--receive little or no training 
on the use of contractors as part of their pre-deployment training or 
their professional military education.
    This week, I am offering an amendment to the Defense Authorization 
bill to correct this. My amendment will require training for all 
military personnel outside the acquisition workforce, including 
operational field commanders and officers performing key staff 
functions for operational field commanders expected to have acquisition 
responsibility and oversight of contracts and contractors. My amendment 
will help ensure military personnel understand the scope and scale of 
the contractor support they have in contingency operations and prepare 
them for their roles and responsibilities for oversight and contingency 
contracting.
    Over the past 5 months, Congress has started to pressure the 
Executive Branch to end bad contracting practices. Slowly, bad 
contracting practices are disappearing and will, with our continued 
oversight, be replaced with fixed-price contracts and competitive 
bidding.
    For example, the Defense Department, which spent $151 billion on 
service contracts in fiscal 2006, has made some effort to increase 
oversight. However, many problems persist. The key is to stay on it. We 
must remain vigilant in our congressional oversight of Federal taxpayer 
dollars going to pay contractors in Iraq and Afghanistan.
    The questions I hope will be addressed today are:

      How do we make the Federal acquisition process more 
efficient, effective, transparent and accountable?
      How do we establish a capable acquisition workforce and 
hold it accountable?
      What tools do our Federal agencies need to accomplish 
those objectives?
      How can the Congress play a constructive role in the path 
forward?

    Federal agencies, particularly the Departments of Homeland Security 
and Defense have critically important missions--to protect and secure 
our homeland. Waste and mismanagement undermine their missions. 
Anything that weakens our government's quick and effective response to 
the real threats our country continues faces here and abroad is too 
much.
    As elected Members of Congress, our greatest stakeholders are the 
American people. We have an obligation to ensure their dollars are 
being used as efficiently and effectively as possible. This is why I am 
also proud to be an original cosponsor of the bipartisan bill--
introduced by Senators Lieberman and Collins--ensuring proper oversight 
and accountability in Federal contracting.
    To date, the war in Iraq has cost us just over half a trillion 
dollars. The deficit this year is forecast at just over $200 billion. 
This is not a time to be wasteful with our citizen's hard-earned money. 
In fact, there is never a time to be frivolous with the hard earned 
money of the American people.
    Congressional oversight is imperative to make sure Federal agencies 
like the Department of Homeland Security and the Department of Defense 
step up to the plate, confronting the waste of precious taxpayer 
dollars, and taking immediate, corrective action so we protect 
Americans and our interests abroad as well as the nearly 300 million 
Americans at home.
    I look forward to hearing from each of you. And I look forward to 
continuing to work with our witnesses and my colleagues on this 
Committee to provide the oversight that ensures these agencies do not 
shy away from their duty to forcefully confront waste and 
mismanagement.

    Chairman Lieberman. Thanks, Senator Carper.
    I am very grateful to the three witnesses. This is an 
excellent panel that brings a lot of expertise and experience 
to the table that will help us in our desire to legislate 
effectively here.
    We will begin with David Walker, obviously the Comptroller 
General of the United States since November 1998. GAO's body of 
work related to government procurement has been invaluable to 
this Committee and to Congress in helping us understand both 
the weaknesses in the system and the means of addressing those 
weaknesses.
    Mr. Walker, I thank you for your really exemplary service 
to our government, to our country, and I welcome your testimony 
now.

 TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL OF 
                       THE UNITED STATES

    Mr. Walker. Chairman Lieberman, Senator Collins, other 
Members of the Senate Homeland Security and Governmental 
Affairs Committee, first, thank you very much for holding this 
hearing. It is a very important topic, clearly worthy of your 
time. And, second, thank you very much for inviting me to 
testify at this hearing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 45.
---------------------------------------------------------------------------
    The U.S. Federal Government is the single largest buyer in 
the world, obligating over $400 billion in fiscal year 2006 
alone. While acquisitions are made throughout government, the 
majority are concentrated in just a few agencies: The 
Department of Defense represents 71 percent, and the top five 
agencies represent 86 percent of all Federal acquisitions.
    GAO's work extending back over many years has demonstrated 
that agencies face a number of recurring and systemic 
challenges in their acquisition of goods and services. Let me 
make it clear. A vast majority of Federal employees do a good 
job, and a vast majority of Federal contractors do a good job. 
I think that is important to note. But in examining our defense 
work in particular, which is where 71 percent of contracting 
dollars were done last year, we have observed 15 systemic and 
longstanding acquisition challenges which I have included as 
Appendix I, and I would commend it to you and your key staff. 
These have been there for years. Many of these require action 
by Executive Branch officials. Some might require legislation. 
All require additional oversight by the Congress.
    For example, not only have we identified contract 
management as a high-risk area for DOD, but also for the 
Department of Energy and NASA, as has been mentioned. 
Furthermore, we have identified interagency contracting as a 
new government-wide high-risk area.
    Let me be clear. These systemic challenges and high-risk 
areas cost the taxpayers billions of dollars every year. In my 
testimony, I highlight these acquisition challenges, and I 
categorize them into four areas:
    First, the importance of separating unlimited wants from 
true value and risk-based needs.
    Second, establishing and supporting realistic program 
requirements and sticking with them.
    Third, using contractors in appropriate circumstances and 
contracts as an effective management tool.
    And, fourth, creating a capable workforce in the 
acquisitions area and holding it accountable for results.
    Separating wants from needs in an affordable and 
sustainable manner will be critical to improving management 
within our current fiscal environment. No less important is the 
need for clearly defined program requirements and to stick with 
those requirements over time. It is also important to use 
appropriate contract types as well as effective oversight, both 
by the Executive and Legislative Branch.
    Contract management challenges can jeopardize successful 
acquisition outcomes in normal times, but they take on 
heightened significance in contingency operations such as Iraq, 
Afghanistan, and Katrina. A significant part of our challenge 
relates to the evolving and enlarging role of contractors in 
acquisitions, particularly through service contracts, which 
accounted for nearly 60 percent of all government contract 
obligations for fiscal year 2006. This raises the basic 
question of which type of work should be done by contractors 
versus government personnel. This is a major issue that is a 
growing concern and is in need of serious attention by both the 
Executive Branch and the Congress.
    In addition, an accountable and capable workforce underlies 
the Federal Government's ability to strategically plan, to 
effectively manage, and to properly oversee whatever 
contracting activities are done. Tackling these and other 
systemic challenges will be fundamental to helping achieve 
better value for money and reducing but not eliminating waste. 
Let's face it. The Federal Government is the largest, the most 
complex, and, arguably, the most important entity on the face 
of the Earth. We should have zero tolerance for fraud, waste, 
abuse, and mismanagement. It will never be zero, but we can do 
a lot better than we are doing now.
    And in that regard, let me offer a definition of ``waste'' 
because I think we need to keep in mind waste is where the 
money is.
    Waste involves the taxpayers in the aggregate not receiving 
reasonable value for money in connection with any government-
funded activities due to an inappropriate act or omission by 
players with control over or access to government resources. 
That is noted in Appendix II of my testimony, and I might note 
that waste can be caused by either the Executive Branch or the 
Legislative Branch, and there are specific examples that are 
noted therein.
    In closing, I would like to re-emphasize why it is 
important, in fact, imperative that we address these 
longstanding and systemic acquisition and contracting 
challenges. Given our current and projected financial 
condition, we should have zero tolerance for waste. We need to 
make some tough decisions. Some will have to be made by the 
Executive Branch, others by the Legislative Branch, but it is 
important that we do it sooner rather than later. The failure 
to do so will cost American taxpayers billions of dollars each 
year.
    Last, but certainly not least, let me make some comments 
about the Accountability in Government Contracting Act of 2007, 
S. 680. Let me commend Chairman Lieberman, Senator Collins, and 
others who are sponsors of this legislation. The act addresses 
a number of areas of concern that GAO has had over the years. 
In the aggregate, we believe that it has a number of 
meritorious provisions, and we are broadly supportive of this 
legislation. As I mentioned to Senator Collins, we have a few 
suggestions for improvement, and she is open to those 
suggestions. I am sure the other Members of the Committee are 
as well, and I promise you that you will have those this week, 
possibly as early as today, because I think it is important 
that we try to work together in a constructive fashion. I know 
you have put a lot of time and effort in the legislation, and I 
want to thank all of you for your efforts in this regard.
    Thank you very much.
    Chairman Lieberman. Thanks very much, Mr. Walker, and we do 
look forward to those suggestions that you have about the 
legislation. You are a critical participant in this, and we 
wanted to come at it in a constructive way.
    As our second witness today, we are very grateful to have 
Marcia Madsen appearing before us in her capacity as Chair of 
the Acquisition Advisory Panel, which was established by the 
Services Acquisition Reform Act of 2003 to examine this 
complicated area of law and make recommendations to Congress. 
Ms. Madsen is a partner and expert in this area in the law 
firms of Mayer Brown. It is a happy coincidence, I suppose, 
that the Government Printing Office has just within the past 
few days produced a hard copy of the panel's report that came 
out in January. And it is both hard and heavy, I might add, and 
each of the Members has a copy at their desk before them.
    Ms. Madsen, we look forward to hearing your testimony on 
the panel's recommendations. On behalf of the entire Committee, 
I want to thank you, the other panel members, and the panel 
staff for your hard work to produce this report, which will be 
a real help to us as we go forward with both our oversight 
responsibility and our desire and commitment to legislate.
    Thank you very much. We look forward to your testimony now.

