[Senate Hearing 111-943]
[From the U.S. Government Publishing Office]
S. Hrg. 111-943
INTERAGENCY CONTRACTS--PART I AND II
=======================================================================
HEARINGS
before the
AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 25, 2010
OVERVIEW AND RECOMMENDATIONS FOR REFORM--PART I
JUNE 30, 2010
MANAGEMENT AND OVERSIGHT--PART II
__________
Available via the World Wide Web: http://www.fdsys.gov
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada
JON TESTER, Montana LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
PAUL G. KIRK, JR., Massachusetts
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
Patricia R. Hogan, Publications Clerk and GPO Detailee
AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT
CLAIRE McCASKILL, Missouri
CARL LEVIN, Michigan SCOTT P. BROWN, Massachusetts*
THOMAS R. CARPER, Delaware (*replaced Senator Bennett for
MARK L. PRYOR, Arkansas June hearing)
JON TESTER, Montana ROBERT F. BENNETT, Utah*
PAUL G. KIRK, JR., Massachusetts* SUSAN M. COLLINS, Maine
EDWARD E. KAUFMAN, Delaware TOM COBURN, Oklahoma
(*replaced Senator Kirk for June JOHN McCAIN, Arizona
hearing) LINDSEY GRAHAM, South Carolina
Margaret Daum, Staff Director
Alan Kahn, Counsel
Molly Wilkinson, Minority Staff Director for Senator Bennett
Bill Wright, Minority Staff Director for Senator Brown
Kelsey Stroud, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator McCaskill............................................ 1, 33
Senator Bennett.............................................. 2
Senator Brown................................................ 34
Prepared statement:
Senator Bennett.............................................. 69
Senator Brown................................................ 94
WITNESSES
Thursday, February 25, 2010
Ralph C. Nash, Jr., Professor Emeritus, Frederick J. Lees, E.K.
Gubin Professor Emeritus of Government Contracts Law, The
George Washington University Law School........................ 6
Marshall J. Doke, Jr., Partner, Gardere Wynne Sewell, LLP........ 8
Steven Schooner, Associate Professor of Law and Co-Director of
the Government Procurement Law Program at The George Washington
University Law School.......................................... 9
Joshua Schwartz, E.K. Gubin Professor of Government Contracts
Law; Co-Director of the Government Procurement Law Program,
Faculty Chair of the Presidential Merit Scholars Program, The
George Washington University Law School........................ 11
Wednesday, June 30, 2010
John K. Needham, Director, Acquisition and Sourcing Management,
U.S. Government Accountability Office.......................... 37
Hon. Daniel I. Gordon, Administrator, Office of Federal
Procurement Policy, U.S. Office of Management and Budget....... 40
Steven J. Kempf, Acting Commissioner, Federal Acquisition
Service, U.S. General Services Administration.................. 42
Richard K. Gunderson, Deputy Chief Procurement Officer, U.S.
Department of Homeland Security................................ 44
Diane J. Frasier, Director, Office of Acquisition and Logistics
Management, National Institutes of Health, U.S. Department of
Health and Human Services...................................... 45
Alphabetical List of Witnesses
Doke, Marshall, J., Jr.:
Testimony.................................................... 8
Prepared statement........................................... 74
Frasier, Diane:
Testimony.................................................... 45
Prepared statement........................................... 136
Gordon, Hon. Daniel I.:
Testimony.................................................... 40
Prepared statement........................................... 116
Gunderson, Richard K.:
Testimony.................................................... 44
Prepared statement........................................... 133
Kempf, Steven J.:
Testimony.................................................... 42
Prepared statement........................................... 127
Nash, Ralph C., Jr.:
Testimony.................................................... 6
Prepared statement........................................... 71
Needham, John K.:
Testimony.................................................... 37
Prepared statement........................................... 96
Schooner, Steven:
Testimony.................................................... 9
Prepared statement........................................... 80
Schwartz, Joshua:
Testimony.................................................... 11
Prepared statement........................................... 85
APPENDIX
.................................................................
Questions and responses submitted for the Record from:
Mr. Needham.................................................. 141
Mr. Gunderson................................................ 143
Mr. Kempf.................................................... 148
Mr. Gordon................................................... 152
Ms. Frasier.................................................. 154
INTERAGENCY CONTRACTS: OVERVIEW AND
RECOMMENDATIONS FOR REFORM--PART I
----------
THURSDAY, FEBRUARY 25, 2010
U.S. Senate,
Ad Hoc Subcommittee on Contracting Oversight,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:32 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Claire
McCaskill, Chairman of the Subcommittee, presiding.
