[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



                         [H.A.S.C. No. 111-94]

                     THE DEPARTMENT OF DEFENSE AND
                     INDUSTRY: DOES DOD EFFECTIVELY
                     MANAGE ITS INDUSTRIAL BASE AND
                    MATCH ITS ACQUISITION STRATEGIES
                          TO THE MARKETPLACE?

                               __________

                                HEARING

                               BEFORE THE

                  PANEL ON DEFENSE ACQUISITION REFORM

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                           SEPTEMBER 17, 2009


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                  PANEL ON DEFENSE ACQUISITION REFORM

                  ROBERT ANDREWS, New Jersey, Chairman
JIM COOPER, Tennessee                K. MICHAEL CONAWAY, Texas
BRAD ELLSWORTH, Indiana              DUNCAN HUNTER, California
JOE SESTAK, Pennsylvania             MIKE COFFMAN, Colorado
                Andrew Hunter, Professional Staff Member
                 John Wason, Professional Staff Member
                     Alicia Haley, Staff Assistant













                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2009

                                                                   Page

Hearing:

Thursday, September 17, 2009, The Department of Defense and 
  Industry: Does DOD Effectively Manage Its Industrial Base and 
  Match Its Acquisition Strategies to the Marketplace?...........     1

Appendix:

Thursday, September 17, 2009.....................................    31
                              ----------                              

                      THURSDAY, SEPTEMBER 17, 2009


THE DEPARTMENT OF DEFENSE AND INDUSTRY: DOES DOD EFFECTIVELY MANAGE ITS 
      INDUSTRIAL BASE AND MATCH ITS ACQUISITION STRATEGIES TO THE 
                              MARKETPLACE?
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Andrews, Hon. Robert, a Representative from New Jersey, Chairman, 
  Panel on Defense Acquisition Reform............................     1
Conaway, Hon. K. Michael, a Representative from Texas, Ranking 
  Member, Panel on Defense Acquisition Reform....................     3

                               WITNESSES

Gutridge, Robin ``Pug,'' President, Cherokee Information 
  Services, Chairman, TechAmerica................................    11
Madland, Dr. David, Director, American Worker Project, Center for 
  American Progress Action Fund..................................    13
Soloway, Stan Z., President and CEO, Professional Services 
  Council........................................................     5
Sylvester, Richard K., Vice President of Acquisition Policy, 
  Aerospace Industries Association...............................     9

                                APPENDIX

Prepared Statements:

    Gutridge, Robin ``Pug''......................................    68
    Madland, Dr. David...........................................    75
    Soloway, Stan Z..............................................    35
    Sylvester, Richard K.........................................    49

Documents Submitted for the Record:

    KBR Statement................................................    89

Witness Responses to Questions Asked During the Hearing:

    Mr. Andrews..................................................    97

Questions Submitted by Members Post Hearing:

    [There were no Questions submitted post hearing.]

 
 THE DEPARTMENT OF DEFENSE AND INDUSTRY: DOES DOD EFFECTIVELY MANAGE ITS 
      INDUSTRIAL BASE AND MATCH ITS ACQUISITION STRATEGIES TO THE 
                              MARKETPLACE?

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
                       Panel on Defense Acquisition Reform,
                      Washington, DC, Thursday, September 17, 2009.
    The panel met, pursuant to call, at 8:00 a.m., in room 
2237, Rayburn House Office Building, Hon. Robert Andrews 
(chairman of the panel) presiding.

OPENING STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE FROM 
   NEW JERSEY, CHAIRMAN, PANEL ON DEFENSE ACQUISITION REFORM

    Mr. Andrews. Good morning, ladies and gentlemen. The panel 
will come to order.
    We welcome our witnesses and members of the public to 
another in our series of hearings.
    I would like to welcome our colleagues back from what I am 
sure was an eventful district work period in August. We are 
happy to be rejoining our mission here.
    We began the work of the panel with a series of 
propositions that we wanted to pursue. The first of those 
propositions was to explore whether there are measurements that 
properly explore the difference between the cost that taxpayers 
are paying and the value that we are receiving for goods and 
services in the defense budget. We had a series of discussions 
about how to measure that difference, if any.
    We then proceeded to a series of hearings that raise 
hypotheses about the reason for the gap between what we pay and 
what we receive.
    This morning's hearing is another in those series of 
hypotheses. We have looked at a number of hypotheses before 
this. For example, we have looked at the fact that the rapid 
pace of development in the information technology field does 
not fit the procurement systems of the Department of Defense 
(DOD) at all, and, therefore, that misfit is leading to part of 
the problem. We looked at a number of other issues, as well. We 
looked at the development, or the lack thereof, of our 
workforce in procurement and so forth.
    This morning, we are exploring the hypothesis that problems 
in the management of our industrial base lead to deficiencies 
or lead to gaps between what the taxpayer pays and what value 
those in uniform and the taxpayers receive.
    Now, I will define the term ``industrial base'' to mean the 
enterprises which supply goods and services to the Department 
of Defense where the Department of Defense is a major customer, 
if not an exclusive customer, of that enterprise. It is a 
loosely defined term, but that is what we are going to mean 
when we say ``industrial base.''
    The problem raised in the industrial base is, frankly, the 
opposite problem that we often grapple with in public policy 
considerations here. Much of the health care discussion, for 
example, is now centered around the issue of how do you deal 
with a marketplace where there are many, many, many purchasers 
but perhaps only one or two providers? It is a classic monopoly 
or oligopoly situation.
    The problem raised in the defense procurement field for 
goods and services is the opposite. Perhaps it might be 
described as a monopsony problem, which, as a non-economist, I 
understand to mean a situation where there are a relatively 
high number of providers but only one purchaser. And that is, 
of course, the situation that we have here. By definition, a 
member of the industrial base, a company or enterprise that is 
in the defense industrial base is living in a world where his 
or her only customer, or major customer, is the United States 
Department of Defense.
    Now, this raises a lot of problems. One problem is that if 
we don't demonstrate some long-term commitment to a contract, 
the enterprise in the industrial base doesn't have the security 
and the cash flow to sustain its physical plant and its 
workforce. If you are not sure from year to year whether you 
are going to get the work, you can't maintain the industrial 
base. On the other hand, if we do not induce the kind of 
competition that we want so there are many potential sellers to 
the monopsony buyer, you run into a situation where you lose 
value, you lose efficiency, and perhaps you lose quality, as 
well. So it is a classic problem.
    I want to say from the outset, the premise of this hearing 
is not that the Department of Defense has done a poor job 
managing the defense industrial base. That is, in some ways, 
the question, not the conclusion.
    And I also want to recognize the fact that this is a very 
difficult problem that is not easily managed. We don't want to 
split the Defense Department into several units and so we have 
many more buyers than one. That doesn't make any sense on a lot 
of levels. It is a difficult problem.
    And so the purpose of this morning's hearing is to hear 
from some very experienced witnesses who know these issues to 
discuss for us their views on how we might better manage the 
defense industrial base, what the criteria for that better 
management are, what kind of solutions that we have seen 
employed in the past and what kind of problems that we have 
seen raised in the past.
    We are going to look at workforce quality issues and 
workforce fairness issues. We are going to look at issues of 
technology. We are going to look at a number of different 
issues that fit this.
    But suffice it to say, I am sure this will be an ongoing 
problem, to find that proper balance between a predictable set 
of expectations for enterprises in the marketplace but a 
sufficient level of competition among those enterprises so that 
the uniform personnel get the very best quality product and the 
taxpayer gets the best deal. And that is the premise on which 
we are approaching this morning.
    At this point, I would like to turn to my friend and 
colleague, the senior Republican member of the panel, Mr. 
Conaway, for his remarks.

  STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE FROM 
   TEXAS, RANKING MEMBER, PANEL ON DEFENSE ACQUISITION REFORM