 TESTIMONY OF MARCIA G. MADSEN,\1\ CHAIR, ACQUISITION ADVISORY 
                             PANEL

    Ms. Madsen. Mr. Chairman, Senator Collins, thank you very 
much for holding the hearing and for inviting me to testify in 
my capacity as Chair of the Acquisition Advisory Panel. I am 
very happy to be here to talk about the panel's work product, 
and as Senator Lieberman mentioned, I am also very happy--and 
greatly relieved, I might add--to see that GPO has finally 
printed the document. I am not sure that without the impetus of 
this hearing we would have gotten it. But we have it, and we 
are very grateful to have it.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Madsen with an attachment appears 
in the Appendix on page 71.
---------------------------------------------------------------------------
    Just so you know, you have some of the first copies of the 
report. The report has actually been officially transmitted to 
OFPP, and it is in the process today of being distributed to 
all Members of Congress and senior government officials by GPO. 
And we will be posting the report on the Web. It may take a 
couple of weeks, but it will be on the panel's Web page as 
well.\2\
---------------------------------------------------------------------------
    \2\ The document can be accessed on the Web at https://
www.acquisition.gov/comp/aap/24102__GSA.pdf.
---------------------------------------------------------------------------
    I just want to note that accompanying me today are Ty 
Hughes and Roger Waldron, sitting in back of me, each of whom 
co-chaired panel working groups and who wrote substantial 
portions of this report. And also accompanying me is Laura 
Auletta, the panel's Executive Director and solo permanent 
staff person. She was really the backbone of our efforts, and 
we are very grateful to her.
    I would also like to acknowledge Panel Member David 
Drabkin, who has changed hats here. He is sitting behind you, 
Senator Collins. David also co-chaired two panel working groups 
and contributed to this report.
    The Committee's interest in our report is greatly 
appreciated. We have been following S. 680--I have--and noted 
the inclusion of many of the panel's ideas and concepts in the 
legislation.
    At this point I would like to request that my full 
statement be included in the record, and I will just summarize 
some of the key points.
    Chairman Lieberman. Without objection.
    Ms. Madsen. Thank you. There is no way I could talk about 
the whole thing.
    Section 1423 identified key topics for the panel as 
commercial practices, performance-based contracting, and the 
use of government-wide contracts, or interagency contracts as 
we know it. The panel was sworn in February 2005. It consisted 
of 13 members balanced between government and the private 
sector.
    The panel tried very hard to use an evidence-based 
policymaking process. We did our best to ground our findings 
and recommendations in research and in data. We heard testimony 
from more than 100 witnesses representing government and public 
interest organizations. We held more than 30 public meetings. 
We adopted over 100 findings and 80 recommendations. Obviously, 
they can only be touched on here.
    The panel was subject to the Federal Advisory Commission 
Act (FACA), so this was a very open and transparent process. 
Congressman Davis, who I was talking to the other day, after he 
listened to the statistics, said, ``That is a lot of Diet 
Coke.'' [Laughter.]
    And both Comptroller General Walker and my friend Stan 
Soloway here both testified in front of the panel.
    The panel was very well aware that with Federal spending 
approaching, at the time we were working, $400 billion and 
serious and competing demands on the taxpayer dollars that an 
accountable and transparent acquisition system that delivers 
innovative and high-quality goods and services was absolutely 
critical to our national interests.
    I will talk a little bit about some of the subjects in the 
panel's work. Because of the emphasis in the legislation 
regarding appropriate use of commercial practices, and because 
performance-based acquisition is a commercial practice, the 
panel spent significant efforts on the subject of commercial 
practices. One of the first things we did was reach out to 
large commercial buyers of services, and the private sector 
consultants who support them. And they talked to the panel 
about current commercial practices and services acquisition, 
and I want to note here that the panel focused on services 
acquisition, but we did not do it to the exclusion of all 
acquisition.
    We also took testimony from many government buyers and 
users of services, both DOD and civilian agencies, and we heard 
from many government contractors as well as watchdog groups.
    As detailed at length in our report, there is a large and 
robust private sector market for services, particularly IT and 
IT-related services. Commercial companies are acquiring 
billions of dollars in services, and they have well-developed 
acquisition and contracting procedures, and we set out to find 
out what those were.
    The large commercial buyers who testified before the panel 
identified requirements development--what are your needs, just 
as Comptroller General Walker has talked about--and competition 
as the keys to successful service contracting. These companies 
told us that they make large up-front investments in defining 
requirements, typically on an outcome basis. This investment 
makes vigorous competition possible. It facilitates the use of 
performance-based contracts as well as fixed-price contracts. 
Requirements development is to the commercial sector the most 
basic and fundamental building block of services acquisition.
    One of our witnesses told us if you do not know what you 
are going to buy, perhaps you should not buy anything at all. 
They were a little astonished, some of our private sector 
witnesses, at some of the government practices.
    Government practice, our observation based on our work, on 
the other hand, is driven by the need to get to award quickly 
to meet mission needs and obligate funds. And we recognize that 
inadequate requirements definition is not a new topic. It has 
been an issue at least for every group that has looked at these 
issues for 30 years. But the problem in the services context is 
that poor requirements definition results in reduced 
competition, the inability to use performance-based contracts, 
the inability to make use of fixed-price contracts, and 
ultimately it results in increased costs.
    The panel's commercial practices recommendations focus on 
improving competition. The recommendations recognize that 
competition fuels innovation, drives fair prices, and 
disciplines the responsible and effective use of streamlined 
acquisition vehicles and improves opportunities for small 
businesses.
    The panel worked hard to develop data using FPDS-NG on the 
extent to which government acquisition is competitive. We 
noted, as has been observed here already, that government 
spending on services accounted for 60 percent of procurement 
dollars in 2004 and 2005, including at DOD. So DOD is not 
spending most of its money on weapons systems. It is spending 
it on services. The details are in our report, but in fiscal 
year 2004, one-third of the government's procurement dollars 
were awarded non-competitively. This is based on our analysis 
of FPDS data. And even when competed, the percent of dollars 
awarded, when only one offer was received, has more than 
doubled from about 9 percent in 2000 to 20 percent in 2005. And 
we fear that the amount of non-competitive awards may be 
understated. Although we tried for months and months, we could 
not obtain reliable data on competition for orders under 
multiple award contracts available for interagency use. We do 
know that in 2004, $142 billion, or 40 percent of procurement 
spending in that year, went through interagency vehicles.
    Our recommendations, I guess many of which have been picked 
up in the bill, focus on requirements development through use 
of Centers of Excellence and requiring that the program manager 
and the contracting officer be responsible for requirements 
regardless of the acquisition vehicle that they use.
    With respect to interagency contracts, our recommendations 
try to achieve a balance between recognizing that these 
vehicles are necessary to allow for streamlined acquisition of 
what we call ``bite-sized'' requirements for repetitive needs 
and with the fact that a significant proportion of large 
orders, single transactions in excess of $5 million each is 
flowing through these vehicles.
    For example, we found that in 2004, $66.7 billion of that 
$142 billion was awarded in orders for single transactions that 
exceeded $5 million in value. These are single orders. We could 
not get data that showed what the award with options was, so 
those are single orders in those years.
    For interagency contracts, we recommended making the 
requirements of Section 803 of the 2002 DOD bill applicable 
government-wide for orders over $100,000, and we recommended 
some other things as well, for example, requiring a synopsis 
post-award for sole-source orders, something that is picked up 
in the bill. For orders over $5 million, we recommended more 
formalized competitive procedures that are outlined in the 
report. We also recommended post-award debriefings, and we 
recommended, after quite a bit of debate and discussion, 
allowing protests on orders of over $5 million. And I am happy 
to talk about that more if the Committee would like later.
    On interagency contracting, we recommended that those 
contracts need to be better managed. Among other things, our 
findings recognized that the government does not know how many 
of those contracts it has, so our findings start with 
identifying where those contracts are, who is using them, and 
OFPP, I am happy to say, already started down that path early 
in the panel's work.
    On the workforce, the panel determined that there is a 
significant mismatch between demands placed on the workforce 
and the personnel and skills available within that workforce to 
meet the demands. The problem that the panel encountered was 
that there was just not reliable information about the size, 
composition, and the competencies of the Federal acquisition 
workforce.
    The procurement panel that was empaneled in 1972 to look at 
these issues had the same problem, and we did the same thing 
they did. We commissioned our own study of the Federal 
acquisition workforce. This is the executive summary of our 
study. It actually consists of nine volumes. We are happy to 
provide it to the Committee. I will leave this copy with the 
staff today of the summary.\1\ But the problem that we 
identified is clearly identifying where the workforce is, what 
the competencies are. The data just is not available. And based 
on what we heard from the commercial sector, our perception is 
that this just is not an issue of numbers, it is an issue of 
skills, it is an issue of resources, it is an issue of people 
with the right mix of skills to do the kinds of acquisition 
that are required in a heavily services-dependent environment.
---------------------------------------------------------------------------
    \1\ The copy of the executive summary is retained in the files of 
the Committee.
---------------------------------------------------------------------------
    We also looked at the challenges of the blended workforce. 
That was a topic that we encountered later, and I think we have 
scoped those issues. I do not think we have all the answers to 
those issues. But we start, I think, with the premise that with 
60 percent of the government's money being based on going to 
services, that agencies need to have a better sense of what 
they are buying.
    In the A-76 area, where the inherently governmental rules 
apply, there is some discipline to the acquisition of services 
and what skills and what activities those workers are 
performing.
    Outside of that environment, where agencies are buying 
services, there is no definition really of what are the core 
government competencies that the government needs to maintain. 
And it is that area that our recommendations focused on.
    With that, I will close and am happy to answer any 
questions that you may have.
    Chairman Lieberman. Thank you very much. Excellent 
testimony. A very interesting point that you conclude that we 
do not have enough data about the acquisition workforce to make 
informed judgments about what it lacks. So I will come back to 
that in the question period. Thank you.
    Our final witness is Stan Soloway, who is President of the 
Professional Services Council (PSC), a leading trade 
association of companies that provide professional and 
technical services to the government. Prior to joining PSC, Mr. 
Soloway served as the Deputy Under Secretary of Defense for 
Acquisition Reform, and concurrently as Director of the 
Secretary of Defense's Defense Reform Initiative. The record 
shows that he, like Senator Collins, is a graduate of the 
William Cohen School of Public Service, a very fine school with 
a great mentor, a former member of this Committee.
    Mr. Soloway, thanks for being here, and we look forward to 
your testimony now.