Present: Senators McCaskill and Bennett.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. I want to open this hearing and begin by
thanking the incredibly important witnesses we have today. I do
not know how many people there are in this town that have great
respect for all of you and the work you do, but I am one of
them because this is an area that I care deeply about and have
tried to really wade in, in this area, since I arrived in the
Senate. So I know all of you by reputation, although I do not
know you personally, and it is great to be here with you today,
and I look forward to being informed by your testimony.
We are here today to examine the rapid growth in
interagency contracts. One of the principal functions of this
Subcommittee is to ensure that government contracting is as
efficient and effective as possible, and hopefully this hearing
will help us further that goal.
Interagency contracting refers to the practice where
agencies buy goods and services from, or on behalf of, other
Federal agencies. They do this through a variety of types of
contracts and other arrangements with a bewildering number of
acronyms. I am glad that I am on the Armed Services Committee
because that is where you go to ``Acronym University,'' since
the Department of Defense cannot speak without at least three
acronyms in every sentence. So I have good training to deal
with the area of interagency contracting.
Some types of interagency contracting, like General
Services Administration's Federal Schedules program, have
existed for decades. Many others were created or developed
within the last 15 years. When I first came to Washington, out
of the auditor's office in Missouri, I had no idea that most of
these types of contracts even existed. Frankly, most Americans
have no idea these contracts exist. And let me go a step
further; most Members of Congress do not know that these
contracts exist.
I imagine that the overwhelming majority of people outside
of this room have never heard of a MAC or GWAC or a franchise
fund, and I imagine that many of them would be as astonished as
I was to learn that many agencies are now in the business of
making a profit from charging other agencies to use their
contracts.
Over the years, interagency contracting has been promoted
as a way to streamline contracting, increase efficiency and
leverage the massive spending power of the Federal Government.
This does have the potential to result in lower prices for the
government and savings on behalf of the taxpayer. That is good
news for everyone. But from what I can see, interagency
contracting does not necessarily seem to have gotten us there.
First, there has been a massive increase in interagency
contracting vehicles. I am somewhat troubled that all the
discussion and effort at Federal agencies have focused on
simply creating more vehicles, not whether the additional
vehicles are necessary or whether the existing vehicles are
necessary on getting us from Point A to Point B in an efficient
and effective manner.
I am also concerned that interagency contracts may not be
resulting in lower prices, both because there may not be enough
competition and because the negotiated prices are too high.
And I am unaware of any analysis that has been done to
demonstrate that these types of contracts are actually
improving government contracting. One reason for this is that
there is almost no data available that would allow anyone to
draw those conclusions. As a result, the government, Congress
and the taxpayers are in the dark about these types of
contracts, and we remain in the dark despite the
recommendations of the Government Accountability Office (GAO),
agency inspectors general and the distinguished SARA Panel,
that government agencies collect and publish this kind of
information. Why is this taking so long?
At a conservative estimate, interagency contracts now
represent hundreds of billions in the government's budget, and
that is way too much money to lose sight of.
I intend to ask these questions and more at today's
hearing. We are joined, as I said before, by a panel of very
distinguished legal scholars and practitioners who have studied
interagency contracting for decades. I hope that their
testimony will help us get a clearer picture of how and why
Federal agencies use interagency contracting and what steps we
should be taking to make sure that it works the way it should
and works in a way that saves the taxpayer dollars.
Later this year, I intend to call officials from the GSA,
the Office of Federal Procurement Policy (OFPP) and other
responsible agency officials to a subsequent hearing to address
what we learn here today.
I want to thank our witnesses, and I look forward to your
testimony and to our discussions.
And now I would like to turn it over to my colleague, the
Ranking Member of this Committee, Senator Bob Bennett.
OPENING STATEMENT OF SENATOR BENNETT
Senator Bennett. Thank you very much, Madam Chairman.
As I have mentioned before, when I graduated from college,
I began my business career as a purchasing agent. I did not
think when I left that particular assignment that I would be
here reliving those kinds of experiences as a U.S. Senator, but
interesting things happen to us in life.
Let me start out with the macro of what we are talking
about. In fiscal 2009, the Federal Government spent over $536
billion on goods and services. Now that number is thrown around
Washington almost to the point of abstraction. That is a little
over half a trillion.