    Mr. Conaway. Well, thank you, Mr. Chairman. I appreciate 
it.
    Good morning, gentlemen. Thank you for being here this 
morning. I appreciate that.
    We had asked Kellog, Brown, and Root (KBR), another 
provider, to actually come and testify this morning. They are 
unable to be with us, so I would ask unanimous consent to 
submit their written testimony for the record.
    Mr. Andrews. Without objection.
    [The information referred to can be found in the Appendix 
on page 89.]
    Mr. Conaway. As the chairman said, this is a very important 
subject. One of the issues that concerns me is that the 
Department seems to operate under the assumption that we will 
always have an industrial base that can meet their changing 
requirements. This is particularly an issue in a budget-
constrained environment.
    And although Secretary Gates is quoted as saying that the 
industrial base concerns played no role in his 2010 budget 
decisions, the new Under Secretary of Defense for Acquisition, 
Technology, and Logistics, Dr. Carter, has indicated that he 
intends to elevate industrial base concerns within the 
Department of Defense.
    This is reassuring because there is no doubt that defense 
strategy has a significant impact on the industrial base. It is 
one of the reasons, I believe, that we need to carefully look 
at the pending Quadrennial Defense Review to ensure we minimize 
any potential consequences of undermining or impairing the 
defense industrial base's ability to meet the future needs of 
the Department.
    I am puzzled on the word ``manage,'' Mr. Chairman, that you 
had used, that it is actually the role of the Department of 
Defense to manage the industrial base. I am going to chew on 
that one. ``Manage'' typically means you have total control 
over it and you are managing those resources. And I have to 
think about that one.
    My other concern, which the chairman has appropriately 
highlighted in the past and this morning, is in regards to the 
aging workforce, particularly in the field of engineering. We 
have the most modernized industrial base in the world, but 
without the properly trained workforce, we are not going to be 
able to produce much.
    I look forward to our witnesses' testimony, and I look 
forward to our discussions on these issues.
    Thank you, Mr. Chairman.
    Mr. Andrews. I thank my friend.
    And I appreciate his comment on the word ``manage.'' It 
probably is an inartful word. The meaning I was wanting to 
convey was to put in place a set of policies that achieve the 
twin goals that I talked about, of stability for the 
enterprises and quality and best value for the taxpayer. I 
think your improvement is a correct one.
    I do want to note that we are joined this morning by a 
member of the full committee who is not a member of the panel 
but, as all members of the full committee, is welcome to join 
us. That is Congressman Patrick Murphy from Pennsylvania, who, 
several months ago, suggested that the panel focus on issues of 
the quality of the workforce and the fairness to the workforce, 
which I think are intertwined, and we have some discussion on 
that this morning.
    So thank you, Patrick, for your participation.
    I want to proceed by introducing our four witnesses.
    I think you are all veterans of this process, but I would 
remind you that your written statements, without objection, are 
being made a part of the record of the hearing. We would ask 
you to synopsize those written statements in about five 
minutes. And we would ask you to stick to that five minutes so 
we can then have questions-and-answer time with the panel, 
which I think we find is the most productive part of the 
hearing.
    I am going to start with--I am going to read each of the 
biographies. And when I have completed each of them, we will 
start, Mr. Soloway, with your testimony.
    Stan Z. Soloway is the president and Chief Executive 
Officer (CEO) of the Professional Services Council (PSC), the 
principal national trade association of the government 
professional and technical services industry. PSC is widely 
known for its leadership on the full range of government 
acquisition, procurement, and outsourcing and privatization 
issues.
    Mr. Soloway assumed the presidency in January of 2001. PSC 
has a membership of over 330 companies of all sizes performing 
services of all kinds for virtually every agency of our 
government.
    In recognition of his leadership while he served in the 
Department of Defense in his illustrious career, Mr. Soloway 
was awarded both the Secretary of Defense Medal for Outstanding 
Public Service and the Secretary of Defense Medal for 
Distinguished Public Service while serving at the DOD.
    Mr. Soloway earned his degree in political science from 
Denison University, where he was elected to the national men's 
journalism, national men's leadership, and national political 
science honorary societies.
    Welcome, Mr. Soloway. It is great to have you with us.
    We are joined this morning by Richard K. Sylvester, who is 
the vice president for acquisition policy of the Aerospace 
Industries Association (AIA).
    Mr. Sylvester joined the Aerospace Industries Association 
in August of this year. He is heading AIA's Procurement and 
Finance Division, responsible for directing the development and 
coordination of the association's positions on proposed 
procurement-related legislation, regulations and their 
implementation.
    Mr. Sylvester served in the Department of Defense in a 
number of capacities for 35 years, prior to joining the AIA, 
most recently as Deputy Director of the Acquisition Resources 
and Analysis for Acquisition Management in the Office of the 
Under Secretary of Defense for Acquisition.
    You must have a very large business card.
    Mr. Sylvester graduated from the University of Michigan--so 
he must be happy with last weekend's football results--with a 
Bachelor of Arts (BA) in political science and economics.
    Welcome, Mr. Sylvester. We are glad that you are with us.
    We have with us Mr. Robin ``Pug'' Gutridge. As president of 
Cherokee Information Services, Mr. Gutridge oversees a highly 
successful information technology and management services 
company that supports the government and private sector.
    Mr. Gutridge came to Cherokee in 1998 after a successful 
career in the United States Coast Guard, where he graduated 
from the U.S. Coast Guard Academy and served as a helicopter 
pilot, engineer, and acquisition professional.
    He is also active in various organizations such as the 
United States Chamber of Commerce, TechAmerica, and the 
Association for Corporate Growth. In these organizations he 
serves on a number of committees, all related to improving the 
manner in which business is conducted and services are 
provided.
    Mr. Gutridge, thank you and welcome.
    And, finally, Dr. David Madland is the director of the 
American Worker Project at the Center for American Progress. He 
has written academic articles, books, op-eds, and commentaries 
on a range of economic issues, primarily focused on retirement, 
jobs, and public opinion.
    He has a Doctor of Philosophy (Ph.D.) in government from 
Georgetown University and received his Bachelor of Science (BS) 
from the University of California at Berkeley.
    Prior to joining American Progress, David helped lead a 
range of advocacy campaigns as a consultant to labor unions and 
environmental organizations. He worked for Congressman George 
Miller, now chairman of the Committee on Education and Labor, 
on which I serve.
    And we are very happy to welcome David to be with us here 
this morning.
    So, gentlemen, we are going to ask if you would begin your 
testimony. As I said, your written statements have been 
accepted as part of the record.
    Mr. Soloway, we will begin with you.

 STATEMENT OF STAN Z. SOLOWAY, PRESIDENT AND CEO, PROFESSIONAL 
                        SERVICES COUNCIL

    Mr. Soloway. Thank you, Mr. Chairman, members of the panel. 
It is really an honor to be here. And I do want to say that the 
focus of this hearing and the topic you have chosen is a very 
important one. I think you have captured--both you and Mr. 
Conaway--captured very well the importance of the discussion 
that has to take place.
    Let me start by suggesting that we don't have an industrial 
base; we have multiple industrial bases. And even represented 
at this table you have two separate bases. Where I am going to 
focus my conversation, you have the industrial base that is 
primarily responsible for the manufacture and development of 
major weapons systems on the hardware side, and then there is a 
services industry, a professional services, technology services 
industry. And while they are very much integrated in many ways, 
they also are very separate and have very different dynamics. 
And I will address some of that in my testimony, and a little 
bit more detail, of course, is contained in my written 
statement.
    In fact, the Defense Department has for a long time focused 
on impacts on the defense industrial base of many of its 
actions. There is an Office of Industrial Affairs that is 
primarily set up to do that in the Defense Department.
    At the same time, the Department spent over $180 billion 
last year on services, 40 percent or more of its total contract 
spending, yet it has invested relatively little time in really 
understanding and developing a keen awareness of the dynamics 
and structure of the services industrial base on which it so 
significantly relies.
    In other words, even as we have been trying, appropriately 
so, to build better oversight of services contracts and 
services contracting in the Department, our insight into the 
supplier base that are performing on those contracts at the 
Department level remains limited.
    With regard to the base itself, the services industrial 
base, in 2006, the Center for Strategic and International 
Studies (CSIS), with the strong support of PSC, undertook the 
first-ever analysis of the federal professional services 
industry. This had actually never been done before. The CSIS 
study is available on our website. I believe we have some 
copies here with us today. But there are several key insights 
that they found that I want to share.
    Number one, the services sector is incredibly diverse, both 
in terms of size and in terms of capability.
    Second, more than 70 percent of the contracts in the 
services sector in the Federal Government are competitively 
awarded; that is, competitive to the extent that there are at 
least two, if not more, bidders on each of those procurements.
    Third, the growing use of large multiple award contracts, 
under which companies must compete to get on the contracts and 
then compete again to get task orders under which the actual 
work is performed, has driven up transaction costs for 
everybody in the marketplace, with a particular impact on small 
and mid-tier firms for whom those costs are particularly 
precious.
    And, finally, for a variety of reasons, there has been real 
pressure placed on the mid-tier of the marketplace. If you have 
a natural market cycle of small, mid-tier, and large, the mid-
tier of the services market is under pressure. In some 
segments, particularly IT services, the market share reductions 
have been as much as 40 percent.
    The Defense Department did utilize the CSIS study to do 
some internal analysis of its own share of the professional 
services market, but, to date, not much has been done with 
those analyses. Yet the Department and, to some extent, 
Congress continues to promulgate new policies, regulations, and 
laws that will impact that industrial base, absent that 
detailed understanding of those impacts. And we believe that 
ought to come--the cart before the horse.
    On the policy side and actions taking place within the 
Defense Department, there are really three things that I want 
to very briefly touch on.
    Number one, small and mid-tier business. The government has 
a presumption in all government procurement that says you are 
either small or other than small. That is the only distinction 
drawn in federal procurement as to the size of companies. Yet, 
as the CSIS study told us, as Mr. Gutridge's company is a good 
example of, there are multiple tiers within the services sector 
in each size category. So just this binary view immediately 
starts you from a presumption that does not reflect the reality 
of the market.
    Second, some people, increasing numbers of people in small 
businesses, particularly entrepreneurial technology-based 
companies, mid-tier companies, are beginning to question the 
premise of our small-business programs. Not that they disagree 
with them, but what is the goal? Is it to create small 
businesses? Or is it to create sustainable small businesses 
that have the ability to grow to the extent of their 
capabilities and ambitions?
    That actually may sound like a fine distinctions, but it is 
a very critical distinction, because our focus has been on the 
former, which is to create businesses, and less on the latter, 
what are we doing to foster growth and development beyond the 
size standards as they exist.
    Mr. Chairman, you mentioned the workforce issues as a very 
critical element of understanding the dynamics of the industry. 
Because the fact is that industrial-based issues principally 
revolve around as, in any business relationship, risk and risk 
management. What are the risks? What are the predictable 
elements? What are the nonpredictable elements? And how do I 
manage those? And, as a customer, you have to understand how 
your supplier base defines, manages, and identifies risk. That 
is not a core component of the acquisition training in the 
Defense Department today for people doing services acquisition, 
and we think it should be a core component of that training.
    Finally, there is a number of specific policy initiatives 
under way today that bear some discussion. And in my written 
statement I mention three: in-sourcing, organizational 
conflicts of interest, and fixed-price contracting--three very 
disparate kinds of policy issues in how we think they actually 
have an industrial base effect. In the interest of time, what I 
would like to do is just touch on one, and that is the in-
sourcing question.
    In-sourcing is very much an issue of industrial base 
concern. And, Mr. Chairman, I think you captured it very well 
in your opening statement when you talked about predictability 
in competition. We have a marketplace in services that is 
highly competitive. But in-sourcing, if it is done wrong, 
completely destroys that competitive base because we are no 
longer competing; the government is acting in a monopoly 
manner, just taking work. And, second, it destroys the 
predictability in the marketplace. It creates risk, it creates 
uncertainty. It breaks down partnership trust and 
relationships. So it is an industrial base issue.
    The Secretary has set a goal, the Secretary of Defense, of 
realigning and rebuilding critical skills in the Defense 
Department. That is one stream of in-sourcing we have heard a 
lot about. We are very supportive of that initiative. While we 
may disagree on the specific elements of how it is done, it is 
an initiative that is important. We all recognize that there 
has been a falloff in skill sets, particularly in acquisition. 
So we do not object conceptually and, in fact, would support 
strategic looks at how we can rebuild that workforce.
    But the other in-sourcing that has taken place in the 
Department, or beginning to emerge in the Department, some of 
it driven by legislation which instructed the Department to 
consider in-sourcing a variety of functions--not a mandate, but 
to consider--and then budget bogies that have been given to the 
military services are driving an entirely less strategic and, I 
think, less beneficial behavior.
    For example, on the legislative side, Office of Management 
& Budget (OMB) has put out a memo on July 29th directing how to 
implement congressional direction and does a very good job of 
defining the term ``consider.'' Makes it clear this is a 
source-neutral decision, that this should part of your 
thinking, should we perform the work in-house or should we 
perform it by contract, and then lays out a number of decision 
levels that you have to go through to make that decision.
    That discipline, at this point, does not appear to be 
taking place within the Department. I am not blaming this on 
the secretariat, because they have been primarily focused on 
the workforce rebuilding part, which is a whole different 
decision. That is a strategic human capital initiative.
    But as you have this in-sourcing taking place in the field, 
where people perceive it either to be a mandate or not doing 
full-cost analysis where they really look at what is the 
cradle-to-grave cost to the government. Across the board, not 
just your own personnel line or your own benefits line, but 
what are the infrastructure costs that somebody else is 
absorbing? Who is paying for the lifetime health care? Who is 
paying for workforce development? How do I know I am getting 
the right skill at the right place? It might be slightly less 
expensive, but maybe I need actually a higher level of skill, 
for which the marketplace has determined there is a higher 
value to that skill and so forth. Those analyses, to the best 
of our knowledge, have not been done.
    In fact, what is happening in many services is they have 
declared outright that for every position that the service in-
sources, the service is taking a 30 to 40 percent savings per 
position. And our question is, based on what? If I have a 
contract--and Mr. Gutridge could speak to this much better than 
I since he has this situation--if I have a contract and I have 
75 people performing on that contract, and you look at that 
cost and then say, ``Well, by person by person, here is what I 
think I could save by in-sourcing it,'' I have immediately 
walked away from the fundamental premise of business, which is 
competition. What if I said to the marketplace, ``I need to 
reduce my costs here. What is the marketplace adjustment going 
to be?'' I could maybe do it--my person by person costs might 
be higher, but I might be doing it with fewer people, with 
better technology, more agility, on a performance basis where I 
can actually move people around.
    So there are all of these factors that go into a good 
business decision that have huge impacts on the industrial 
base's ability to do business with the Defense Department which 
we are concerned the current in-sourcing trend is stepping away 
from. And there are fundamental premises that I think we ought 
to focus our attention on.
    Final point--I apologize--one last point on the in-sourcing 
is there is great concern amongst many companies about the 
degree to which the government is today overtly targeting and 
soliciting contractor employees.
    And let me be very clear: There are a lot of people in 
government who have suggested for years that contractors hire 
government employees and simply bill them back to the 
government, sometimes at higher rates. I am not sure the extent 
to which that actually happens, but I can tell you from an 
organizational perspective, all 350 member companies, we would 
agree that that is inappropriate in that case, and it is 
inappropriate when you do it with our folks.
    Where there is a direct business relationship, where you 
have me under contract or I have you under contract, we should 
not be soliciting each other's employees. In the private 
sector, that is anathema. There are nonsolicitation, 
nonpoaching clauses routinely across private-sector 
relationships to protect the integrity of the relationship.
    But, nonetheless, what we see is a very aggressive effort 
on the part of the government to do just that. And we find that 
both high-cost to companies, unfair interference with employee-
employer relationships. And, frankly, it raises real questions 
about the merit system's hiring process and whether they are 
actually circumventing established rules which this full 
committee has made clear to the Department they expect them to 
follow.
    So I think that is another stream here that is important to 
address and does have impacts on companies like Mr. Gutridge's, 
bigger companies, and even smaller companies.
    So, Mr. Chairman, thank you again very much for the 
opportunity. And I look forward to the questions when we get 
finished.
    [The prepared statement of Mr. Soloway can be found in the 
Appendix on page 35.]
    Mr. Andrews. Thank you, Mr. Soloway.
    Mr. Sylvester, welcome to the committee.