TESTIMONY OF STAN SOLOWAY,\1\ PRESIDENT, PROFESSIONAL SERVICES 
                            COUNCIL

    Mr. Soloway. Thank you, Mr. Chairman, Senator Collins, and 
Senator Akaka. I want to thank you for the invitation and the 
opportunity to provide our views on S. 680, and generally the 
whole area of government procurement. This is a very important 
discussion, as my colleagues on the panel have suggested. We 
all recognize that, given the centrality of acquisition to the 
functioning of government, we have a shared responsibility to 
most effectively and efficiently utilize taxpayer dollars.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Soloway appears in the Appendix 
on page 91.
---------------------------------------------------------------------------
    I will note that the other great value and benefit not only 
of the legislation but of this hearing is the opportunity to 
have a serious discussion about solutions. In too many other 
forums we spend an awful lot of time pointing fingers and 
operating in a somewhat context-free zone, and I really 
appreciate the opportunity to have that broader substantive 
discussion.
    Whether it is assisting citizens seeking compensation for 
radiation sickness, providing support to our military men and 
women stationed at home or abroad, or developing scientific 
analyses to better protect sensitive wildlife habitats, PSC's 
members are among the leading small, mid-tier, and large 
companies providing the full range of professional services to 
virtually every Federal agency. In fact, our 220 member 
companies employ hundreds of thousands of people across the 
country in virtually every region and State.
    As you have noted, over the last decade the government's 
missions have evolved rapidly, increased in complexity, and 
required new technologies, resulting in both growing challenges 
for the government itself and its workforce and a substantial 
increase in the reliance on contractors. The evidence suggests 
that these challenges and trends will continue well into the 
future.
    In fact, the July 2007 report of the Partnership for Public 
Service highlighted very clearly that the Federal Government 
will need nearly 200,000 ``mission critical'' new hires over 
just the next 2 years to keep pace with the rising requirements 
to meet our national security and evolving agency needs and the 
expected Federal workforce retirements. That does not even 
begin to account for the thousands of positions across 
government, including in the acquisition workforce, which are 
today vacant and which the government is struggling to fill.
    S. 680 represents a valuable starting point for discussing 
how to ensure that the Federal procurement process fully 
protects how the government spends taxpayer dollars while also 
enabling the government to acquire the full array of necessary 
resources and support. When viewed in its totality, and despite 
its evident problems, the Federal acquisition system actually 
functions better than it might seem, and in most cases, quite 
well. As my colleague, the Comptroller General, pointed out, 
the vast majority of procurements are well constructed and the 
vast majority of contractors perform well.
    At the same time, improvement is clearly needed and we look 
forward to an ongoing dialogue about solutions that will 
deliver real value and improvement.
    Before I comment on specific aspects of the bill, let me 
just step back for a minute and offer a little bit of context 
and in some cases perhaps challenge some common myths that have 
surrounded this debate that all too often fail to recognize the 
complexities and nuances of this giant process we are dealing 
with.
    It is true that since September 11, 2001, Federal 
procurement spending on both goods and services has grown 
dramatically. But this should not come as a surprise. Among 
other things, September 11, 2001, significantly changed many of 
the government's missions and created requirements for new 
technology and innovative solutions to secure the homeland and 
fight the global war on terror. Today, more than ever, the 
government finds itself competing for people and capabilities 
in the broader economy, in which the availability of those very 
skills is in short supply.
    This contracting growth did not happen in a vacuum. During 
that same period, the overall discretionary budget of the 
government has grown nearly two-thirds. Thus, while 
significant, spending on service contracts has actually 
increased as a proportion of the government's operations about 
15 percent, from 21 to 24 percent of the discretionary budget. 
This is significant, clearly, but it is hardly the 
unconstrained rush others have suggested.
    Similarly, we continue to see claims that the so-called 
``shadow'' contractor workforce supporting the government now 
numbers over 8 million--making it more than four times the size 
of the Federal workforce. Simply put, by any meaningful 
measure, that figure is wildly overstated and based on faulty 
premises and is mathematically impossible.
    We also have a lot of confusion around the issue of 
competition and, Mr. Chairman, I agree with you fully that 
competition must be a core value of Federal procurement. It is 
a core value among our members and we strongly support an open 
and competitive process in every possible way.
    However, some suggest that the amount of competition for 
government work today may, in fact, be less than it used to be. 
But when looked at proportionally, it is not clear that is the 
case, that it may, in fact, be relatively consistent. Some of 
the confusion in this area does come down to the unique 
terminology in government contracting.
    Many contracts are highly competitive even if they are not 
technically awarded through what we call ``full and open 
competition,'' which is a term with special meaning in Federal 
acquisition. For example, current law provides a 23 percent 
government-wide goal for small business and other preference 
programs, such as Section 8(a) firms, firms owned by women, 
service-disabled veterans, HUBZone firms, and so forth. None of 
these awards are coded in the database as ``full and open 
competition'' because they are only available to qualified 
companies. It is not full and open.
    Similarly, with multiple award contracts, where there is 
typically a competition through which companies vie for a 
position on the contract--those companies that win a position 
on the contract, they then compete for incremental, as Ms. 
Madsen pointed out, bite-sized pieces of performance. Those 
awards themselves may be competitive, but they are not full and 
open because they, too, are only available to those who won a 
position on the initial contract.
    This is not to say we should be satisfied with the degree 
of competition. As Ms. Madsen pointed out, Congress addressed 
this for the Defense Department in 2003. S. 680 appropriately 
extends the rules that were applied to the Defense Department 
at that time across the government and we support doing so in 
the same manner that was done for DOD. I do think it is 
important, as we have that discussion, to understand the 
definitions and the context clearly.
    We also need to be very clear that the bipartisan 
objectives of the acquisition reforms of the 1990s were not 
about procurement for speed's sake. The goal was to rationalize 
and modernize an almost comically cumbersome process--a 
process, for example, through which the government dictated to 
cookie makers how many chocolate chips could go into a cookie 
made for the military; a process that was so arcane that large 
segments of the commercial sector simply refused to 
participate. The goal was to move from the rigid, rule-based 
process that was in part responsible for those dysfunctions to 
one based on critical thinking, business judgment, and smart 
decisionmaking.
    Far from simplifying the life of Federal acquisition 
professionals, many of those reforms actually made the 
acquisition process more demanding, and as you have pointed out 
and the Acquisition Advisory Panel and GAO and others have 
pointed out, the investment in that workforce and their 
training and development has simply not kept pace.
    The private sector believes that the best customer is smart 
and well prepared and that is why 5 years ago PSC recommended 
to Congress the creation of what is now known as the Federal 
Acquisition Workforce Training Fund. Although the fund is 
growing, it is far from adequate.
    Which brings me to the legislation before us. Through S. 
680, you recognize--and, Senator Collins and Chairman 
Lieberman, you made clear in your opening comments--that the 
greatest returns and improvements in the acquisition process 
will be found in an aggressive focus on the Federal acquisition 
workforce and the ways in which they are supported, developed, 
and resourced. That focus is long overdue and has never been 
more critical.
    It is also vital to recognize that the acquisition 
workforce is not just contracting people. It is a broad range 
of functional responsibilities, whether it be engineering, 
program management, financial and cost analysis, and so forth 
that must be included in any discussion of that workforce.
    The legislation contains important provisions that we 
support that we believe will help and enhance the acquisition 
workforce. But we also believe that more can be done. In fact, 
we believe that today we need a kind of workforce Marshall Plan 
that aggressively addresses the hiring, retention, training, 
reward, and development of the workforce we are asking to 
manage 40 percent of the discretionary budget. It is standard 
commercial practice for companies to develop, reward, and 
otherwise foster their core workforces differently than they do 
other elements of the company. Unfortunately, such is not the 
case in government, and it is time to change that paradigm.
    We also believe this initiative should include a special 
focus on emergency and contingency contracting. As an 
alternative to further restrictions or rules that could collide 
with mission realities, we propose that Congress direct the 
creation of a government-wide Contingency Contracting Corps. 
This corps would be drawn from across the government 
contracting workforce, be given special training in emergency 
and contingency contracting, and be deployable when the need 
arises.
    My written testimony contains more detailed comments on a 
number of other key provisions, and in some cases, while we 
recognize and support the underlying concerns that drove the 
recommendations in the bill, we also believe those provisions 
could be modified or improved upon. This would include the 
sections on limits on task orders, the use of fixed-price 
versus cost-type contracts, the tiering of subcontracts and 
debarment. Each of these is important, and I will be happy at 
any time to discuss our perspectives in more detail.
    We also share your belief, as reflected in Section 123, 
that interagency contracting remains an area worthy of further 
study and we support the intent of the provision. I will add 
that among our members, 65 percent of which are small or mid-
tier firms, the mix and structure of the Federal contract 
landscape has enormous implications for the long-term 
competitiveness and diversity of the services industry. Thus, 
we recommend that Section 123 require a broader analysis of the 
relative role and balance of interagency and enterprise 
contracting and how best to ensure that whatever we do fosters 
continued diversity and competitiveness in the marketplace.
    We do have particular concerns, which we can discuss in a 
few moments, with Section 114 that would allow the filing of 
protests on task order awards. This might be one area in which 
the views of industry are perhaps the most relevant, because if 
there is concern about the government adherence to the rules of 
fair play, it is the companies that will be the first to call 
for more opportunities for redress. Yet, across industry, there 
is a resounding consensus that adding protests to task order 
awards is unnecessarily costly and time-consuming.
    There are also other bills before this Committee and in 
other committees about which we have very grave concerns and 
which we believe will have a very deleterious effect on the 
environment, do little or nothing to improve actual acquisition 
or mission performance, and potentially have a significant 
negative effect on the long-term competitiveness of the 
marketplace. Given your leadership and your jurisdiction, we 
hope you will not hesitate to engage on those other bills and 
demand of them the same kind of rigor you are applying to your 
own legislation.
    Let me once again thank you for your leadership on these 
crucial issues and for your nonpartisan approach and openness 
to dialogue. This concludes my opening statement. I would be 
happy to answer any questions you might have.
    Chairman Lieberman. Thanks very much, Mr. Soloway. 
Normally, it is the Committee Members that give the witnesses 
static. [Laughter.]
    I apologize that we are all going to have to put up with 
that static, but we are trying to stop it. Thanks for excellent 
testimony. We are going to do 8-minute rounds of questions for 
each of the Senators.
    Ms. Madsen, I wanted to start with you. I thought that you 
had a very interesting comparison of private sector acquisition 
practices as compared to the governmental sector, and the 
differences are really striking, particularly in terms of the 
planning going into the contract as well as the negotiation. 
The government seems to do too little planning. The private 
sector does a lot of it and also monitors the carrying out of 
the contract better than the government does.
    I wonder if you have any thoughts about the causes of that 
difference in what might be called acquisition cultures.
    Ms. Madsen. I do have some thoughts. The panel, I think, 
heard quite a bit of testimony from the private sector because 
they are buying--private companies are buying services at a 
phenomenal pace, and they are buying them because they see the 
ability, particularly where they are technology-related 
services, to reduce their costs. So we were very interested in 
the techniques that they were using and the kinds of skills 
that they involved.
    The things that they told us, the first place they start is 
really aggressive and rigorous requirements development. They 
get the user, the vice president or the executive vice 
president whose substantive area of responsibility that is, and 
the acquisition people in the same room, and they have to 
agree. They have to buy in. They have to agree.
    Our acquisition system in the government is a little 
stovepiped. We do not necessarily view acquisition in those 
terms, in terms of getting sign-off from particularly the user 
at the program community. So that is one of the things that 
struck us. It is also the investment they make. They will bring 
in--private sector companies will bring in, if they need to, a 
consulting firm, and they will spend some time and resources 
actually getting their requirements rounded up and defined on 
an outcomes basis, typically on a performance basis. And they 
do it with very complex services and with very complex 
missions. So we know it can be done, but it takes a lot of 
planning on the front end.
    I think the other piece probably--and this is a tougher 
issue for the government--is funding. The private companies are 
not worrying about spending their money in 12 months or 9 
months or 8 months, as the case may be. So they have a little 
more luxury in terms of knowing the funds are going to be 
available, but at the same time, I think the planning things 
that they do are a valuable lesson because those can be done 
regardless of when you know you are going to get your funding.
    Chairman Lieberman. How much of it is because of the 