Let's put it into perspective. That means that the Federal
Government purchasing comprises 3.7 percent of GDP, and if we
were an economy all by ourselves, just the government, we would
rank 18th in the world, bigger than all the other countries
below that number. And to compare our spending to the private
sector, to take the largest company in the world, $536 billion
is nearly $150 billion greater than the total revenue of Wal-
Mart. We are the largest consumer in the world.
All right, now let's go from the macro to the micro. We are
all familiar with the basic buying and selling of goods, and we
know that if you are purchasing at a large scale you usually
expect a break in the price from the seller. As the largest
purchaser in the world, the Federal Government expects to get
these same kinds of wholesale prices. In fact, it should be
receiving some of the best prices for goods and services
available to anybody in the marketplace, and that is at the
core of the hearing today on interagency contracts.
Is the purchasing power of the Federal Government being
used efficiently, and are the systems that have been developed
and expanded in recent years the most efficient way for the
Federal Government to buy stuff?
And, of course, this goes to the fundamental question that
we as politicians have to answer: Are these contracts yielding
the best cost savings for the American taxpayers who sent us
here?
Well, encouraging business to sell to the Federal
Government is an essential part of these cost savings, and it
is my belief that the greater competition gained through the
participation of new companies in the marketplace, who come in
saying we can do better than your present supplier, will have a
greater effect on the price that the government pays than its
aggregated purchasing power. With a greater number of companies
competing for the government dollars, the Federal Government
should have access to the best goods and services available, at
the best price, and the efficiencies of the market yielding
significant cost breaks and savings to the American taxpayer.
Unfortunately, having been a businessman who has looked at
the issue of selling to the government, I know from firsthand
experience and from that of my constituents that many
businesses, and small businesses in particular, find the
barriers to entering the Federal marketplace simply too large
to overcome. I have said it before--I will say it again I am
sure--the Federal Government's complicated procurement system
is simply too difficult to navigate. It keeps potential vendors
out. And, from the perspective of small business, it is too
costly, it is too slow, and it is confusing.
And I will confess as a business consultant, on occasion
when someone has come to me for advice as to where they can
seek new markets, I have told them stay away from the Federal
Government. It will cost you too much money and too much grief.
It troubles me that I think that was good advice.
Now it also troubles me that when we seek a serious cost-
benefit analysis of the interagency contracting, we do not
really know quite where we are. Three years ago, the SARA
Panel, to use the acronym that the Chairman has used, published
a seminal report on interagency contracts, and today we still
find the government struggling to implement that panel's most
basic recommendations. For example, the panel recommended a
comprehensive database that would list the interagency
contracts in place and assist agencies in making prudent
businesslike decisions, and 3 years later the database is not
only not here, it is not even in development.
Now I have said in previous hearings that the serious
analysis of acquisitions cannot take place until we replace the
anecdotal evidence of the status quo with serious empirical
analysis. I hope this panel--you are billed, I think
appropriately, as some of the best minds on this topic--will be
able to give us some ideas on how we do that.
Now interagency contracts, I have discovered, have existed
in various forms for nearly 80 years. The most famous example,
of course, is GSA schedules. Today, there is a panoply of
large-scale contracts that do a wide range of purchasing, a
wide variety of purchasing, and I am sure some of these other
large-scale contracts are necessary, especially ones that are
tailored to the unique needs of the agencies that have a
specific mission.
But I am suspicious that some of these contracting vehicles
have grown, both in number and in size, simply because the
agencies want to protect their turf--that using them is easy,
facile, and that the sponsoring agency believes it can save
money through creating their own expertise even when the fees
for other programs, like the schedules, are in fact fairly
modest.
So we have seen time and again in acquisitions that
agencies tend to focus on their own missions and interests, but
in doing so subordinate the interest of what is best for the
entire Federal Government. Once again, without a full
accounting of what interagency contracts are out there and what
they do and how much they cost, we are left with merely
speculating as to whether or not this wide array of contracts
is the most efficient way for the government to make its
purchases.
So I am eager to get the panel's perspectives on these
points, Madam Chairman. I thank them for being here. I thank
you for calling the hearing, and look forward to sharing the
panel's perspectives with the agency witnesses at the next
hearing that we will have.
Senator McCaskill. Thank you, Senator Bennett.