     STATEMENT OF RICHARD K. SYLVESTER, VICE PRESIDENT OF 
      ACQUISITION POLICY, AEROSPACE INDUSTRIES ASSOCIATION

    Mr. Sylvester. Thank you very much. Chairman Andrews, 
Congressman Conaway, members of the panel, on behalf of 
Aerospace Industries Association, our 300 manufacturers and 
suppliers of defense aerospace equipment and supplies and our 
over 800,000 workers, I appreciate the opportunity to come 
before you today and talk to you about some issues that we 
think are very significant.
    My written statement contains a lot of information about 
some of the things we are considering. I just want to make a 
few key points this morning.
    AIA is supportive of major acquisition reform initiatives 
that advance the stability of programs and requirements, expand 
workforce skills and experience, and provide better contract 
incentives to reward good performance, enable firms to attract 
capital and earn fair returns on contracts.
    By institutionalizing such changes and obtaining more 
affordable and predictable acquisition outcomes, the 
acquisition system will become more transparent, predictable, 
and cost-effective. To that end, the recently passed ``Weapons 
Systems Acquisition Reform Act,'' which your panel was part of 
creating, was a step in the right direction.
    AIA also believes that a dedicated effort should be made to 
encourage more, not less, dialogue between DOD, industry, and 
Congress on acquisition industrial base matters.
    Furthermore, the government should resist the creation of 
new barriers to the employment of qualified acquisition 
personnel, many of whom come from industry and understand the 
many challenges and opportunities to implement improved 
acquisition procedures. Flexible rules that preserve program 
integrity, while allowing for the recruitment and retention of 
a well-trained and experienced acquisition workforce, should be 
our common goal.
    Although there are multiple areas in which defense 
acquisition could be improved in coming years, AIA recommends 
that the government focus primarily on three overarching goals.
    The first goal is to promote stability and fairness in 
contracting and financial policies. In order to maintain a 
competitive industrial base that effectively supports the 
warfighter and the Nation, AIA urges the government to promote 
contracting and financial policies that offer the opportunity 
for reasonable returns and cash flow in the industry's 
performance of government contracts.
    Such reform should be based on good performance. 
Contracting and financial policies that offer the opportunities 
for reasonable returns for good performance would: one, make 
companies more likely to invest in independent research and 
development and make capital expenditures; two, provide for 
reasonable base fees and hire available award and incentive 
fees, giving industry a reasonable chance of earning a fair 
return; and, three, prohibit fixed-price options before design 
reaches an acceptable level of maturity and stability.
    The second goal is to reform the major elements of the 
defense acquisition system. Government and industry agree, 
there is a major disconnect in the defense acquisition process 
between requirements, programs, and budgets. This critical 
element of the defense acquisition process must be repaired.
    Former Under Secretary of Defense for Acquisition, 
Technology and Logistics John Young reviewed major defense 
acquisition programs and identified three key contributors to 
the problem: inaccurate cost estimates at the beginning of the 
program; requirement instability during the development of the 
program; and budget instability through the development and 
acquisition process.
    These three areas must be effectively addressed to further 
restore confidence in DOD's acquisition system. Again, the 
recently passed ``Weapons System Acquisition Reform Act'' 
addressed stability for budgets, cost realism, and requirement 
stability, but there is more work that needs to be done there.
    The third and final goal is to promote the competitiveness 
and efficiency of the aerospace and defense industry. The 
defense business is increasingly taking on a global character. 
Competitiveness and efficiency should be promoted within this 
market by ensuring access to the best sources in the global 
supplier base. We are the best at what we do, and we do not 
fear competition with other nations. This is demonstrated by 
the $60 billion trade surplus which our industry enjoys, a 
trade surplus surpassing any other manufacturing industry. 
Government policies designed to correct perceived deficiencies 
in the contracting process or protect specific U.S. sources 
could undermine that competitiveness and diminish our 
industrial base.
    AIA is also concerned with recently enacted tax provisions, 
such as the 3 percent tax withholding on every government 
payment to contractors, which the DOD itself estimates would 
cost the American taxpayer $17 billion over 5 years.
    Other items that hinder efficiency and effectiveness in 
competition include barriers to the commercial marketplace such 
as demands for detailed cost data from commercial item 
suppliers and expert controller regime that punishes our allies 
and drives technology development overseas.
    The requirements for our national security have not 
changed. The threats from many sources remain, along with the 
need to modernize, recapitalize, and reset our equipment. In 
order to maintain a competitive industrial base that 
effectively supports the warfighter and the Nation, the 
government must promote balanced, stable, and fair contracting 
and financial policies that offer the opportunity for 
reasonable returns and cash flow in the industry's performance 
of government contracts.
    Industry acknowledges that such reforms should be based on 
good performance. In today's resource-strapped environment, 
industry takes its role to be a responsible acquisition partner 
seriously.
    Thank you, and I would be happy to answer your questions.
    [The prepared statement of Mr. Sylvester can be found in 
the Appendix on page 49.]
    Mr. Andrews. Mr. Sylvester, thank you very much.
    Mr. Gutridge, welcome this morning.