current shortage of acquisition specialists in the government? 
Or does that shortage merely exacerbate the existing difference 
in cultures?
    Ms. Madsen. The private companies we talked to--and I think 
many of them would be happy to come and talk to you, if you 
wanted them to--told us that they just have a different model. 
They use typically a smaller group of people who are very 
sophisticated in doing large sourcing transactions. Folks who 
not only have acquisition expertise, but who understand what it 
is that they are buying, and they put those skills together. I 
think what we are lacking in the government side maybe is 
putting those skills together. We are asking--and Mr. Soloway 
mentioned this--government acquisition people to be good 
commercial buyers, to know that market, to know the 
government's rules, and to know the government's special 
missions. And that is a lot to put on their plate, and they are 
not really necessarily being given the tools and the training 
to do that all at one time.
    So part of it, I think, goes to the acquisition people, but 
part of it goes to the skill set and the way the function is 
organized.
    The commercial firms told us that they conduct extensive 
market research up front, so they do not just run a competition 
and they do not just define their needs. They also do market 
research, and they pinpoint who are the best potential 
competitors for this work. And that is something else 
government is not doing a very rigorous job of.
    One of our recommendations--and it looks, I think, to some 
people a little soft, but we think it is very important--is to 
actually establish a market research function in the GSA to do 
this kind of work. The government has a lot of data about what 
it buys, what it paid for it last year, what it paid for it 
last month. But the data is not pulled together in a way that 
is meaningful for conducting market research.
    Chairman Lieberman. I thank you for that. That is a helpful 
answer. I want to, before my time is up, ask Mr. Walker a 
question.
    You have noted your concern that Federal acquisition 
employees rotate too frequently between government and 
industry, and I know that GAO has ongoing work in this area. We 
have pending before our Committee a bill authored by 
Congressman Waxman, H.R. 1362, which comes to us from the 
House, which would enact new restrictions on former and current 
procurement officials.
    I wonder if you are prepared to offer us, first, a 
description of the extent to which you think this is a problem, 
and then, second, if you have any recommendations to make about 
how we might fairly and constructively legislate in this area.
    Mr. Walker. Two things, Chairman Lieberman. First, with 
regard to the question you asked previously, the items in 
Appendix I are based on commercial best practices. So if we 
look at the items in Appendix I, they are based on our 
commercial best practices work.
    Second, there are two issues with regard to rotations. One 
issue is the rotation of government personnel too frequently 
such that you do not have appropriate, clearly defined 
responsibility and accountability.
    Chairman Lieberman. Within the acquisition----
    Mr. Walker. Within the government.
    Chairman Lieberman. So they stay in the Federal Government 
but just keep moving around.
    Mr. Walker. For example, where the Defense Department may 
have a policy that you are assigned to serve as a senior 
program official for 2 years and then you rotate off rather 
than until you hit a major milestone. Waiting until a major 
milestone would facilitate a more effective and accountable 
transition. So that is the first type.
    The second type is what you touched on, which is a rotation 
between government and the private sector, the so-called 
revolving door. We do have concerns there. There are issues 
there. What I would like to do is look at that specific 
provision and then provide you something for the record, if 
that is possible.
    Chairman Lieberman. OK. Ms. Madsen, did the Advisory Panel 
examine the revolving-door issue or would you care at this time 
to offer any views on it?
    Ms. Madsen. Mr. Chairman, we did not really look at the 
revolving-door issue per se. We did try to get a sense of the 
number of people working in the Federal workforce. We just did 
not have good data on the number of contractors supporting the 
Federal workforce. The data is just not available. It is among 
our recommendations that we get data, but we did not look 
specifically at people rotating in and out.
    Chairman Lieberman. Mr. Soloway, how about your reaction to 
this? I believe that the current law is that for one year after 
leaving government service, Federal procurement officials are 
prohibited from working for contractors to whom they awarded 
contracts. Is this a problem and one we should legislate on?
    Mr. Soloway. The answer is we have a very clear standard 
out there. When I left government, although I did not have 
responsibility for specific procurements, all of us leaving the 
last administration had very clear guidance from our ethics 
officers of what we were allowed and not allowed to do, who we 
could talk to and who we could not talk to and so forth.
    I do not think the problem is the need to change the law as 
it is making certain that everybody who is affected by it has 
the clarity of guidance that they need. Unfortunately--and I do 
not use this in any way as an excuse--in the few cases that we 
have seen the people admitted they knew exactly what they were 
doing when they did it. And I am not sure adding another year 
of restrictions would have changed their behavior.
    The other issue is the so-called blended workforce, and how 
you are now getting lots of closer, different kinds of 
relationships, is something we have been working on, looking at 
with the National Academy of Public Administration and others, 
because this is the new face of government and we do have some 
management issues we need to look at in this area.
    Chairman Lieberman. Take a moment--and I am over my time--
just to say for the record what is a blended workforce and what 
are the problems we are worried about?
    Mr. Soloway. You very often now will look in a government 
agency, and you have much more of an integrated workforce than 
you used to have, where there are contractors and government 
employees working side by side in offices. It is a much greater 
preponderance today than it was in the past. As I said, 
although it is not massive to the extent that some people might 
think, it is clearly a growing trend. And that raises 
interesting questions about how you manage that workforce and 
how you incentivize. For companies, frankly, it is a big 
challenge: How do I drive any institutional loyalty amongst my 
own employees? What are the incentive and pay and other 
performance challenges when I have people doing effectively 
this same job?
    It is the new face of government. It is an area that we 
have been looking at and talking about internally and with 
external groups like the National Academy and others to think 
about what are all of those issues.
    As Ms. Madsen said, there are a number of them, and they 
have solutions, but we have not thought about this new face of 
government. I believe the Volcker Commission at one point said 
that we have a 21st Century challenge and a 19th or 20th 
Century government structure. In many ways, I think that 
applies to this as well.
    Chairman Lieberman. Well said. That was helpful. You are 
absolutely right. People not involved in contracting, when they 
hear about contracting with the Federal Government, will 
naturally assume that the work is contracted out to a business 
that does it somewhere else. But there is increasingly a very 
blended workforce, including as all of us who have been to Iraq 
and Afghanistan know, a quite remarkable blending of full-time 
Federal employees, including, most importantly, the military, 
and a lot of contract employees. And how they work together 
raises important questions.
    Mr. Soloway. Would it be appropriate to add--I am sorry to 
interrupt you, Mr. Chairman.
    Chairman Lieberman. No. Go ahead.
    Mr. Soloway. I would add one thing to Ms. Madsen's answer 
to your first question, which I thought was a very important 
one. As I listened to her comments and the Comptroller 
General's, when you think about the difference in cultures 
between the commercial side and the government side, there are 
two things that we hear a lot. One is that the commercial side 
operates very much at a partnership level. They get very 
closely engaged with their contractors. Years ago, when we had 
the hearings about the Federal Acquisition Streamlining Act, 
one of the witnesses said that in the private sector the mark 
of excellence is the degree of communications and close 
cooperation between customer and supplier, and in the 
government that gets you thrown in jail. So we have cultural 
differences there in terms of how much we communicate, but it 
also gets to the investment in the people.
    So when we talk about the elements of commercial practice 
that Marcia set forth, those are absolutely consistent with 
what we tried to do in the Federal Acquisition Streamlining Act 
or the Clinger-Cohen Act, or I suppose here I should call it 
the Cohen-Clinger Act of 1996, and other reforms. But where we 
have really fallen down is in that investment in people that 
she spoke to, the recognition that they are a core, vital 
element of the management and leadership team, not just a 
support workforce.
    Chairman Lieberman. Thank you. Time is up. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    One of the purposes of S. 680 is to decrease the reliance 
on sole-source contracts to strengthen the competitive process. 
When this Committee investigated the contracts awarded in the 
wake of Hurricane Katrina, we saw that contracting officers 
frequently invoked the exception to competition, that is, the 
urgent and compelling exception. And, clearly, in many cases 
that was warranted in order to get the contract awarded very 
quickly. The problem, however, was then the follow-on contract 
for the same kind of service or goods--debris removal comes to 
mind--also became a sole-source contract.
    So one of the provisions of our bill says, fine, there are 
times when you have to use the urgent and compelling exception, 
but when you are doing the follow-on contract, it should be 
competitive, and there should be a limit for how long the 
initial sole-source contract can be in place.
    Now we chose 150 days, which may be too short. It may not 
be long enough. Perhaps it is too long. I am not certain. I 
would like to get the views of each of you on the concept that 
I have outlined of requiring the follow-on contract to be 
competitive and to limit the amount of time that a sole-source 
contract using the urgent and compelling justification can be 
in place.
    I will start with you, Mr. Soloway, and then just work down 
the panel.
    Mr. Soloway. Senator, we fully agree with you that the 
emergency contracting provisions need to be used only in the 
correct circumstances, and there clearly have been some cases 
where they at least apparently have been used beyond the time 
or size intended by law, and in Hurricane Katrina there 
certainly appear to be some cases. I would make two quick 
comments.
    I believe that the Contingency Contracting Corps concept 
that is in our testimony would greatly help to alleviate the 
problem because you would have a corps of people who were 
specially trained in emergency contracting.
    One of the things we saw--and I was down in the Gulf Coast 
4 days after the storm--there was nobody home, as we know. 
There was a complete infrastructure meltdown because of this 
storm. Two weeks later it was a different story, 4 weeks, 6 
weeks, as things began to come to life. But what we did know is 
FEMA had very few contracting folks available, and people--some 
being deployed or to support it--had no experience in emergency 
contracting.
    So I believe the Contingency Contracting Corps will help go 
a long way towards alleviating further cases in which the 
contracting authorities may be used incorrectly.
    The only caution I would add to your question: Is 150 days 
the right time or the wrong time? Is it 180? Is it 240? Is it 
30 days?
    As a general proposition, our concern with putting a firm 
timeline like that into statute is it could collide with 
certain mission realities. Again, generally 150 or 180 days may 
be more than enough time, but I can imagine in some cases it 
might not be. For instance, in Iraq today we are still in many 
areas still engaged in very heavy warfare, a great deal of 
uncertainty. Emergencies arise.
    So I don't know that putting in statute a time definite 
limit makes the most sense, but we certainly agree with you 
that we want to make sure that these contracts are used 
appropriately.
    Senator Collins. Thank you. Ms. Madsen.
    Ms. Madsen. Senator Collins, we did not speak directly to 
follow-ons to non-competitive contracts, but our 
recommendations do emphasize the importance and the recognition 
that on occasion agencies may need to do something on a sole-
source or non-competitive basis. But I think where we come out, 
the panel report comes out, is do what you need to do, but then 
behind that get the people involved who can help you define 
your requirements in such a way that the next time you can do 
competition.
    One of the things that your bill would do by putting a time 
frame, even if you do not make it mandatory--and I share some 
of Mr. Soloway's concerns in terms of making it, a hard stop. 
But if there is a time frame in there where people need to be 
attentive to, OK, it is time to look at doing something else, 
then they have got the incentive to begin right away looking at 
what their requirements are, because they will learn from that 
experience that they have with the sole-source contract that 
will inform them about how to get competition the next time and 
how to set their requirements so that they can get competition.
    So I would agree. I do not know that you need a hard stop 
in the statute, but I think you need an incentive in the 
statute for people to focus on how to do it competitively the 
next time.
    Senator Collins. Thank you. Mr. Walker.
    Mr. Walker. Three things. Yes, first, I agree that follow-
on contracts should be competitive.
    Second, I think there is a concern with regard to the 
duration of the initial non-competitive contract. We have some 
concerns about whether 150 days is realistic in some 
circumstances.
    And, third, I think there is another issue that we need to 
focus on. Contingencies happen. Wars happen. Natural disasters 
happen. And, quite frankly, in addition to these very 
worthwhile things that you are addressing through your 
legislation, I think there needs to be more advanced planning, 
whereas FEMA, for example, recognizes that hurricanes are going 
to happen, earthquakes are going to happen, and floods are 
going to happen. We ought to anticipate what type of needs we 
might have in the event of such events. We ought to be entering 
into contingency contracts that we can draw upon if and when 
those events happen. We need to have competition and we need to 
be able to draw on task orders in an appropriate circumstances. 
But there may need to be some changes in law because of how the 
obligation rules work. So we would like to work with you on 
that.
    So it is not just the issue of making sure that follow-ons 
are competitive. They should be. It is not just an issue of 
having some limitation on the initial award. It is also making 
sure that these departments and agencies are doing appropriate 
planning, entering into appropriate contingency contracts so 
that they can draw upon them when and if that event happens.