Let me introduce the witnesses. The first witness is Ralph
C. Nash, who taught at George Washington University Law School
from 1960 to 1993, when he retired to become Professor
Emeritus. In 1960, he co-founded the university's government
contracts program. Professor Nash now serves as a consultant
for government agencies, private corporations and law firms,
and is the author and co-author of numerous foundational case
books and articles on government contracting. In the 1990s, he
was a member of the DOD Advisory Panel on streamlining and
codifying acquisition laws, also known as the Section 800
Panel. Professor Nash is a renowned expert on government
contracting, and I am pleased to welcome him here today.
Marshall Doke, Jr. is a partner specializing in government
contracts in the Dallas office of Gardere Wynne Sewell, LLP.
Mr. Doke previously served on the Acquisition Advisory Panel
created by the Services Acquisition Reform Act (SARA), and also
is President of the U.S. Court of Federal Claims Bar
Association. Mr. Doke has been described by leading legal
publications as the Nation's top government contracts lawyer.
Steven Schooner is an Associate Professor of Law and Co-
Director of the Government Procurement Law Program. Before
joining the faculty, Professor Schooner was the Associate
Administrator for Procurement Law and Legislation, a senior
executive service position at the Office of Federal Procurement
Policy. He is a member of the Board of Advisors of Certified
Professional Contracts Managers, and serves on the Board of
Directors of the Procurement Roundtable.
Joshua Schwartz is the E.K. Gubin Professor of Government
Contracts Law at The George Washington University Law School.
Professor Schwartz has been at the law school since 1985 and
has been Co-Director of the LL.M. Program in Government
Procurement Law since 1992. Professor Schwartz also served as a
member of the Acquisition Advisory Panel. He is the author of
many articles and book chapters on the subject of procurement
law.
It is the custom of the Subcommittee to swear in all
witnesses that appear before us. So, if you do not mind, I
would ask you to stand and swear that the testimony you give
before this Subcommittee will be the truth, the whole truth,
and nothing but the truth, so help you God.
Mr. Nash. I do.
Mr. Doke. I do.
Mr. Schooner. I do.
Mr. Schwartz. I do.
Senator McCaskill. Thank you all very much.
We will be using a timing system today, although I am so
grateful to have you all here. I am not going to do what a
court reporter did to me one time in the courtroom when, as I
kept talking and the time had gone over, she shouted to me,
have you looked at your watch? I will not do that to you.
We would ask you to try to keep your testimony to no more
than 5 minutes, and your written testimony obviously will be
printed in the record in its entirety.
And, Professor Nash, we will begin with you.
TESTIMONY OF RALPH C. NASH, JR.,\1\ PROFESSOR EMERITUS,
FREDERICK J. LEES, E.K. GUBIN PROFESSOR EMERITUS OF GOVERNMENT
CONTRACTS LAW, THE GEORGE WASHINGTON UNIVERSITY LAW SCHOOL
Mr. Nash. Thank you very much. I agree with what I have
been hearing so far, almost completely. I am not sure that--you
may know more about this than I do.
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\1\ The prepared statement of Mr. Nash appears in the Appendix on
page 71.
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Let me just point out, one, what I think is a factual thing
that is very important, and that is that you talk about going
back to 80 years, the Federal Supply Schedule, but that was a
Federal Supply Schedule. And if you are going to buy paper or
pens or that kind of stuff, presumably you can induce people to
give you a pretty good price if it is for the whole Federal
Government, in theory.
And remember we used to have mandatory schedules. We used
to have schedules where you had to buy, and fill requirements
contracts. They are all gone now.
The big thing that has happened that is really important is
that what we are buying on these interagency contracts now is
primarily services, and the Federal Government does not know
how to buy services. I think you could say almost unequivocally
that we do not. There is no guidance on services. If you look
at Part 37 of the FAR, it is almost totally useless; that is
the part on services. It says virtually nothing that is any use
to anybody.
So what we have done is to transpose, I think, supply
buying ideas to service buying ideas. For example, we say that
the prices on the Federal Supply Schedule have been determined
by GAO to be fair and reasonable. Well, what price is on a
Federal Supply Schedule for services? It is a fixed labor rate,
which has virtually nothing to do with whether what the
government ultimately is going to pay.
I mean I can pay a $50 fixed labor rate to somebody who is
not very competent, who will spend 10 hours to get a job done,
where I could pay $100 fixed labor rate to somebody who is
really competent and could do the same job in 2 hours. So we
have transposed our logic from supplies to services, I think,
without really thinking through what this is all about.