   STATEMENT OF ROBIN ``PUG'' GUTRIDGE, PRESIDENT, CHEROKEE 
          INFORMATION SERVICES, CHAIRMAN, TECHAMERICA

    Mr. Gutridge. Thank you, Mr. Chairman.
    Good morning, Chairman Andrews and Ranking Member Conaway, 
members of the panel. I am honored to be here today 
representing TechAmerica and provide you with our thoughts on a 
little bit more focused area, and that is on the acquisition of 
technology at the Department of Defense.
    The most important point I want to make to you today is 
that the Department of Defense and the rest of the U.S. 
Government, for that matter, seems to have moved away from the 
tenets Congress adopted in the last 10 to 15 years: to make 
acquisition of commercial and cost items easier and more 
affordable.
    Now, agencies are moving towards an environment that 
requires government-unique items in both the requirements 
placed on the products and services being acquired and in the 
terms and conditions under which the acquisitions can occur.
    We believe, if we continue down this path, the government 
will find it increasingly difficult to attract and retain 
commercial IT and technology providers and, subsequently, to 
unearth and utilize the kinds of innovation we see in the 
commercial market today.
    One of the main reasons for this is because the DOD role in 
the global Information Technology (IT) marketplace is 
diminishing, which leads to decreased competition. Currently, 
it accounts for less than one-tenth of 1 percent. So 
incorporating the government-unique requirements I mentioned 
previously will only make it more difficult for a company to 
enter the DOD or government market to support and sustain a 
presence.
    Another reason is because DOD acquisition of technology 
takes a significantly longer time period than the commercial 
product lifecycle and is vastly different from the commercial 
buying process. Because technology refreshes at a minimum of 
every 18 to 24 months, a commercial acquisition best practice 
is to identify the products and/or services by them and deploy 
them in less than 24 months. The time frame is feasible because 
market research, due diligence, and presolicitation processes 
are much more open to dialogue and establishing trusted 
relationships than in the federal acquisition process.
    The current buying practices of the Department also 
disguise its presence in the commercial marketplace. Although 
DOD spends a considerable amount of its budget on IT, the 
average contract action size is reduced from nearly $2.5 
million in 2000 to $204,000 in 2007. So this fragmented buying 
practice, coupled with the increased risk for commercial 
companies and the rising cost of winning and sustaining 
contracts, has diminished the attractiveness of the DOD market 
space.
    We also have significant concerns that the erosion of the 
acquisition workforce is making the DOD less able to keep pace 
and deploy innovative solutions. We have seen an increasing 
ratio of contract transaction numbers and size to the number of 
employees. But, as Stan pointed out, the CSIS study talks about 
that. And we see a significant increase, almost a trebling, in 
the number of transactions per the number of employees.
    But we have also seen a significant decline in the numbers 
of that workforce who had the adequate skills to understand 
complex information systems. Attracting the best and brightest 
workforce is crucial to the development of adequate 
requirements, which leads to the creation of effective systems 
and enterprise-wide solutions.
    The last point I wanted to note is the increasingly risk-
adverse environment under which we are currently operating, 
which only leads to decisions based largely on avoiding risk. 
Instead, we believe that the acquisition practices should be 
aligned to reward actions to acquire IT services or products in 
a timely, cost-effective matter. We must find a way back to a 
more open environment that creates incentives and rewards for 
the acquisition workforce and the contracting community to 
produce outcomes based upon best value for the warfighter and 
the taxpayer.
    Thank you again for the opportunity to provide our 
perspective, and I look forward to answering any questions.
    [The prepared statement of Mr. Gutridge can be found in the 
Appendix on page 68.]
    Mr. Andrews. Mr. Gutridge, thank you. And thank you for 
your service to our country.
    Dr. Madland, welcome.