    Senator Collins. Thank you. I look forward to hearing from 
all of your specific recommendations on that.
    Let me turn to another issue, Ms. Madsen. Mr. Soloway in 
his comments expressed some concerns about the expansion of bid 
protest rights for unsuccessful bidders on large task orders 
under multiple-award contracts that are included in this bill. 
And I want to give you an opportunity to talk about this 
provision because we took it from the SARA panel's 
recommendations.
    I am a little surprised that Mr. Soloway has concerns about 
that because our goal is to help smaller businesses, and 
medium-sized businesses who feel that they could have competed 
and were shut out, and to give them an affordable, fast, 
reliable remedy at GAO.
    So I would like to ask you to give us a little more 
background on why the panel recommended these provisions.
    Ms. Madsen. Thank you, Senator. The first thing I would say 
to you, although not of the stature of this body, our panel was 
a very deliberative process, a very deliberative body, and this 
is an issue we talked about a lot. As it was adopted, it was 
adopted, I think, only with one dissenting vote despite the 
balanced nature of the panel.
    The things that the panel found to be of concern were the 
amount of dollars flowing through interagency contracts--$142 
billion in 2004; the size of the orders. We found, looking at 
FPDS data, almost $67 billion of that was in single orders over 
$5 million. And we know that number is low because it only 
reflects the single order; it does not reflect the base year 
plus options.
    We looked at agencies using--when they get above about $5 
million, they are using evaluation criteria, they provide a 
statement of work evaluate criteria. They do best value trade-
off. In other words, it looks very much like a standard best 
value negotiated procurement, but it is in a regime where it is 
not transparent and people cannot object to the way the 
evaluation process worked.
    We recognized, we think, in our recommendation that there 
needs to be some flexibility for the government to get bite-
sized repetitive needs satisfied in an environment that has 
lesser constraints posed on it, and we thought $5 million was 
the right number based on the data we saw.
    I think one of the things that became apparent to the panel 
is nobody expected these task--at the time the legislation was 
enacted in the mid-1990s--people just did not expect these task 
orders to get as big as they have. We are seeing task orders 
that--I mean, we are talking about $5 and $10 million task 
orders, but we are seeing task orders that are $50, $60, $100 
million and that last for 4 or 5 years. And it is when you get 
to that size and they start to look like traditional negotiated 
procurements, you wonder why they are under the task order 
regime and they are not under a more traditional procurement 
regime.
    Senator Collins. Thank you.
    Ms. Madsen. I just have one more point, Senator Collins. I 
apologize. I do not want to leave out that under the GSA 
schedule, any order of any size can be protested, and that is 
something that the panel also noted.
    Senator Collins. I am going to ask both of our other 
panelists to come back to this issue in our second round.
    Chairman Lieberman. Do you want to do it now?
    Senator Collins. Is it all right?
    Chairman Lieberman. You can do it now.
    Senator Collins. OK. Mr. Walker, since it is GAO that would 
be doing the work, do you have the ability to take this on? And 
what is your view of the merits of this approach?
    Mr. Walker. We support expanding the bid protest in this 
regard. We think for cost/benefit reasons there needs to be 
some threshold. We do not believe it should be any lower than 
$5 million. Our preliminary analysis says $5 million seems 
reasonable. We clearly do not think it should be lower than 
that, potentially higher than that. We are continuing to do 
analysis.
    The reason we believe it is for transparency and 
accountability purposes. We have not seen a big clamor of a 
problem here, but there is clearly a movement for more of this 
type of activity to occur, and for transparency and 
accountability reasons, we believe it ought to be there.
    We do have some concerns about the express option provision 
as to what type of burdens that might end up imposing, not on 
us because we already have an expedited process but on the 
departments and agencies. And that would be an area that we 
would like to work with your staff of.
    Senator Collins. Thank you. Mr. Soloway.
    Mr. Soloway. Senator, I think there is a certain irony here 
that in some ways people view protests as a redress for the 
companies, and it is the company side that is saying, well, we 
do not want that redress as if we do not care.
    Senator Collins. That is why it surprises me.
    Mr. Soloway. I think you have to recognize a couple of 
things. First of all, for the multiple-award contract under 
which these task orders are awarded, that multiple-award 
contract award is fully protestable. In addition, there are 
aspects of task order awards, particularly regarding scope of 
the contract, if it is not consistent with the original 
formation of the multiple-award contract, it is protestable. So 
it is not as if there are no means for redress in some areas.
    We support other elements of this bill that we think 
actually would do more to help transparency and the process and 
the protests, such as the debriefing provisions where you 
require debriefings, such as publicly posting--I believe the 
panel recommended publicly posting task order awards so that 
everybody, especially on that contract or outside, knows what 
is going on.
    But there is a huge difference between a multiple-award 
contract such as we are talking about here and in the 
schedules--the schedules do not have a competitive construct up 
front that is a protestable process.
    Transparency is important. We support it. The greatest 
concern from smaller and mid-tier firms is that $5 million is 
not a small amount of money; it is a very significant amount of 
money. In the pantheon of Federal contracting, it is a fairly 
routine amount, and you could be adding costly litigation that 
is very burdensome on smaller and mid-tier firms especially, a 
burden that they do not particularly savor taking on.
    So if we wanted to have a discussion about higher 
thresholds where we get to that point, as Ms. Madsen said, of 
$75 million, we are really talking about large contracts that, 
if they are going to be under a task order, really look a lot 
like the old negotiated one-off procurement, that is a separate 
discussion. But $5 million, as much money as it is, is a 
relatively routine procurement, and this is, in fact, not 
necessarily a fast process and it is a very expensive 
litigative process. That is a lot of the concern that the 
companies have.
    Senator Collins. Thank you. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Collins. Important 
questions. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Ms. Madsen, and to all of the panel, I would like to focus 
on the workforce. Many of the recommendations in the 
Acquisition Advisory Panel's report focus on enhancing the 
acquisition workforce. Acquisition management is a very 
specialized function in the Federal Government.
    What kind of skill sets should the government be looking 
for in recruiting Federal acquisition personnel?
    Ms. Madsen. Thank you, Senator. I think we talked about 
this a little bit when we were in front of your Subcommittee. I 
think the panel's view and concern actually was that the skill 
sets that one needs to acquire services are different. They are 
skill sets that involve knowledge of the market, the relevant 
market, access to market data, the ability to understand how 
the services work, not just buying labor hours but really 
understanding how complex IT projects are structured, and how 
that marketplace works. And part of that is understanding what 
the requirements are.
    So while our traditional model is you have the acquisition 
people here and you have the program people here, it may be 
that traditional model in the services context does not work 
the way we need it to for the 21st Century, where we have such 
a focus on services acquisition.
    The private sector buyers told us that they combine those 
skill sets. They have people who understand what the buyer 
needs at a substantive level, what the requirements are. They 
help define them themselves. And they do the acquisition work. 
So they do it all together.
    Senator Akaka. Comptroller General Walker, as I mentioned 
earlier, many of the problems in acquisition management stem 
from an understaffed acquisition workforce. As a result, 
contractors are being used to supplement the acquisition 
workforce, and sometimes contractors are even hired to study 
whether or not certain government activities should be 
contracted out. One may wonder are the foxes guarding the 
henhouse?
    I am concerned, Comptroller General Walker, about the 
increasing reliance on contractors to manage and oversee 
acquisitions at the agencies. Should we rely so heavily on 
contract personnel to manage agency procurement?
    Mr. Walker. Well, Senator Akaka, this comes to a point that 
I made earlier. I think that to a great extent we need to be 
relying upon contractors in certain circumstances, but we are 
relying upon contractors in other circumstances that may not 
make sense and may not be in the government's, as well as the 
taxpayers', overall interest.
    Let me give you some examples. In my view, we should never 
contract in the determination of government policy, in the 
exercise of enforcement or adjudicatory power, or in conducting 
certain critical oversight responsibilities that need to be 
done.
    On the other hand, we surely should contract for non-core 
support services, non-recurring surge and contingency needs, 
and critical skills and knowledge where the government, because 
of its hiring practices or because of its classification and 
compensation systems, we cannot hire the people.
    My concern is we have defaulted to the contracting option 
with recurring frequency in circumstances where it may not be 
appropriate, where there may be conflicts, where we may be 
asking for contractors to do things that civil servants ought 
to be doing. And one of the things that we need to do is we 
need to do a much better job on workforce planning, on 
understanding what kind of skills and knowledge are necessary. 
We need to understand what are the problems with the Federal 
recruiting classification and compensation systems. And we need 
to solve the root-cause problems rather than defaulting to a 
contracting option because it is the easy and quick thing to 
do.
    Senator Akaka. Thank you very much for your response, 
Comptroller General Walker.
    I would like to ask this to both Ms. Madsen and Mr. 
Soloway. Congress has provided funding, most recently at DHS, 
to increase their acquisition workforce. DHS recently testified 
before my Subcommittee that these positions have not been 
filled.
    Do we need to implement more programs to attract, recruit, 
and retain the workforce? Do agencies need additional hiring 
flexibilities? Or is there just a lack of individuals with 
necessary skills? Ms. Madsen.
    Ms. Madsen. Senator, I think it may be all of those things. 
I know that in our work we find--and even in working with the 
panel, getting enough people who have the right understanding 
of all of the rules was difficult. So I think there is 
definitely something to that point.
    We make a number of recommendations for more flexibility in 
recruiting and training in our report. We make recommendations 
for a government-wide internship program. We make 
recommendations for training. And a number of our 
recommendations go to enhanced human capital planning so that 
agencies, I think, have a better understanding--not only do 
they just need contracting people, but what kinds of skills do 
they need so that the training matches the people.
    Mr. Soloway. Senator, I think you have touched on a number 
of problem areas on which we all agree. If I could just harken 
back a little bit to my experience at the Defense Department 
where I had responsibility for the acquisition workforce. We 
did at that time, at Congress' direction, try to implement a 
program with special hiring authorities, pay flexibilities, and 
so forth, as part of our effort to bring in more people. Many 
thanks to this Committee and the Armed Services Committee in 
those days. We were also doing battle with your colleagues 
across the Hill who were trying to reduce the number of so-
called shoppers at DOD and recognizing that not everybody was a 
shopper.
    The challenge, I think, is not just do we have enough money 
or do we have the positions. This is an area the government 
should compete well for. There are people out there who do 
procurement. Government procurement is not only the largest but 
it is also the most complicated type of procurement and it 
includes acquisition management, not just contracting. This 
should be a relatively competitive area for the government, so 
you pose the right question: Why are we not getting them in? 
Given my experience in the Defense Department, it comes back to 
our basic personnel structure. Both Ms. Madsen and Mr. Walker 
have spoken to the fact that we really need to focus on this 
and think about what it is going to take to get the right 
people in, because it is not going to go away. We may make 
modifications and some mid-course corrections, but this 
challenge exists.
    But it does raise all these questions about basic personnel 
policies, the ability to focus, as I said earlier, kind of a 
Marshall-like focus on this workforce, and do what the best 
commercial companies do. The reason they get the people is 
because they identify those folks who are core to their 
mission, and they develop, resource, pay, incentivize, and 
otherwise support those folks differently, perhaps, than other 
elements of their workforce, which I realize is in many ways 
anathema to our structure of the civil service. I think that is 
not a small part of the issue.
    The last point I will make is we cannot underestimate 
today--and this has been building for a number of years--the 
morale of the current acquisition workforce and in many ways 
the disincentive to people coming into government procurement 
despite the complexity and challenge of the work.
    In the late 1990s, when we were facing some challenges from 
the House side around cutting the acquisition workforce. We had 
people who did not want to be defined as being a member of that 
workforce because they were under the axe, if you will.
    Today, given the tenor of the discussion and our relative 
intolerance for mistakes and for error--I think the Comptroller 
General spoke to this when he said these things are going to 
happen. Those may be the toughest times, but the most important 
times to stand up and support our civil servants who are out 
there by and large trying to do good work, often with 
inadequate tools and training. They do feel, as I said in my 
written submission, somewhat assaulted and unsupported. And if 
we want to incentivize people to come into that workforce, we 
collectively need to support them more visibly as well as 
substantively.
    Senator Akaka. Thank you so much for all of your valuable 
responses. Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Akaka, for your good 
questions. Let's do a second round of 6 minutes each, if the 
Members would like to ask questions.
    I wanted to go for a moment to something that Mr. Walker 
mentioned before, which is, how do we try to develop a workable 
definition of what services the Federal Government ought 
appropriately to be able to contract for and those that they 
should not? I find using a phrase, ``inherently governmental 