Now having said that, which just sort of underpins, I
think, thinking about this, it seems to me that what we need to
do is identify what the goals are for our interagency
contracting.
Senator McCaskill, you mentioned one of them which is
trying to accumulate government needs, so we get better prices,
and I think that perhaps is one of the goals. I have about as
much skepticism as you do, I believe, as to whether we have
actually gotten any better prices by accumulating those needs,
if we have accumulated needs. I am not even sure we have in
some cases.
We have had some line of business initiatives which are a
little bit outside interagency, where we have tried to do some
of that, and people are making efforts in that regard, but I
would guess that most interagency contracts do not really
accomplish that purpose very well.
Another possible goal would be to set up some agency that
is so good at buying a certain class of things, whatever. IT
would be the GWACs IT. It seems to be probably one of the goals
of the GWACs in the Clinger-Cohen Act was to somehow get
somebody who is competent to buy IT. I am still searching for
that somebody.
What we have in lieu of that, we seem to have a lot of
people who set up GWACs and various other forms of interagency
contracting including Schedule 70 on the Federal Supply
Schedule, but I am not sure anybody has shown competence.
So, again, if that is a goal, then we need to pin that down
and say, all right, fine, who is it?
And it probably should not be 10 different agencies. If
somebody is really good at buying IT, remember the old Brooks
Act, that was the theory of Jack Brooks. How many years ago was
that? Forty, 50 years ago. It did not work because GSA
delegated the procurement right back to all the agencies. They
could have picked up the ball and run with it. It would have
been fabulous, but they did not do it.
So that is another goal.
The one goal that I think was underlying some of the things
that happened in the 1990s was this idea that if we could get
contracting officers to compete with each other, that we would
make the contracting officers better. And I can guarantee you
if that was anybody's idea, that was wrong. It did not make
anybody any better. What it created was a lot of requirements
people running around their own contracting office, which they
should not have been doing. DOD has seen that and remedied that
problem, I think.
I do not know about the other agencies. I am not sure about
the agencies you are looking at.
But issue No. 1, what are we trying to accomplish? If we do
not figure that out, I do not think we will ever make sense of
interagency contracting. So that is where I would start.
Then once I had figured that out, then I try to figure out,
all right, who can do that? Who can actually do that? Who can
get me better prices? Who can create the expertise? Who can
build that kind of expert?
One of the franchise funds, if you go back and look at the
Web site--and I am probably beyond my time. One of the
franchise funds, when their Web site first came out, they
basically said, we can buy everything better than anybody else.
Now the government buys a lot of everything, right--
construction, services, supplies, weapon systems. Nobody can
buy everything better than anybody else, and that is
preposterous to even have put that on the Web site. Somebody
should have read that Web site and said, you are out of
business, because that cannot be.
I agree with you. We need what the panel recommended. Look
from the point of view of companies. We have created a hunting
license world, right, and the companies have to have a lot of
hunting licenses. It is crazy. It does not make any sense.
Senator McCaskill. Thank you very much, Professor Nash. Mr.
Doke.
TESTIMONY OF MARSHALL J. DOKE, JR.,\1\ PARTNER, GARDERE WYNNE
SEWELL, LLP
Mr. Doke. Good afternoon, Chairman McCaskill and Ranking
Member Bennett.
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\1\ The prepared statement of Mr. Doke appears in the Appendix on
page 74.
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I first want to say that I am a past president of the Court
of Federal Claims Bar Association. The current president might
give me a bad time if I do not correct that on the record.
My written statement discusses the Acquisition Advisory
Panel's work on interagency contracts. This afternoon, however,
I want to limit my remarks to a brief summary of my
supplemental comments on improving competition, which you asked
me to address and which are included in the Advisory Panel's
Report that is on the Internet.
What is competition? All real or fair competition--whether
it is sports, gambling, or contracts--must have rules, and
those rules must be disclosed, and then the rules must be
enforced. The rules tell you what is required and what you must
do to win, how you will be scored.
My view is that we do not have real competition today in
the competitive proposal or best value method of government
contracting. The fact that we call it competition does not make
it competition. As Abraham Lincoln said, you can call a dog's
tail a leg, but it is still a tail.
We have had requirements for competition for government
contracts for over 200 years in order to prevent fraud,
favoritism, and collusion. I believe we have had more reported
fraud in government contracts in the last 10 years than we have
had in the previous 40 years combined.