   STATEMENT OF DR. DAVID MADLAND, DIRECTOR, AMERICAN WORKER 
       PROJECT, CENTER FOR AMERICAN PROGRESS ACTION FUND

    Dr. Madland. Chairman Andrews, Ranking Member Conaway, 
thank you very much for having me. I am David Madland, Director 
of the American Worker Project at the Center for American 
Progress Action Fund. I am pleased to be a part of this panel 
and applaud your ongoing efforts to ensure that taxpayers 
receive good value for their federal contracting money.
    While the center has advocated a range of reforms to 
achieve these goals, including increased competition, 
strengthening the acquisition workforce, and preventing the 
contracting out of essential government functions----
    Mr. Andrews. Mr. Madland, I am sorry. I think your 
microphone may not be on.
    Dr. Madland. The light----
    Mr. Andrews. Okay. I wonder what procurement process we 
used to buy the microphone. Okay. I just want to be sure the 
members and the audience can hear you.
    Dr. Madland. All right. We are back.
    I want to focus on a less well-known but equally critical 
issue: the pay, benefits, and working conditions of the low-
wage contracted workforce.
    In my testimony, I want to make three main points. First, 
many federally contracted workers have low-quality jobs. The 
workers I am talking about sew military uniforms, rebuild Army 
bases, provide security for secure facilities. And, second, 
while poor treatment of workers is an important problem in its 
own right, much more to the point of this panel: limited 
benefits, low pay, poor working conditions can impose costs on 
the government and taxpayers and make it hard for high-road 
companies to compete. Third, promoting higher labor standards 
can be part of a strategy for ensuring better value in 
contracting. Let me elaborate on each of those points.
    First, the scope of the problem. I want to emphasize that 
the data are rough because the Federal Government doesn't keep 
or make publicly available quality data, but all the evidence 
points in the same direction. For example, estimates from the 
Economic Policy Institute indicate that about 20 percent of all 
federally contracted workers earn poverty-level wages. This 
means one out of five workers on a Federal contract do not earn 
enough to keep a family of four out of poverty. And low wages 
and inadequate benefits are much more common in some contracted 
industries, according to Paul Light, a professor at New York 
University (NYU).
    Not only is pay quite low for many contracted workers, but 
working conditions are often of low quality, with contracting 
companies frequently violating labor laws.
    Second, these kind of working conditions can cause 
taxpayers to receive less than full value. When workers are 
poorly compensated on the front end, taxpayers often bear 
additional costs on the back end, such as for Medicaid, Earned-
Income Tax Credit, and food stamps. Furthermore, research finds 
that when contractors cut corners to their workers, they often 
cut corners in the final products they deliver to taxpayers, 
which imposes additional costs.
    Third, promoting good workplace practices can be a good 
value for taxpayers. Not only can they reduce these 
unintentional subsidies, but it can also promote increased 
competition and reduce the likelihood that companies will 
operate in a wasteful fashion.
    Let me just give you one example. The State of Maryland 
implemented a living-wage standard recently, and the 
Legislative Analyst's Office did this study. And they found 
that the average number of bids for contracts in the State 
increased nearly 30 percent, from 3.7 to 4.7 bidders per 
contract.
    They went out and surveyed the companies. Nearly half of 
contracting companies interviewed by the State said that the 
new labor standards encouraged them to bid because it leveled 
the playing field. Several of the companies commented that in 
the future they will only bid on these kinds of contracts with 
the higher standards. And one contractor noted that her current 
contract was the first that she had ever bid on with the State 
because she explained that, without strong labor standards, 
quote, ``The bids are a race to the bottom. That is not the 
relationship we want to have with our employees.''
    Now, over the past decade, state and local governments have 
been leading the way to promote higher standards for the 
treatment of contracted workers, as an excellent report by the 
National Employment Law Project makes clear. To build on these 
models and improve the treatment of the contracted workforce 
and promote better value for the taxpayers, there are many 
steps Congress can take, but I want to just highlight two of 
the most important.
    First, to limit the number of contracts that are awarded to 
low-road companies, the Federal Government should ensure that 
it only does business with responsible companies by doing a 
better job of screening companies based on their overall 
regulatory record, including their compliance with labor laws. 
And, second, the contracting process should promote higher 
labor standards by evaluating proposals based in part on the 
quality of jobs they provide for workers.
    These kind of reforms would be the right thing to do for 
workers, but they will also improve accountability and increase 
transparency, while limiting wasteful contracting and helping 
ensure good value for taxpayers.
    I want to thank the panel for its time and consideration 
and express my willingness to work with you on these reforms.
    [The prepared statement of Dr. Madland can be found in the 
Appendix on page 75.]
    Mr. Andrews. Dr. Madland, thank you very much.
    I would like to thank all the witnesses. And we will begin 
with the question time.
    Mr. Soloway, you made reference to the additional costs 
that we incur with multiple award task order contracts. And, 
certainly, the more transactions that have to take place in the 
procurement process, the greater cost that is added.
    What about the benefits of it, though? Isn't it accurate 
that, if companies not only have to compete for the right to 
provide the services but the actual provision of the services 
from time to time, that that adds more value than it subtracts?
    Mr. Soloway. It is certainly correct that it can. And I 
didn't mean to suggest that multiple award vehicles are the 
wrong kind of vehicle. I think maybe if I were to recast my 
comment, it would be: For many years, we have been moving in 
this direction of getting a group of companies to compete to 
get on the contract, and then as each requirement comes up they 
compete again. And it has been generally accepted as a good, 
competitive model and enables the government to buy more 
incrementally rather than always buying one large package at 
the same time. So it has had some great benefit.
    What has happened in recent years, at least amongst our 
membership which includes a lot of IT and IT services firms and 
others, is the dramatic growth in these vehicles and some real 
questions of how much redundancy we are going to have in this 
system. How many times do I have to compete to offer the same 
capability to the government, 30 times, 40 times? Each agency 
wants its own contracts to do everything.
    And so it is an additive issue, not the fact of the 
multiple award vehicles, if that makes sense. It is that the 
number of them has grown so greatly, it has now created some 
real cost and price pressures on everybody and questions of 
diminishing returns, I think, as well.
    Mr. Andrews. So perhaps a procurement regime where there is 
more jointness, where each agency does one set of procurement 
actions rather than multiple, would solve the problem.
    Mr. Soloway. Well, that might help. I think more, kind of, 
the shared services approach that started a few years ago has 
some benefit.
    But we also have to be very careful, because the other 
impact of multiple award contracts, which is really a 
management issue for the Department--I am not sure that we in 
the industry have all the answers, or the Congress or what have 
you--is that, very often, these large contracts have 15 or 20 
different capabilities you have to demonstrate to get on the 
master contract.
    Well, for small and mid-tier firms, many of them have four 
or five terrific capabilities, but they don't have 15 or 17, so 
they might not even qualify to get on the initial vehicle. So 
balancing that out becomes a real issue.
    Mr. Andrews. I see. Thank you.
    Mr. Sylvester, you testified a concern about--which I think 
it is self-evident--of having a reasonable rate of return for 
companies so they can attract capital in fixing the price of 
these contracts.
    Is there any evidence that companies in the defense 
manufacturing field are having trouble raising capital?
    Mr. Sylvester. There are a number of cases that we have 
seen that have come out of DOD that have decreased payments of 
fees and where work needs to be done or certain things need to 
be done after the actual manufacturing work has been done. So 
that becomes a cash-flow problem for us, which reduces our 
rates of return. And that becomes an issue as you look at the 
capital markets.
    Mr. Andrews. I certainly understand that an unexpected 
cash-flow problem makes a company less profitable, which 
therefore makes it less attractive. But are there generic 
trends in the equity markets or the bond markets that say it is 
harder for these firms to attract capital?
    Mr. Sylvester. I don't believe that that is the case, 
although the rates of return that we are seeing, as you look 
over the time frame, you will see that there are smaller rates 
of return on a lot of these companies.
    Mr. Andrews. Do you know off the top of your head--I 
wouldn't expect you to, but if you could supplement the record, 
I would appreciate it--how many of your members are closely 
held and how many are publicly traded? Do you know?
    Mr. Sylvester. I don't know, but I can give you that 
figure.
    [The information referred to can be found in the Appendix 
on page 97.]
    Mr. Andrews. Is it mostly publicly traded?
    Mr. Sylvester. A lot of the larger companies are certainly 
publicly traded.
    Mr. Andrews. Okay. If you could just supplement the record, 
I would like to know.
    Mr. Gutridge, I think you made a compelling case about how 
a very tiny portion of the global market becomes the tail 
wagging the dog, right? So that if most of the marketplace you 
are working is not DOD procurement but you have a set of what I 
think you called government-specific requirements, that makes 
it unattractive to bid on those jobs.
    What are some of the government-specific requirements you 
are talking about that you think make the bid unattractive?
    Mr. Gutridge. I think two right now are causing a lot of 
uneasiness. One is certainly the security requirements. And, 
again, we believe that there needs to be particular attention 
paid to the overall security issue. But, again, making that----
    Mr. Andrews. Do you mean background checks on employees, or 
do you mean security where the product is handled?
    Mr. Gutridge. Security of the product itself. So a piece of 
technology has a certain capability or it doesn't have a 
certain feature. So that is one particular area.
    Mr. Andrews. Don't you think that is kind of inevitable, 
though, I mean, given the nature of the work that we are doing 
here?
    Mr. Gutridge. Well, we think it is. And, again, we think, 
in many cases, that is kind of application-specific, if you 
will. And we would encourage that, that those types of measures 
continue in that area.
    The second area has to do with the origin of the particular 
technology, kind of gets wrapped into the Buy America Act. And, 
again, it kind of is subtly introduced into the whole notion of 
security--malicious code, backdoors, those types of things 
being written into the software.
    So, again, for large global companies that basically see 
this as a huge cost driver, they see this, again, as an 
increased cost into a marketplace that has more and more 
uncertainty and appears to be a lower, lower portion of their 
potential revenues going forward.
    Mr. Andrews. I understand.
    Dr. Madland, I will conclude with you. If we were to be 
more aggressive in debarment of contractors that were violating 
labor laws and other type regulations, where should the 
standard be set for a violation that results in debarment? You 
know, putting it in layperson's term, you don't put a person in 
prison for jaywalking, but you do put someone in prison for 
rape or murder. Where is the line between jaywalking and rape 
or murder?
    Let me just play devil's advocate. It is fairly easy to 
have an Occupational Safety & Health Administration (OSHA) 
violation if you put the wrong form on a bulletin board. I 
think most of us would agree that there is no way that should 
disqualify a company from consideration. However, if you have 
had several fatalities because of careless or reckless 
practices, that is debarment.
    Where should the line be drawn?
    Dr. Madland. I think you are asking a very good question, 
but, first, let me be clear: I am not advocating for a 
different kind of debarment process. Certainly, what I am 
advocating for are two things.
    First is a better screening process. This is for 
responsible contractors; the law is that we are supposed to 
only do business with responsible contractors and supposed to 
look at their track record. Labor law is usually not--it could 
be part of that evaluation process, but it is usually not. The 
database that is going to go online is a big part of that. And 
that is something that contractors will look through and 
evaluate.
    There is clearly no black-line standard you can make 
because, also, for different kinds of contracts, it is going to 
be different. You know, for example, if you are having security 
guards guarding a kind of facility, if they are repeatedly 
hiring people with criminal records or something like that, 
that is going to be a more significant kind of problem than if 