work,'' I think that may come at some level from existing 
Federal Acquisition Regulations. But is there a workable 
definition of it?
    For instance, we have heard recently that both the IRS and 
the Department of Homeland Security have contracted out for 
assistance in writing regulations. Now, my first reaction to 
that is, hey, wait a second, that is really inherently 
governmental work. Maybe not. Maybe they do not have an ongoing 
pool of people who are skilled at doing that. Maybe it is 
better that they hire somebody from outside.
    Is there a workable definition of what is open to 
contracting and what is not? And I am thinking about services 
here. Mr. Walker.
    Mr. Walker. Well, the term that you use, ``inherently 
governmental,'' is a term that has some legal significance now. 
I want to suggest for the record--the need to dust off the 2002 
Commercial Activities Panel report, of which Stan was a member 
and I had the opportunity to chair. I would ask you to take a 
look at this again, and your capable staff, to take a look at 
the recommendations we made.
    I think we need to relook at when and under what 
circumstances is it appropriate to be contracting out and when 
is it not, because we are in a very different situation today, 
and we are likely to continue to have to rely on contractors of 
the so-called total force in order to accomplish government's 
mission. But I think that a lot has happened since those 
definitions were determined, and I think they need to be 
relooked at.
    Let me mention one other thing that I wanted to get on the 
record. It is one thing to talk about economy, efficiency, 
effectiveness, ethics, and equity. Those are all important 
things. There is another dimension that you need to be aware of 
that I am concerned about with the total force. With increasing 
frequency, you can go to meetings, whether it is the Pentagon 
or elsewhere in government, and you do not have any idea which 
one is a civil servant and which one is a contractor. With 
increasing frequency, we are relying upon contractors to 
perform various functions. In some cases it makes sense. In 
other cases it does not.
    But we have started to see circumstances in which we at 
GAO, and potentially the Congress and others, may be denied or 
restricted access to certain information where we actually have 
contractors doing the work. To me, that is an oxymoron. If you 
have a contractor doing work, then GAO, Inspectors General, and 
the Congress should have an automatic right to that 
information, subject to appropriate security clearances, if you 
will.
    So this is a new dimension that I am starting to see emerge 
that I think is going to be an increasing issue that we all 
need to be concerned about.
    Chairman Lieberman. Good point.
    Ms. Madsen, are there certain kinds of governmental 
activities that ought never to be contracted out that are 
definable?
    Ms. Madsen. Senator, I think that the panel would agree 
with the definition of ``inherently governmental,'' and I think 
there is something called the ``Inherently Governmental A 
List'' that we talked about.
    Chairman Lieberman. What is the definition?
    Ms. Madsen. ``Inherently governmental,'' it is necessary to 
be performed by a Federal employee and in the interests of the 
government. But the piece that is missing--and I probably did 
not phrase this very articulately earlier--is when you are 
operating in this environment under A-76, people look at those 
definitions. Otherwise, when agencies are just buying services 
every day, they are not looking at those definitions.
    So our very first recommendation when we talk about the 
blended workforce is that the agencies, consistent with their 
mission, need to define what their core needs are for 
government employees in their agency. And we believe that the 
definitions under A-76 of ``inherently governmental'' are the 
right place for them to start, but they may be different for an 
agency depending on its mission. And the agencies should think 
about that, not just when it does an outsourcing under A-76, 
but when it buys services, because they are buying services in 
such large quantities.
    Chairman Lieberman. Right.
    Mr. Soloway, this is an odd question to ask you since you 
are representing contractors, but is there any category of 
services that the Federal Government should never contract out?
    Mr. Soloway. Absolutely. And I think I agree with the 
Comptroller General, having served on the Commercial Activities 
Panel under his leadership, that we do have a definition in 
regulation that talks to the commitment of government funds, 
adjudication, law enforcement, and so forth. You asked a very 
important question, and that is, if I understand, that somebody 
is involved in the writing of regulations, is that or is that 
not inherently governmental. What is their role? Are they doing 
a kind of economic analysis to support a regulatory process? 
Are they doing scientific analysis? Is that analysis really 
inherently governmental, or is it the decision and the 
policymaking that is actually the inherently governmental 
focus?
    I think you would find relative unanimity on this panel 
about it. How to go about the periodic reviews of the current 
regulation is probably always appropriate. Ultimately it does 
get down to a very specific agency mission focus and agency 
need that will sometimes vary from agency to agency.
    The other piece to recognize is not only, as the 
Comptroller General said, have we seen a growth in service 
contracting in the last number of years, much of it in the 
post-September 11 environment for obvious reasons in terms of 
skill sets and requirements, but we have, in fact, seen the 
government challenged more and more in trying to hire, even for 
positions it has open, getting those skills in and the agencies 
having to have certain kinds of information and expertise. That 
has not created questions about crossing the line, but it 
caused us to step back and say, OK, what part of regulation 
development is or is not inherently governmental.
    The last point I would make--and Ms. Madsen referenced the 
A-76 process--which is all about how the government outsources 
services that are currently being performed by a civil servant. 
Under the law that has been in place for a number of years, 
every agency of the government publishes an annual inventory of 
every position within that agency being performed, and it 
identifies the position as either inherently governmental or 
commercial, or commercial but not available for contracting. It 
is that third category where the discussion always is relevant. 
We know if it is clearly inherently governmental; we also 
probably can identify what is clearly commercial. But there is 
that in-between area, and that is where the change has taken 
place.
    Chairman Lieberman. Thank you. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    In fiscal year 2005, more than half of all dollars 
obligated were for task and delivery orders issued under IDIQ 
contracts. A provision of our legislation--and, again, this is 
our attempt to decrease the amount of non-competitive 
contracting--would prohibit the award of IDIQ contracts over 
$100 million on a sole-source basis. Instead, it says that 
agencies would be required to award contracts valued over $100 
million to a minimum of two contractors, who would then compete 
for the various task orders under the contract.
    Now, there is a waiver provision in extraordinary 
circumstances when a sole-source contract is the only feasible 
option. But I would like to get the views of the panel on this 
provision given the fact that increasingly we are using this 
kind of contract. Mr. Soloway.
    Mr. Soloway. Senator, again the concern that we have here 
is not with the intent, which I know is to drive greater 
competition. After all, I may have one member company that 
benefits and 220 that do not benefit, so their interest is in a 
competitive marketplace because that is how they grow and 
access new customers. Again, thresholds in statute, what is the 
right number and what are the circumstances?
    I recall the Chairman very eloquently, in the aftermath of 
Hurricane Katrina, talking about his disappointment that FEMA 
did not have in place enough prepositioned contracts to deal 
with a natural disaster. In many cases, those prepositioned 
contracts by definition of the work being requested, which is--
I need someone who is capable of doing certain functions in the 
entire Southeast Region. Given almost any circumstance, the 
contracts are going to be IDIQ by definition because we do not 
know when the disaster will hit, and they may well be single-
award because I need instant response. I need to be able to 
pick up a phone and then the next day the water is going, or 
whatever it might be.
    So there are circumstances in which that is actually the 
smartest way for the government to contract because, otherwise, 
you may not have capability.
    Again, the real issue here is whether the $100 million is 
the right threshold, and I come back to--as we looked at this 
and recognized that there are concerns about too much--in your 
eyes, your concern that there are too many large individual 
task orders, that a lot of that could be dealt with through our 
concept of the Contingency Contracting Corps, that folks who 
have the training to create and then implement in an emergency 
environment, which is where you see this kind of dynamic most 
often. In our view that might help achieve the same goal 
without putting into statute some hard and fast stops.
    Senator Collins. Ms. Madsen.
    Ms. Madsen. Senator Collins, I agree with Mr. Soloway, I 
think periodically you need some flexibility in a disaster or 
wartime context. But I think the way you have drafted the bill 
with the waiver provision may well provide that flexibility.
    But setting aside the disaster context, certainly both our 
panel's focus on competition and your focus on competition 
would suggest that a sole-source award of that magnitude on an 
IDIQ where the requirements are really not defined is really 
kind of out of the basket.
    It is kind of perverse in a sense, and it is one of the 
things we noticed with the IDIQ contracts, and it is one of the 
reasons for our recommendations about heightened attention to 
the competitive process for the orders--is that in many ways 
that kind of vehicle is antithetical to good requirements 
definition.
    So I think your sense of putting some restraints on it are 
proper, as long as there is room for an emergency. But I do not 
think we should approach the problem with the assumption that 
we are starting with the emergency.
    Senator Collins. Thank you. Mr. Walker.
    Mr. Walker. I think it is reasonable; I think it is 
appropriate. I think you need to have an exception for 
extraordinary circumstances, which you are trying to do. But I 
come back to what I said before. I think we need to understand 
that certain types of contingencies will happen, and we should 
be doing more to plan for those, anticipate those, and to 
engage in competitive contracting that one can be able to draw 
task orders on when the contingency occurs, not if the 
contingency occurs.
    Mr. Soloway. Senator, may I mention just one last thought 
for your consideration as you are thinking about the provision 
further?
    Senator Collins. Yes.
    Mr. Soloway. I think it would be very helpful--and I have 
not seen this, and your staff or the Chairman's staff may have 
this data--to pull some data to look at from a trend 
perspective how many single-award IDIQ contracts--in other 
words, an IDIQ contract awarded to one company, which then gets 
the sole-source task orders--and how much volume is flowing 
through competitive multiple-award contracts. There are two 
different kinds of IDIQ vehicles. I do not know and I have not 
seen any data that tells me that we have actually seen a 
substantial growth outside of the emergency environment--we 
certainly had a couple of major contingency events in the last 
few years--outside of that environment, if that contract type 
has actually grown, the so-called sole source. I think we ought 
to look at some of that data.
    Senator Collins. I think the data is pretty clear that it 
has.
    Mr. Walker. I think one of the things you need to be 
concerned about as well, Senator Collins, is whatever threshold 
you set, what types of mechanisms will be in place to prevent 
unbundling to get under the threshold?
    Senator Collins. Good point. Thank you. Thank you, Mr. 
Chairman.
    Chairman Lieberman. Thank you, Senator Collins. Senator 
Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Mr. Soloway, at a hearing last month in my Subcommittee, we 
heard that contract award fees are often awarded almost in 
full. Even those with poor performance, such as Lockheed and 
Northrop, which ran the Deepwater program, received over 80 
percent of available award fees.
    Do service providers generally expect to receive most 
available award fees regardless of their performance?
    Mr. Soloway. The question is very fair, Senator Akaka, and 
I am not in any way trying to be cute about this. It really 
depends on the contract itself. Sometimes award fees are 
structured by the government as a reward for performance. Other 
times it is a mix. An 80-percent award fee in many contracts 
actually reflects relatively poor performance. There is very 
little consistency in their application very often.
    The issue here is to understand--and I do not have the 
visibility into those individual contracts, and sometimes for 
all of us it is difficult to get--what is it that led the 
government to determine that the contractor deserved some, all, 
or most of their award fee. Were the problems on the program 
driven by government, whether it is requirement stability, 
funding issues, or what have you? There are a variety of 
factors there, and it is certainly an area worth discussing. 
But I would not accept at face value that an 80-percent award 
fee from a company perspective is a victory. Very often there 
is very little relationship between the percentage and how it 
works. It is a stepping process.
    So an area definitely worth discussion. There is a lot of 
confusion about it, often, and something that we would be more 
than happy to talk to you about more in the future.
    Senator Akaka. Comptroller General Walker, can you share 
your thoughts?
    Mr. Walker. Senator Akaka, as you know, GAO has done a fair 
amount of work in this area. Like in most of the problems in 
acquisition and contracting, it is a shared responsibility 
between the government and the contractor, but the relative 
allocation of responsibility varies.
    My personal view is that one of the reasons that we have 
seen so many incentive and award fees paid in circumstances 
which do not pass the straight-faced test--meaning taxpayers 
are not getting value for money and we are not paying for 
positive outcomes, therefore, I think by definition it meets 
the definition of ``waste'' that I talked about before. Part of 
it is because of the systemic problems that I mentioned 
earlier. The government many times does not do a very good job 
of being very clear about what we are asking the contractor to 
do. It is not very clear with regard to the requirements, or it 
keeps on changing the requirements and, therefore, you are 
moving the bar; and, therefore, we have seen circumstances in 
which, because the contractor is doing their best, they have a 
positive attitude, they are doing the best that they can, 
trying to hit a moving target that many times the government 
will award an incentive and award fee because of their attitude 
and effort and recognition of the fact that the government 
keeps moving the bar.
    So I think many of these challenges are interrelated, and 
we need to address them in a comprehensive and integrated 