And I believe that some of this increase is attributable to
the use of, and the deficiencies in, the best value, or
competitive proposals, method of procurement. By the way,
competition is a subset of interagency contracts. Many of them
are required to use the same rules of competition as any other
agency is for any contracting.
In the sealed bidding method, price and price-related
factors are the sole basis for award of the contract. Bids are
publically open, and there is not much chance for fraud unless
it is the bidders who are colluding.
In competitive proposals, price is only one factor, and the
procurement regulations place no limitation specifying the
percentage or weight that must be given to price. It could be
90 percent or it could be 10 percent. The number of other non-
price evaluation factors can be 10, 20, or 30 percent,
sometimes even more, and each can be highly subjective. These
factors often are related to financial strength, years of
experience, and management capability.
The relative weights of evaluation factors are disclosed to
the competitors, but there is no requirement to disclose the
specific percentages the government evaluators will use. The
use of non-price factors in evaluation allows agencies to award
a contract and pay more money to an offeror more highly rated
on non-price factors than other competitors offering lower
prices. That difference between the lowest price offered by a
technically acceptable proposal and the contract award price
for the higher rated proposal is called a price premium. That
is the premium or higher price paid by the government resulting
from consideration of these non-price factors and subfactors.
The Federal Acquisition Regulation provides absolutely no
guidance on what, which, or how many evaluation factors can be
used, the relative importance that should be given to the
various factors, even any limitation on the maximum percentage
that can be paid for a price premium in selecting the awardee.
Price premiums must be justified in the contract file, but
there is no requirement, financial, or other management report
to anyone above the contracting officer level regarding the
amounts of these price premiums that agencies are paying for
these non-price evaluation factors.
Supreme Court Justice Brandeis said that sunshine is the
best disinfectant. I believe there is something this
Subcommittee can do that will save our government more money,
sooner, than anything else you possibly could do, and that is
recommend legislation requiring that contracting officers
report for all contracts, including interagency contracts, the
amount of all price premiums paid to the next higher management
level, and go up the agency chain to the department level and
be made subject to public inspection. I predict that such a
requirement would have a dramatic impact on reducing the
amounts of these price premiums.
Now I do not mean to imply that paying price premiums is
sometimes not appropriate and needed, but there should be some
regulatory guidance or limitations on those payments.
I hope you will also consider the discussion in my written
statement about how the deficiencies and competition process
are adversely affecting our small business concerns.
Senator Bennett, this is one of the biggest obstacles that
small business concerns have to overcome in competition, and
that is overcoming the inherent advantage that large, giant
businesses have because of putting these responsibility type
evaluation factors, and this is discussed in my written
material.
And I thank you for asking me to be here today.
Senator McCaskill. Thank you very much. Professor Schooner.
TESTIMONY OF STEVEN SCHOONER,\1\ ASSOCIATE PROFESSOR OF LAW AND
CO-DIRECTOR OF THE GOVERNMENT PROCUREMENT LAW PROGRAM AT THE
GEORGE WASHINGTON UNIVERSITY LAW SCHOOL
Mr. Schooner. I appreciate the opportunity to discuss the
government's ongoing need to effectively manage interagency
contracts. But as I sit here with Mr. Nash to my right, I have
to take just a moment to mention that last Thursday evening
nearly 500 people joined in the historic Mellon Auditorium
while we recognized Mr. Nash and celebrated 50 years of
government contract law at the George Washington University. It
was a great event.
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\1\ The prepared statement of Mr. Schooner appears in the Appendix
on page 80.
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Most of what I am going to do in starting will actually
echo some of the things Mr. Nash said anyway. Centralized
purchasing, particularly of commodities and certain types of
nonpersonal services, is a globally accepted practice,
particularly when governments can achieve economies of scale.
Governments also routinely employ centralized purchasing where
one agency's unique experience can benefit other agencies. But
as we sit here today, there is no experience that suggests that
competition between agencies to provide these services,
particularly for a fee, is going to help anything, and in fact
we know that it introduces externalities--unanticipated
incentives and disincentives--into the procurement process.
Fee-based purchasing offices need revenue to survive. The
pursuit of fees, rather than any congressionally mandated
mission of serving the public, therefore drives these
purchasing organizations. As a result, these vehicles routinely
produce insufficient competition and poorly justified sole-
source awards.
In theory, there was supposed to be competition to get into
the umbrella contract. Unfortunately, that never materialized.