they had one OSHA violation.
    Mr. Andrews. So you are saying you think the standard is 
clear, but we are not doing a very good job evaluating?
    Dr. Madland. No, the standard is actually not clear. The 
contracting officers could definitely benefit with increased 
clarity. And they could also benefit with better tools with 
which to make the determination.
    So, for example, the database that is going to go online 
will not capture most labor law violations, for many reasons, 
but the two most important are that the fines for most labor 
laws, like the violation of minimum wage or the right to 
organize, are not fines that are high enough to reach the 
threshold of the database. They are also often settled without 
a finding a fault, and finding a fault is necessary to be part 
of the database.
    And then the second thing, to be clear, that I am 
advocating for is, once a company is bidding for--so they have 
been found responsible, they are bidding on a contract, I think 
we should evaluate the wages and benefits they pay their 
contracted workers. And, again, that is on a sliding scale, not 
a black line.
    Mr. Andrews. Okay. Thank you.
    I am going to turn to Mr. Conaway for his questions.
    Mr. Soloway. Mr. Chairman, is it appropriate to make a 
comment?
    Mr. Andrews. Briefly, if you would. I want to make sure we 
get to the other members.
    Mr. Soloway. Thank you. I just want to make two quick 
comments because I think the issue here is really a very 
complex one.
    You touched on one critical issue, which is how do you make 
the judgment of where the line is. And we are going to have a 
database online at some point that is supposed to have a 
company's entire record of behavior with regard to Federal law. 
And contracting officers are going to be asked to make 
decisions that are exactly the kind of decisions--are you 
responsible--if you have had nine labor law violations in a 
company with 40,000 employees over 4 years versus a company 
that had a tax violation 3 years ago and so forth. So the line 
is a very critical one.
    But the point that was missed here and I think is really 
important is that--I mentioned earlier separating out the 
different elements of the industry. In construction and in 
services, there are prevailing wage laws that govern the wages, 
set by the Department of Labor, that tell contractors what they 
must pay and what their health and welfare benefits must be. 
And the penalties for violating the law are actually fairly 
significant.
    The second thing is, both are so complicated. Both the 
Department of Labor and industry will tell you they are 
incredibly complicated. We put hundreds of people a year 
through training programs that we run to help them comply with 
the Service Contract Act, that violations of the act are most 
often completely unintentional, yet they go into the record as 
a violation.
    So I think Dr. Madland's overarching point of responsible 
contractors paying good wages and good benefits is the absolute 
right one, but I don't think we can have that discussion 
without looking at the underpinnings of current law that guide 
that, with regard particularly with services and construction.
    Mr. Andrews. Understood. Thank you.
    Mr. Conaway.
    Mr. Conaway. Thank you.
    Let's look at the defense acquisition system itself. Can 
you look at it from two perspectives? What are the top three 
problems with the system? And then what are the top three 
problems the system causes those of you that are trying to deal 
with the Federal Government? And it may be the same question, 
but just take a shot at it. What are the top three things you 
would fix?
    Mr. Soloway. I think--and I suspect I am speaking for all 
our colleagues here--that number one is the workforce issue. 
There is no question that the Defense Department has 
experienced substantial workforce atrophy over the last decade 
and a half.
    I had some responsibility for the acquisition workforce 
when I was in the Pentagon. I worked with Rick on the issues 
for many years. The workforce----
    Mr. Conaway. Is that because of that system, though, or is 
that just----
    Mr. Soloway. I am sorry?
    Mr. Conaway. The workforce atrophy, has that been caused by 
the system? Or is that just the fact that the baby-boomer bulge 
that came through the entire defense industrial complex is 
now----
    Mr. Soloway. I think part of it is the demography, just 
what you said. But I think the other issue is that, as the 
Department of Defense was downsizing in the early to mid-
1990s--we had a 38 percent reduction in workforce across the 
Department of Defense, and the acquisition workforce took a 
substantial reduction as well. What was not foreseen, and those 
of us who were there and those who have been there since did 
not adequately address, was the fact that the mission was 
actually still growing even though we were reducing the number 
of bases and so forth. So there was not an alignment of 
resources, skills, and capabilities to the mission. It was a 
kind of an across-the-board reduction.
    The second thing is--and Mr. Gutridge touched on this--the 
workforce has never been invested in adequately, both from an 
acquisition perspective in acquisition skills, particularly in 
services, I would argue, in our field, but also in terms of 
technology. So how do I implement and integrate cutting-edge 
technologies into a Defense Department requirement? And that 
requires me to get other outside help to help me figure that 
out, because I don't have the capabilities internally.
    So some of it was system, and some of it was other factors.
    Mr. Conaway. All right.
    Comments from the other witnesses?
    Mr. Sylvester. I have a couple of comments.
    On the issue of workforce, one of the problems that DOD has 
had over time is a continuing education process. Everyone that 
is in the acquisition workforce has to be certified up to a 
particular level that is identified with their position.
    There aren't really capabilities within the Department to 
have continuing education as that process changes. So as we go 
to things like more use of commercial products or we go to 
things like changes in the way we manage services, there isn't 
a push to get people who have already been certified back in to 
be retrained and reeducated in those areas. And that causes 
some problems in the system.
    The other thing I would make a comment on is the whole 
factor of stability. I mentioned that in my statement. One of 
the problems the Department has continuously is, requirements 
change through the life of the contract, which causes rework 
and causes people to have to go back and redesign things as new 
requirements pop up.
    Now, some of that makes sense. As you learn new things, you 
have to do some of that. But some of it is just a factor of, we 
want something different now. Couple that with instability in 
the program budgeting process and the funding process and the 
yearly look at all of the programs and changing dollars, which 
causes a tremendous impact on costs and variability.
    Mr. Conaway. All right.
    Mr. Gutridge.
    Mr. Gutridge. From my opening remarks, I made a couple of 
points. I just want to elaborate on it.
    Number one is the issue of transparency in that early 
dialogue prior to the presolicitation. Again, that is an area 
that I think we can really make some tremendous strides in. 
That will help us to better understand what our customer 
requirements are.
    But the other one, I think the Defense Science Board report 
hit it pretty well, especially in the area of IT. It is just a 
long, cumbersome, difficult, challenging, complex process to 
buy big stuff. And so if there were some ways, especially from 
an IT and services perspective, to start to look at how do you 
do that a little differently, maybe do it more in an 
evolutionary approach, there might be some benefit, in terms of 
reducing risk as well as speeding up the process.
    Mr. Conaway. Okay.
    Anything, Dr. Madland.
    Dr. Madland. I think to the chairman I responded with the 
two main things.
    Mr. Conaway. All right. I thank the witness, and I yield 
back.
    Mr. Andrews. Thank you, Mr. Conaway.
    The Chair recognizes Mr. Cooper.
    Mr. Cooper. Thank you, Mr. Chairman.
    In view of the shortness of time, I would like to yield my 
time to Mr. Murphy.
    Mr. Andrews. Mr. Murphy is recognized.
    Mr. Murphy. Thanks, Mr. Chairman.
    Thank you, Mr. Cooper.
    I want to first thank the panel of guests today but also to 
Congressman Andrews and the entire Defense Acquisition Reform 
Panel for holding this incredibly important hearing to shed 
light on the problems with our government procurement process. 
Congressman Andrews and this team have been tenacious in 
working to improve our acquisition system so that it provides 
the best for our men and women in uniform. And I truly thank 
all of you for that.
    My question is, every year, billions of federal dollars go 
to companies with a history of labor and workplace safety 
violations. Aside from the major concern about the mistreatment 
of employees, it seems to me that some companies are double-
dipping the taxpayer: first, obviously, the cost of the 
contract; but, second, for the cost of the benefits that their 
poorly compensated workers qualify for, such as Medicaid and 
food stamps. And, Dr. Madland, I wrote ``one in five,'' 
according to your testimony today.
    Last year, for an example, Alle Processing Corporation's 
employees claimed that the company used intimidation tactics, 
including bribery and threats of deportation, during a union 
organizing campaign. The company was even photographed with a 
banner that read, ``Obama says unions are a bad deal for 
workers today. Save your job and vote `no union.' '' According 
to news accounts, workers at Alle, quote, ``were paid only 
minimum wage, and none were given paid vacation, sick leave, or 
health care,'' end quote. In the first couple of months of 
2009, Alle has already received over $350,000 in federal 
contracts.
    In 2002, Tyson Foods were fined the maximum criminal 
penalty on top of a fine from OSHA after a worker was poisoned 
by exposure to hydrogen sulfate gas, a toxic byproduct of their 
facility, and yet nothing was done. The company failed to take 
sufficient steps to implement controls and protective equipment 
to reduce exposure to this gas, and their negligence led to 
tragedy. Just 1 year after that 2002 incident, the same, exact 
thing happened. A worker was exposed to this toxic gas, except 
this time the man died. His name was Jason Kelly. Again, Tyson 
Foods, they paid a fine. And despite this record, they received 
$1.3 billion in Department of Defense-related contracts since 
the 2002 tragedy.
    So my question to the panel and, first, to Dr. Madland, can 
you quantify the cost to taxpayers of awarding contracts to 
contractors like these who poorly compensate and poorly treat 
their employees? And how are factors such as pay, benefits, and 
treatment of employees currently taken into account before 
awarding a contract? And how can we improve the process?
    I know El Paso, Texas, for example, has implemented a 
scoring system, weighing whether companies provide certain 
benefits to their employees. And are these ideas that we should 
consider as a panel?
    Dr. Madland. Thank you very much for that question. I think 
there were two key pieces there, questions, sort of how do you 
quantify these costs that we were talking about in the second, 
and how do you reform the process.
    The first, how can you or can you quantify, well there are 
a couple of different kinds of costs. The first kind is the 
cost such as Medicaid, food stamps, earned income tax credit 
can definitely be quantified. Studies in many states and 
localities have quantified these kinds of hidden costs for 
providing public assistance to low-wage workers. It has not 
been done at the federal level. Now, it would have to be an 
extrapolation because we do not exactly know how many federally 
contracted workers there are, but I think you could make some 
reasonable estimates and come up with a good number. In 
California they have done this and they estimate about $10 
billion a year in state subsidies for full-time workers who 
earn near the minimum wage, so I think you could do something 
similar at the federal level.
    But the kinds of costs that are much harder to capture but 
are real are the kinds of quality, the connection between bad 
workplace practices and quality. Just to give you an example of 
some of these kinds of relationships, there was a Department of 
Housing & Urban Development (HUD) audit found a direct 
correlation between labor law violations and poor-quality 
construction. New York City survey of construction contractors 
found that those with workplace law violations were over five 
times as likely to have poor performance ratings. I can list 
others, but those kind of costs are much harder to quantify. I 
think, for example, if you asked Government Accountability 
Office (GAO) to look at both kinds that would be a good step.
    So what do we do about this? I started to talk to Chairman 
Andrews--you asked actually how does the government evaluate 
these kinds of things; does it consider labor standards? It 
legally could, and it occasionally does, but very often it does 
not.
    So there are two primary ways that I think this panel could 
look at, and the first, as I said, was better screening for 
whether a company is responsible. And I think that this better 
screening requires two things. This is clarifying the 
standards--this gets to the point that Chairman Andrews was 
asking about--clarify the standards for evaluating whether a 
better--that demonstrates a satisfactory record of integrity 
and business ethics. For example, you know, how many 
violations, et cetera.
    And then second, you need to create better tools to help 
contracting officers make this determination. The database, as 
we talked about, is a big first step, but it does not capture 