fashion.
    Senator Akaka. Ms. Madsen, would you also comment on this 
issue?
    Ms. Madsen. I would agree with Comptroller General Walker. 
We did not look at the award fee issue in particular in the 
panel, but the issue we saw with requirements development we 
believe is persuasive. That is why we made such a focus on it.
    Award fee is a sort of performance-based contract, and if 
you cannot define the baseline such that people understand what 
they are performing to, then it is very hard to deal with the 
performance measures on the back end and do it in a way that is 
fair. And I agree, I think in many instances where there are 
changes, where the requirements were not properly defined in 
the first place, and the contractor is kind of caught in the 
middle, the contractor and the agency try to do the best they 
can with where they find themselves, despite the fact that they 
did not have a good baseline to start with.
    That is why we emphasized--that is our first 
recommendation--get your requirements right first.
    Senator Akaka. Thank you all for your responses.
    Mr. Soloway, contract employees work side-by-side with 
Federal employees, though they are not subject to all 
government ethics rules, such as the Ethics in Government Act. 
Does your organization try to promote ethical practices among 
contractors working for Federal agencies?
    Mr. Soloway. Senator, we try to do a lot. First of all, as 
a term of membership, companies must validate or certify that 
they have an ethics program in place. We have, in fact, 
conducted training, particularly for smaller and mid-tier 
firms. I think you will find--I believe it was GAO, but I do 
not want to put words in the Comptroller General's mouth--that 
most of the large companies have very formal, well-developed 
ethics and compliance programs. We try to help our smaller and 
mid-tier firms figure out how they can also do that to make 
sure that they have the right culture in place. We are strong 
believers that when you are dealing with the public dollar and 
public trust, you have to have an ethical culture and an 
appropriate culture in place.
    With regard to the issues that do arise relative to 
different ethical standards, let's not make a mistake. Contract 
employees are subject to a variety of ethics requirements. They 
may not be entirely the same as the government employees, but 
they themselves also have legal requirements they have to meet. 
So we, as an organization, ask our companies--as a term of 
membership, they must adhere to a basic code of conduct. And we 
have also done a number of programs to help them review or 
reflect on or make sure they have the right ethics program in 
place.
    Senator Akaka. Again, I want to thank the panelists very 
much for your excellent responses. Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Akaka.
    And the wind-up now. Senator Carper.
    Senator Carper. Thank you, sir. I have been referred to in 
less complimentary terms than the ``wind-up,'' even today. 
Thank you for this.
    Chairman Lieberman. I hope things get better.
    Senator Carper. It has actually been a pretty good day.
    Chairman Lieberman. Good.
    Senator Carper. To our witnesses, thank you for joining us 
and for your testimony and for your willingness to respond to 
our questions and comments here.
    Let me just start off by asking, When might sole-source 
contracts, no-bid contracts, cost-plus contracts be 
appropriate? There are instances when they are, but what might 
those instances be?
    Mr. Walker. I think there is a difference between no-bid 
and cost-plus. In no-bid, where you are doing a sole source 
contract, if you have an emergency situation, you have a 
critical need that could not have reasonably been anticipated, 
then there may be circumstances in which it may be appropriate, 
at least for the initial contract award. Coming back to what 
Senator Collins and Senator Lieberman, you and others are 
trying to address through legislation, that does not mean 
indefinitely. It may mean you need to do another contract award 
that should be competitively bid after the initial award.
    As to cost-plus, it really is a circumstance where you are 
trying to contract for something where it is virtually 
impossible to define with any degree of specificity the related 
requirements. But, quite frankly, there are not that many that 
are----
    Senator Carper. Could you give us an example of that?
    Mr. Walker. If you are trying to--maybe when we were 
deciding that we were going to go to the Moon and John F. 
Kennedy set the goal for the United States to land a man on the 
Moon and return him in the 1960s, there were probably aspects 
of that that we needed to do some type of cost-plus. But as 
things moved along and we got more definitive, what we were 
looking for and as technology started to be developed or 
whatever, then we should have been able to move potentially 
past that in certain circumstances. But that would just be a 
thought.
    Senator Carper. The next time we have on the drawing boards 
proposals to send another mission to the Moon, it will be 
interesting to see, first of all, how we bid that one out and 
what it cost compared to what we spent the last time.
    Ms. Madsen. Senator, could I comment, sir?
    Senator Carper. Please.
    Ms. Madsen. I think there is a tendency to sort of lump 
both terms together, and I agree with Comptroller General 
Walker, there is a big difference between what kind of 
competitive process you use and what kind of contract you 
award.
    Certainly for sophisticated technology-type procurements, 
very often a cost-type contract on the front end where the 
government and the contractor are trying to figure out what is 
this--it has got a research component to it, it has got a 
development component to it. You see this all the time in 
weapons system development where the first stage is 
frequently--they are usually competitive, almost always 
competitive, but they are for cost-type contracts.
    The second stage is for production. There may be a down-
select, and those contracts may----
    Senator Carper. When you say a ``down-select,'' what does 
that mean?
    Ms. Madsen. A competition between two or three solutions 
for who will do the next stage and make that next stage fixed-
price because now everybody knows what the requirements are, 
they have been developed.
    There seems to be a tendency in the discussion lately to 
talk about cost-type contracts as though they are some sort of 
evil. I think they certainly have their place. There are a lot 
of controls in terms of rules and regulations that govern what 
kinds of costs can be charged. The trick is to use them 
appropriately and, when you do not need them anymore, to move 
onto the next stage.
    I think part of the problem here is when people start to 
talk about acquisition of things that are more commercial and 
maybe services are more in the commercial marketplace, that is 
where requirements definition makes such a difference, because 
if you have something that is definable that you do not define, 
you end up with a cost-type contract maybe where you did not 
need it because you did not get your requirements right in the 
first place. That is why our panel report emphasizes 
requirements development so significantly because it is hard to 
do a competition if you did not do your requirements on the 
front end.
    Senator Carper. Mr. Soloway.
    Mr. Soloway. Thank you, sir. A couple of quick comments. 
Philosophically, most businesses, certainly most of our 
members, would prefer a firm fixed-price contract over a cost-
type contract. It is a preferred way of doing business. I 
believe Ms. Madsen would probably agree that in the commercial 
world, in the investigations that the panel did, that is the 
preferred method of doing business.
    What it often comes back to is, with all due respect to the 
Comptroller General, not just something as elegant as going to 
the Moon, but the difficulty the government has not only in 
defining requirements but providing adequate insight and 
information into its own processes, its own systems, the entire 
breadth and scope of networks and so forth, so that a 
contractor with some confidence can develop a fixed-price bid, 
because, of course, that is a high-risk proposal for the 
contractor. So it is not just philosophically. Philosophically 
we agree where you would want to have cost-type versus fixed-
price. It is also the practical implementation and the 
government's ability to be able to answer those critical 
questions.
    On the sole-source question, there are in regulations a 
whole set of circumstances under which sole-source contracts 
would be appropriate, not just in emergency circumstances but 
for logical follow-on to existing work.
    One of the big issues that GAO and others have identified 
that has been interpreted as assuming we are doing too much 
sole-sourcing is that the government, frankly, is not doing a 
very good job or does not have a very good system for keeping 
track of the paperwork to determine when a sole-source 
determination was made and why. So the Comptroller General's 
team or an IG team or an audit team comes in, and they do not 
even have access to records, because they do not exist, to say, 
well, why did you do this as a sole source. So part of it is 
also a recordkeeping issue.
    But we have pretty clear guidance in law and regulation as 
to when a sole-source contract is appropriate.
    Senator Carper. Thanks.
    Mr. Chairman, my time has expired. I just want to mention 
two questions. I am not asking necessarily for answers now.
    Senator Collins has left, but I suspect there was some 
discussion about the legislation that she has introduced and 
that Senator Lieberman and I and others have cosponsored. I 
have been off to other hearings, but did you talk about some 
improvements that might be made to that legislation? So those 
are on the record? Good.
    Mr. Walker. We did, Senator Carper. But the other thing is 
that I committed to provide this week some specific 
recommendations from GAO to try to improve the bill.
    Mr. Soloway. We also have been working with both Senator 
Collins' and Senator Lieberman's staffs on some additional 
details, and some of it is contained in my testimony.
    Senator Carper. Thanks. The last one is Senator McCaskill 
and I were over in Kuwait and Iraq about 4 weeks ago, and we 
had a chance to talk to Mr. Walker a little bit about it. We 
will have hopefully a chance to talk some more later today.
    One of the things that we heard when we were over there is 
that we learned a lesson about procurement in Kosovo 10 years 
ago, and we forgot those lessons, and we have to relearn them 
again in Iraq and Kuwait. Somewhere down the line, 
unfortunately, there will be another Kosovo, another Iraq, and 
the question is: Are we going to have to relearn those same 
lessons again and go through 2, 3, 4, or 5 years of just 
wasting money in too many instances before we finally say, oh, 
didn't we already learn this 10, 20, or 30 years ago?
    What are some thoughts that you might have? When I was in 
the Navy, we used to have a pass-down log. Our squadron would 
be deployed for a half a year, and we would come home, and we 
would have a pass-down log, and we would give it to the 
squadron that was relieving us on duty wherever we were around 
the world.
    But how do we provide for a pass-down log in this 
particular arena?
    Mr. Soloway. Senator, your reference to Kosovo made me 
smile only because I remember going to the Balkans in 1999 when 
I was in the Administration, and so many of the issues--not as 
much with the contractor, but just the deployment of the force 
and how this all was working, it was so evident then on a much 
smaller scale than they are in Iraq. And at the Professional 
Services Council, we did a ``lessons learned'' study in 
partnership with the Army in 2004, and when we presented the 
results to the Army leadership, the General said, ``This is 
terrific, but let's not call it `lessons learned' because we 
have not learned a darn thing.''
    There are certainly a lot of lessons, and our ability to 
share knowledge and share history and also maintain a focus on 
something that, when it gets out of the limelight, tends not to 
get the continued leadership focus it needs. It is really the 
biggest challenge here. Whether it was contingency contracting 
in 1999 and again in this century, or the acquisition 
workforce, which is a focus for all of us now, but 3 years from 
now will we have maintained that focus is really one of the 
biggest challenges we have.
    Senator Carper. Mr. Walker.
    Mr. Walker. I will give you one example, and that has to do 
with LOGCAP, for example, where you might enter into an IDIQ 
under a cost-plus arrangement, where you have not really 
defined what you are looking for, where you are putting the 
contractor in a situation where they can decide what you need, 
they can decide what quantities you need, they can decide a lot 
of things, and in many circumstances they may be doing it in 
good faith and best efforts, but in some circumstances they may 
be providing you more than you really need. And the incentives 
are to do that.
    So I come back to what I said before. There are a number of 
recurring systemic challenges that exist that get repeated over 
and over again. And most of it has to do with execution in the 
Executive Branch. Some of it may require legislation, but most 
of it is just execution, and most of it is just 
institutionalizing that knowledge, providing the right type of 
processes, having the right type of people, and making sure 
that the lessons learned or whatever you want to call them get 
passed down to people who have the responsibility and the 
authority down the road.
    The other thing is that people need to be held accountable 
when they make the same mistakes over and over again. If there 
are no consequences, then why change? And all too frequently, 
there have been no consequences.
    Senator Carper. Last word, Ms. Madsen.
    Ms. Madsen. I hope not the last word, but just really a 
comment. I think as we looked at the workforce issues sometime 
in the next 5 to 10 years, basically almost all of the current 
expertise in terms of agent experience and the acquisition 
workforce and the rest of it is going to retire. So there is a 
huge challenge here for people in acquisition to move down a 
generation in terms of the kinds of knowledge that you are 
talking about, and we think our recommendations address that, 
but it may need to be done in a way that is different than has 
been done in the past.
    Senator Carper. Good. Thanks. Thank you all very much.
    Thanks, Mr. Chairman, for being so generous with the time.
    Chairman Lieberman. Thanks, Senator Carper. Thanks for 
those goods questions.
    My thanks to the witnesses. It has been a very thoughtful, 
I would say constructive exchange here. I repeat what I believe 
most people think, which is that we have a problem. The scope 
of contracting is growing dramatically, it is costly, and not 
all of it is being well managed. And I suppose it is fair to 
say, as you said at the beginning, Mr. Walker, that most of it 
is being well managed, and we also ought to say that. But the 
part that is not being well managed is costing taxpayers a lot 
of money that they should not have to spend.
    So we are going to legislate here, and we invite your help 
in assisting us to do that in a way that is informed and 
constructive. The testimony today has been extremely helpful, 
and I thank you for it.
    We are going to keep the hearing record open for 15 days if 
you want to submit any statements for the record afterward, and 
we may have some questions that we want to direct to you. But 
in the meantime, I thank you again, and the hearing is 
adjourned.
    [Whereupon, at 12:12 p.m., the Committee was adjourned.]


                            A P P E N D I X

                              ----------                              

[GRAPHIC] [TIFF OMITTED] 37359.001

[GRAPHIC] [TIFF OMITTED] 37359.002

[GRAPHIC] [TIFF OMITTED] 37359.003

[GRAPHIC] [TIFF OMITTED] 37359.004

[GRAPHIC] [TIFF OMITTED] 37359.005

[GRAPHIC] [TIFF OMITTED] 37359.006

[GRAPHIC] [TIFF OMITTED] 37359.007

[GRAPHIC] [TIFF OMITTED] 37359.008

[GRAPHIC] [TIFF OMITTED] 37359.009

[GRAPHIC] [TIFF OMITTED] 37359.010

[GRAPHIC] [TIFF OMITTED] 37359.011

[GRAPHIC] [TIFF OMITTED] 37359.012

[GRAPHIC] [TIFF OMITTED] 37359.013

[GRAPHIC] [TIFF OMITTED] 37359.014

[GRAPHIC] [TIFF OMITTED] 37359.015

[GRAPHIC] [TIFF OMITTED] 37359.016

[GRAPHIC] [TIFF OMITTED] 37359.017

[GRAPHIC] [TIFF OMITTED] 37359.018

[GRAPHIC] [TIFF OMITTED] 37359.019

[GRAPHIC] [TIFF OMITTED] 37359.020

[GRAPHIC] [TIFF OMITTED] 37359.021

[GRAPHIC] [TIFF OMITTED] 37359.022

[GRAPHIC] [TIFF OMITTED] 37359.023

[GRAPHIC] [TIFF OMITTED] 37359.024

[GRAPHIC] [TIFF OMITTED] 37359.025

[GRAPHIC] [TIFF OMITTED] 37359.026

[GRAPHIC] [TIFF OMITTED] 37359.027

[GRAPHIC] [TIFF OMITTED] 37359.028

[GRAPHIC] [TIFF OMITTED] 37359.029

[GRAPHIC] [TIFF OMITTED] 37359.030

[GRAPHIC] [TIFF OMITTED] 37359.031

[GRAPHIC] [TIFF OMITTED] 37359.032

[GRAPHIC] [TIFF OMITTED] 37359.033

[GRAPHIC] [TIFF OMITTED] 37359.034

[GRAPHIC] [TIFF OMITTED] 37359.035

[GRAPHIC] [TIFF OMITTED] 37359.036

[GRAPHIC] [TIFF OMITTED] 37359.037

[GRAPHIC] [TIFF OMITTED] 37359.038

[GRAPHIC] [TIFF OMITTED] 37359.039

[GRAPHIC] [TIFF OMITTED] 37359.040

[GRAPHIC] [TIFF OMITTED] 37359.041

[GRAPHIC] [TIFF OMITTED] 37359.042

[GRAPHIC] [TIFF OMITTED] 37359.043

[GRAPHIC] [TIFF OMITTED] 37359.044

[GRAPHIC] [TIFF OMITTED] 37359.045

[GRAPHIC] [TIFF OMITTED] 37359.046

[GRAPHIC] [TIFF OMITTED] 37359.047

[GRAPHIC] [TIFF OMITTED] 37359.048

[GRAPHIC] [TIFF OMITTED] 37359.049

[GRAPHIC] [TIFF OMITTED] 37359.050

[GRAPHIC] [TIFF OMITTED] 37359.051

[GRAPHIC] [TIFF OMITTED] 37359.052

[GRAPHIC] [TIFF OMITTED] 37359.053

[GRAPHIC] [TIFF OMITTED] 37359.054

[GRAPHIC] [TIFF OMITTED] 37359.055

[GRAPHIC] [TIFF OMITTED] 37359.056

[GRAPHIC] [TIFF OMITTED] 37359.057

[GRAPHIC] [TIFF OMITTED] 37359.058

[GRAPHIC] [TIFF OMITTED] 37359.059

[GRAPHIC] [TIFF OMITTED] 37359.060

[GRAPHIC] [TIFF OMITTED] 37359.061

[GRAPHIC] [TIFF OMITTED] 37359.062

[GRAPHIC] [TIFF OMITTED] 37359.063

[GRAPHIC] [TIFF OMITTED] 37359.064

[GRAPHIC] [TIFF OMITTED] 37359.065

[GRAPHIC] [TIFF OMITTED] 37359.066

                                 