many of the important violations.
    And the second key step is almost all federal contracts 
that are competitively bid are awarded on a best value approach 
in which the government considers both price and other non-cost 
factors, past performance, small business subcontracting plan, 
technical approach, managerial capacity. We recommend that one 
of those non-cost factors that are used to evaluate contractors 
may be the pay in benefits that they provide their workers. You 
mentioned El Paso. That is exactly what El Paso has done for 
health care benefits. And they give a score for the quality of 
health benefits they provide, and that is one of the factors in 
determining whether the bidder receives the award.
    Mr. Andrews. The gentleman's time has expired. Thank you, 
Mr. Murphy and Mr. Cooper.
    The Chair recognizes Mr. Coffman.
    Mr. Coffman. Thank you, Mr. Chairman.
    Just a question on this insourcing. I think, Mr. Soloway, 
you raised it, and I think, Mr. Gutridge, you also, I think, 
touched on it: Where is that appropriate balance? One thing we 
did not hear, I think, prior to the legislation that was passed 
was, I think, from--we certainly heard from the public sector 
that there was a deficit or a lack of qualified acquisition 
personnel, and we needed to do more insourcing of that. But I 
think until today we never really heard of the consequences to 
the private sector. So where, in your mind, is the appropriate 
balance?
    Mr. Soloway. Mr. Coffman, I think that I would answer your 
question by pointing to the July 29th memorandum that the 
Administration issued, guidance to implement the insourcing 
legislation, which actually did a very good job of letting out 
kind of a hierarchy of how you think about federal functions 
and positions and the various decisions you can make associated 
with each.
    So, very briefly, they basically get four categories. One 
is inherently governmental functions that we all agree 
absolutely have to be performed by government employees.
    The second were functions of--actually positions that an 
organization determined were absolutely essential to its 
ability to control and oversee its own mission. They might not 
be technically inherently governmental, but it is in any 
organization you would want that as an in-house capability.
    Then there were other fairly significant positions for 
which you would make a decision. You have some flexibility. 
Where are the greatest skills, the greatest benefits and so 
forth.
    And then the final category, very routine functions, base-
operating support services, commercial functions and so forth, 
where it is kind of a classic make-buy decision.
    I think the issue for the Department is how do you actually 
do a broad strategic human capital plan that accurately 
captures kind of those four different pieces and looks at them 
in a truly strategic manner? It will vary from organization to 
organization. One organization may need more engineers in-house 
because of what they do than others, which may be able to rely 
more on outside engineering support, for example.
    So I think it is a strategic human capital process. I think 
that the OMB memo that came out on July 29th actually does a 
pretty good job of laying out kind of the structure. It has 
only been 6 weeks since it came out, so it is too early to say 
whether it is having an effect, but even before it goes into 
effect, and even before the Department of Defense has come out 
with its actual cost guidance internally, assumptions have 
already been built into the budget to the, quote, ``benefit'' 
of insourcing. I think it is kind of a ``cart before the 
horse'' situation.
    One other point--I am sorry to keep coming back to this in 
Dr. Madland's comment--I want to remind Mr. Murphy that we 
would not sit here and support companies that behave in the 
manner in which you described some of the companies in the 
record that you have. But again, it is critical, as we think 
about the issue of benefits, and pay, and treatment of 
workforce, that we recognize the different standards that 
already exist and how they apply in different industry 
segments. The Service Contract Act was created to prevent 
precisely what you are talking about. So the 20 percent--the 
figure that Dr. Madland used, the 20 percent of contract 
workers who are getting below poverty-level wages are almost 
certainly not working for companies who are doing service 
contracts under the Service Contract Act, and if they are, 
there are penalties in law today that should be applied. If it 
is not being enforced adequately, it ought to be enforced more 
effectively.
    The second piece is there are a lot of us in the industry 
who believe the Service Contract Act wages, the determinations 
that the Service Contract Act puts out, are woefully out of 
date. And so the government itself is creating a dynamic in the 
marketplace by saying, here is the wage you must pay, and that 
wage may or may not be an adequate wage in that region because 
it has not been updated recently enough. So I would suggest the 
first step here to achieve the goal I think we all share in 
terms of reasonable and fair treatment of workers is to focus 
on whether the Service Contract Act is adequately updated, 
modernized, and managed and administered.
    Mr. Gutridge. May I respond?
    Mr. Coffman. Mr. Gutridge, did you have a comment to one of 
my questions?
    Mr. Gutridge. Yes, sir, I did. I just wanted to really 
underscore Mr. Soloway's comments here. Having been in the 
thick of this in that particular industry, dealing with that 
particular issue, not just recently, but really for the past 
six, seven, eight years, where we have literally lost dozens of 
people where we contracted and expanded, contracted and 
expanded literally in the tune of hundreds of people per year, 
it has caused us significant stress. And our challenge has been 
and the benefit to us is it causes us to create muscles that 
most companies our size do not have. But the challenge we had 
is really trying to guess what the future requirements are 
going to be, the lead time for going out and basically 
refilling the pipeline once the government has basically hired 
those people away from us. It takes several months. You know, 
when you are dealing with one or two, it is not so bad. But 
when you are dealing with 10, 20, 30, 40, 50, it creates a 
significant strain and a significant burden on a company our 
size, any company realistically.
    So the challenge that we have is it is fine if we had a 
more strategic understanding of where they were trying to get 
to, how can we help them get there from here, develop an 
integrated plan that allows that to happen. And I think 
underscoring really trying to decide what is that sweet spot in 
terms of the number of these types of critical decisions, 
critical skills that the organization needs for future 
requirements, and then how do they effectively augment those 
with other type, whether it be contract or other types of 
services and support. I think that is where the challenge 
always is.
    Mr. Coffman. Thank you, Mr. Chairman.
    Mr. Andrews. Thank you, Mr. Coffman.
    The Chair recognizes Mr. Ellsworth.
    Mr. Ellsworth. Thank You, Mr. Chairman.
    Thank you, gentlemen.
    I guess my question would be for Mr. Soloway or Mr. 
Sylvester. I have had several calls in my tenure here from 
vendors and manufactures in my district mainly that suggest 
that they have tried to break into the system, or they have 
looked at breaking into the system, and they know they have a 
better way or a product they have seen manufactured, and they 
can do it cheaper, better, and yet feel the system is designed 
to not let them break in to get into the system, or it is 
designed for the current vendor to keep the contract, that they 
have no chance. Do you see that in yours to be true? Are they 
just not having people in place to navigate the procurement 
system? That would be my first question, is it a fair and 
balanced competitive edge that most companies, if they want to 
get in, should be able to.
    Mr. Soloway. Mr. Ellsworth, I think it is a great question, 
and I think it is a question that came up when we were in your 
district with you and a number of your companies a year ago, 
some of whom were in the market and some who wanted to get into 
the market.
    I think it is a very tough question, because the government 
does have, as Mr. Gutridge said, a whole set of unique 
requirements that make it very difficult for particularly 
smaller, purely commercial companies to figure out how to get 
in and whether they can afford to get in.
    As an organization we have participated in probably a dozen 
seminars in various congressional districts around the country 
for members who are getting the very same questions from their 
constituents and tried to help explain to them, here are the 
rules of the road and kind of how you can get into this market, 
but it is not an easy market to get into. And a lot of it is 
driven by the often appropriate sort of checks and balances 
that are in the system, because this is a taxpayer system, not 
a purely commercial market, but also by some of the behaviors 
of the customer and the incentives that are put out in the 
market. So I do think it is a fair question.
    I think there are ways for small companies to get into the 
market. Many have been creative and found a way. Mr. Gutridge's 
company started as a very small company, but it is a challenge, 
and I think that for those who are the faint of heart, it may 
not be the best market in the world, because the government 
does put very heavy burdens on all of its companies that are 
doing business. Even if we could argue whether we need more or 
less in certain areas, the basic requirements to get into the 
system are not simple.
    Mr. Ellsworth. Thank you.
    Mr. Sylvester, let me change the subject a little bit. We 
talked about--let us just call them change orders for the sake 
of that. Certainly the safety of our troops is paramount, and 
if they need something done to fix a weapon or fix something 
that keeps them safer, a vest or helmet, how much--discuss a 
little bit about what might go on. Someone sees a better idea, 
an idea comes from the field, a manufacturer sees something. 
Oh, let us change this strap from this to this, wouldn't that 
be better if it were an inch wider, and then can manipulate the 
system. Let us change this, charge more, redesign. And do we 
get taken advantage of that way in companies changing up orders 
on equipment, on small and maybe insignificant and nonuseful 
changes, that they could then bill back the government?
    Mr. Sylvester. While I am sure that happens from time to 
time, I do not think, at least from my experience, that is 
really prevalent where we have companies who are making those 
small incremental changes and then saying, here we have this 
idea, and we are going to charge the government for this. What 
I see more is companies that have ideas about things and go 
talk to the requirements drafters and say, we can do these 
kinds of things if you will change the requirements to allow us 
to do that. In some cases those particular requirements have 
been demonstrated, and in some cases they have not. And so the 
people who are in the requirements process would look at that 
and make changes in the contracts. There is a place for that to 
have that done.
    But again, going back to this idea of stability, once we 
beginning a manufacturing process, except for things that are 
safety related or those kinds of things, we need some stability 
in that process, which goes back to the evolutionary 
acquisition idea. If we can have a system that is truly 
evolutionary, we can begin to take those new ideas and 
introduce them into the system and get them into the 
requirements that way, in a logical way that doesn't impact our 
manufacturing capability.
    Mr. Ellsworth. Mr. Gutridge, you shook your head in the 
affirmative. I assume you agree with that, or do you have a 
comment?
    Mr. Gutridge. Putting my previous life's hat on where I 
dealt with this issue on a daily basis with aviation, 
engineering change proposals were always a struggle. When you 
are buying unique items, when you are buying a lot of them, you 
know, we consider those things very carefully. But we control 
the process because they were basically producing something for 
us.
    When we get into the commercial marketplace, it changes the 
paradigm entirely, because all of a sudden now producers are 
looking at, well, I have got this great big marketplace over 
here, and I have got this smaller niche market over there, and 
if I did this thing, well, it has this direct benefit to my 
bottom line because it increases my sales or whatever.
    So part of the challenge that we always struggle with when 
we get into buying commercial products is that there is the 
recognition and understanding that a bit you give up that 
control over that configuration of that end item. And that is a 
business decision that the Department makes on a regular basis. 
And part of it has do with how long are we going to use it; 
what is the total life-cycle cost. And these are all 
considerations that are taken into account in that acquisition 
process.
    Mr. Ellsworth. Mr. Chairman, I do not know how much time I 
have left, but if I could yield the balance of my time to Mr. 
Murphy. He had another question.
    Mr. Andrews. Absolutely. Mr. Murphy is recognized.
    Mr. Murphy. Thank you, Mr. Chairman.
    Thank you, Mr. Ellsworth.
    Mr. Soloway, I know you mentioned about the Service 
Contract Act. Do you have any comments? And if Dr. Madland 
could comment.
    Mr. Soloway. I just wanted to make the point that I think 
that the ethic of what Dr. Madland is talking about is 
something we could all sign up to, and we actually talked 
briefly earlier about sitting down and trying to figure some of 
this out.
    But I think the issues that Mr. Andrews referenced earlier 
about where you draw the line here, and what kind of guidance 
and objective criteria you are going to provide to government 
contracting officers to make what could be some really 
complicated decisions about relative severity of relative kinds 
of violations of different laws, the truth is without in any 
way defending a company that is a scofflaw, some of the 
companies that are referenced in the record and so forth, many 
companies have some kind of violation somewhere inadvertently 
committed, and how you start making those decisions I think is 
an enormously complex issue.
    Mr. Murphy. May Dr. Madland comment on that?
    Mr. Soloway. Yes, but one last point. The second point I 
want to make is we do not, in fact, in government contracting 
make these best-value trade-offs the majority of time. In fact, 
the majority of government contracts are awarded on a low-bid 
basis. Best-value contracting is actually the exception, not 
the rule. Now, we have advocated if you use more, I think you 
sometimes get what you pay for, if you will. And using all 
these other factors in a source-selection decision makes sense, 
but the vast majority of government contracts are either a 
sealed bid, which is just they simply look at the cost, or what 
we call low-priced technically acceptable, which is not a cost 
trade-off process.
    So I think that the ethic of what Dr. Madland is proposing 
is something we can all sign up to. I think that the Service 
Contract Act is a leveler. It is designed to try to avoid these 
kinds of issues.
    Mr. Murphy. Dr. Madland, my time----
    Mr. Andrews. Well, actually Mr. Murphy, you are entitled to 
be recognized for five minutes on your own time. So you are 
recognized for five minutes.
    Mr. Murphy. Thank you.
    Dr. Madland.
    Dr. Madland. Thank you.
    There were three big issues that I wanted to hit on: Talk 
about the Service Contract Act, how you sort of quantify the 
standards for whether a company is responsible, and then this 
idea of best value.
    The service contract, other prevailing wage laws like the 
Service Contract Act and Davis-Bacon are very important in 
assuring that standards aren't driven down, but they are not 
very effective at raising standards. Just to give you a couple 
of examples of what the actual prevailing wages are right now, 
$8.17 for a janitor in Houston, $9.49 for a security guard in 
Tucson, $7.25 for a fast food worker in Chicago, without 
benefits. That includes the total package. And these were just 
updated a couple months ago.
    So these prevailing wage laws are important to ensure that 
standards are not driven down totally to the bottom, but they 
are not--not sufficient.
    The second idea was sort of how you develop the standard 
for evaluating whether a company is responsible, how many labor 
law violations, et cetera. This is a very important and 
difficult question to answer, but I want to emphasize that 
many, many states have been doing this for years. California, 
Massachusetts, tons of local governments have developed 
quantified systems where they evaluate, okay, this many 
standards is this many violations is this many points, and you 
need to have this many points to be determined responsible. So 
it is a determination that, while difficult, it is something 
that other procurement systems regularly do.
    And then the last idea, my point was about low-cost 
technically acceptable--Mr. Soloway claims that I think he was 
saying we--the government procurement only evaluates most bids 
based on cost. Well, in the low-cost technically acceptable, 
they do look at non-cost factors; it is just whether a minimal 
threshold is met. Most competitively bid contracts include 
those low-cost technically acceptable or the more fully 
negotiated process where there is actual trade-offs between 
cost and non-cost factors.
    Mr. Murphy. Do you want to comment, Mr. Soloway?
    Mr. Soloway. This is going to be a long discussion, and I 
said that in all due respect. I would just point out that, 
again, the threshold issue is a critical issue. In California I 
believe if you have four violations of the Davis-Bacon Act, you 
get zero points on their scoring system. But if I have 
thousands and thousands of workers, I could have four 
violations fairly quickly. Whether that is the right or the 
wrong standard is another issue, but I think that is a really 
important point.
    The last point I will make about the Service Contract Act, 
Davis-Bacon, and the other prevailing wage laws that exist, 
whether they were designed do to do this or not, they have, in 
fact, become a floor; they are a minimum. The idea of a 
prevailing wage is supposed to be the prevailing wage. What is 
the appropriate wage for work in a given district or a given 
region of the country, and on top of that you then have to pay 
a certain given health and welfare benefit.
    So perhaps the discussion should begin with are the 
prevailing wage laws, in fact, getting us to prevailing rates 
or to the floor that Dr. Madland was talking about. That is a 
policy decision for the Congress and the Administration to 
make. From an industry perspective, as long as the Congress and 
the Administration recognize whatever all of the implications 
are for driving wages, whatever level the Congress and 
Administration decide is appropriate, that is a different 
discussion. From an industry perspective it is a relatively 
level field. We are all going to be bidding to the same rules, 
if you will. But there is a difference between the minimum and 
a prevailing wage, so the question perhaps is whether the 
Service Contract Act is prevailing or setting just a floor.
    Mr. Murphy. I want to go back to the metrics. You know, we 
talked about the database earlier. To give an example, 2008, 
Propper International, the largest manufacturer of uniforms for 
the United States military, settled a case with the National 
Labor Relations Board after employees charge that the company 
did not grant legally required paid sick days or vacation days, 
and the company violated labor laws by threatening employees 
who were trying to organize. So according to the press account 
about this company, Defense Logistics Agency (DLA), which had 
awarded the contract, offered that, going forward, it would 
take labor law violations into account when it reviewed 
contractors' performance using a national database that tracks 
these violations.
    So my question to the panel, and I will start with Dr. 
Madland, can you describe to us how the database is currently 
utilized by procurement officials and if consulting the data is 
generally voluntary as it would seem based on the Propper 
International case? And what do we need to do to maximize its 
potential and encourage or require potentially officers to 
consult prior to awarding a contract?
    Dr. Madland. Thank you.
    Your question is correct. The database is just being 
created. It is supposed to be created by October of this year. 
And the proposed rules state that contracting officers shall 
consider all the information in the database, which seems like 
a pretty strong standard. So that seems like a good thing. And 
I am not sure how much further you could go, although you 
should be aware that even like in the debarment category where 
they must look at it, oftentimes contract officers still don't, 
and GAO has done studies and found that.
    And so this database is going to be a big, big improvement, 
but as I mentioned before, the standards of exactly how it is 
applied are not quite clear, and it will miss many labor law 
violations. In addition, it does not capture private-sector 
compliance, so we are missing half the story or more. It is not 
publicly available.
    Now, a step is I think defense authorization this year, I 
think that is correct, will allow Members of Congress to look 
at it. It also, as I said, does not capture settlements without 
acknowledgement of fault, and the minimum threshold for fines 
is often below the level.
    Now, you mentioned the case of Propper International. They 
are the largest military uniform manufacturer, and some of 
their violations would probably be captured by this database, 
and there would be a record on which to judge them. So they had 
152--157 health and safety violations over the past 20 years; 
58 of those categorized as serious violations, or death, or 
serious physical harm could have resulted to workers. The more 
recent ones probably would be captured.
    Mr. Andrews. I just want to ask if Mr. Soloway would want 
to comment, because the gentleman's time is expired. Thank you, 
Dr. Madland.
    Mr. Soloway. I will just go back to the point Dr. Madland 
touched on. The issue here is how we set the standards. I think 
there is going to be--it is a very complicated question. The 
database is a reality, it is happening. How we set the 
standards, they give guidance to the workforce. Number one, the 
database should never be made public because there is a lot of 
sensitive proprietary information subject to all kinds of 
misinterpretation.
    How we guide the workforce in terms of how you make a 
decision, what is a pattern of abuse versus individual 
instances. A company could have had three or four years of 
abuses and then completely thrown out all of their management, 
changed their business practices and processes, and said, hey, 
this is now a good company. How an institution responds to 
problems is not an unimportant issue.
    So I think all of the issues--and the question of how we 
actually guide the workforce towards making reasoned, fair, 
transparent decisions. Companies are going to have access to 
their own records, so they can see what is in there. But they 
will have no access to information as to why they were 
determined to be responsive or not, which is essentially 
debarment. If you are not responsible, you cannot bid. You have 
been effectively barred from the process. So I think this is a 
very, very complicated issue.
    The last point I will make is I would hope Congress would 
not go back and revisit the question of whether we should 
include settlements on which there were no findings. From a 
perspective of law, if I settle a case with you, and I do not 
admit guilt, and you do not admit that I was innocent, that is 
why we have settlements. And that is a very dangerous road to 
go down to presume that somebody is guilty because they settled 
a case. As I think we all know there are a lot of settlements 
in which you do it for other reasons. So I think the standards 
issue is the critical question.
    Mr. Andrews. We thank you, Mr. Murphy, and thank the 
members of the panel. As is generally the case, well briefed 
and prepared witnesses generate more questions than they 
answer, which is good. I mean that as a compliment.
    I think what the panel will take away this morning is that 
in this process of creating the right environment for a vibrant 
and stable set of industrial bases, as Mr. Soloway points out, 
we need to do a number of things. From Mr. Soloway we heard 
that although multiple-award task order contracts have a 
certain value, we need to be sure that they do not add more 
costs than they generate benefit, that we carefully evaluate 
the use of those vehicles and others.
    Mr. Sylvester, certainly we do need to look at the overall 
capital-raising environment in which his members are operating. 
They are not just competing against other defense companies, 
they are competing against tech companies and financial 
services companies, a lot of other people.
    Mr. Gutridge, one lesson I think we learned from you is 
that we do not want to wall ourselves off from the benefit of 
the commercial global marketplace because of requirements that 
are superfluous or unnecessary. I think we all agree that 
security requirements, quality requirements are non-negotiable. 
But we may be precluding ourselves from some excellent bidders 
because we are having the tail wag the dog.
    And finally, Dr. Madland, I think your efforts and Mr. 
Murphy's efforts really do point out that the strongest value 
for the people in uniform and for the taxpayer comes from a 
fair workplace relationship, and where that workplace 
relationship is unfair or missing, that is a deficiency in the 
whole process that we need to refocus on.
    So I appreciate the witnesses and my friends here on the 
panel. The committee will continue to explore these issues. 
Essentially our work plan, which I discussed with--which we 
discussed with the minority staff, is to continue a series of 
hearings where we explore hypotheses about the reasons for this 
gap between price and value for the balance of the calendar 
year. The panel will then convene in the first quarter of 2010, 
and the Members will discuss among ourselves recommendations 
that we will then want to make to our colleagues in the full 
committee with a report that we hope will be the basis for 
legislative action in next year's defense authorization bill.
    So again, we thank the witnesses for their time and thank 
our colleagues. The hearing stands adjourned.
    [Whereupon, at 9:25 a.m., the panel was adjourned.]



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                            A P P E N D I X

                           September 17, 2009

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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                           September 17, 2009

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                   DOCUMENTS SUBMITTED FOR THE RECORD

                           September 17, 2009

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              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                           September 17, 2009

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             RESPONSE TO QUESTION SUBMITTED BY MR. ANDREWS

    Mr. Sylvester. Of the 106 regular members of Aerospace Industries 
Association, 68 or 64% are publicly traded and 38 or 36% are privately 
held. [See page 16.]

                                  
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