In effect, firms are granted a hunting license, as Mr. Nash
pointed out, and similarly no competition or real competition
is also absent at the task order stage. Because all of the
contract holders can market their services directly to
individual agencies, those agencies frequently will obtain
those services on a sole-source or noncompetitive basis because
it gives them greater speed, more convenience, personal
preference or, simply, human nature basically says why deal
with the bureaucracy if I can bypass it.
This has created a race to the bottom. The fee-based
purchasing instrumentalities lack a sufficient stake in the
outcome of the contracts they award. A program manager at the
purchasing agency will willingly pay a franchise fee to a
servicing agency to avoid bureaucratic constraints, like
competition, that might slow down the process.
In turn, the servicing agency has no vested interest in the
purpose of the procurement, will gladly streamline the process,
and are often more than willing to permit personal services
contracts for employee augmentation.
Once the contract is awarded, the servicing agency has no
interest in administering, nor does it have sufficient
resources to manage those contracts. The post-award contract
management vacuum that we have seen created may be the most
pernicious effect of the proliferation of these vehicles.
Finally on this, the vehicles simply lack or fail to meet
the high standards for transparency that we aspire to in our
procurement system.
Now we have Mr. Doke and Mr. Schwartz here. Since 2005, GAO
added the interagency contracts to the high-risk list--step in
the right direction. The AAP, the 1423 panel, their
recommendations moved the ball in the right direction as well,
but there is plenty of room left for improvement.
In my written statement, I summarized a couple of
anecdotes. In the interest of time, I will skip them, but I do
want to just mention the anecdote from the Abu Ghraib prison,
where the military ended up relying on one of these vehicles
that was managed by the Department of Interior's National
Business Center. They used contractor personnel to assist in
interrogations in Iraq and Guantanamo Bay.
The inspector general basically just hit the nail on the
head, indicating that the pursuit of fees distorted the moral
compass that we would otherwise hope would animate our
procurement officials, and here is what he said: ``The inherent
conflict in a fee-for-service operation, where government
procurement personnel, in the eagerness to enhance organization
revenues, have found shortcuts to Federal procurement
procedures and procured services for clients whose own agencies
might not do so.''
I mean it seems to me this is a fundamental problem.
Before I close, however, I do want to indicate that, as has
been suggested and I think you will hear more of this from Mr.
Schwartz, much of the problem that underlies why we have relied
on these vehicles so much is that we have huge problems in the
acquisition workforce. And on that regard, I want to applaud
both of you for S. 2901, the Acquisition Workforce Improvement
Act of 2009. Obviously, that will not fix any of these problems
today, but if we can have legislation like that, forward-
looking legislation where we can invest in the acquisition
workforce and do better, maybe we will not be having the same
discussion a generation from now.
Thanks for the opportunity to be here.
Senator McCaskill. Thank you, Professor. Mr. Schwartz.
TESTIMONY OF JOSHUA SCHWARTZ,\1\ E.K. GUBIN PROFESSOR OF
GOVERNMENT CONTRACTS LAW, CO-DIRECTOR OF THE GOVERNMENT
PROCUREMENT LAW PROGRAM, FACULTY CHAIR OF THE PRESIDENTIAL
MERIT SCHOLARS PROGRAM, THE GEORGE WASHINGTON UNIVERSITY LAW
SCHOOL
Mr. Schwartz. Thank you, Chairman McCaskill and Senator
Bennett, for this opportunity to share my thoughts about the
challenges and opportunities associated with interagency
contracting by the U.S. Government.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Schwartz appears in the Appendix
on page 85.
---------------------------------------------------------------------------
I have had the opportunity to think about the potential for
interagency contracting and its problems, both in my research
and writing, as Co-Director of the Government Procurement Law
Program at George Washington University and for 2 years, along
with my friend Marshall Doke, as a member of the Government's
Acquisition Advisory Panel. There are several key points I
would like to make, and like my friend, Steve Schooner, I agree
with the things you have said, so I am focusing my attention
elsewhere.
First, interagency contracting is simply a tool. It is
neither inherently abusive as critics have sometimes suggested,
nor is it a panacea for all the ills of government procurement
as its fans have sometimes suggested.
I would rather think of it as like the proverbial miner's
canary. The mushrooming growth of interagency procurement
shines a sharp spotlight on underlying weaknesses and problems
in our procurement system. So the challenge for the Congress
and for the Executive Branch is to guide the use of this
procurement device so as to reduce abuse, increase competition,
enhance accountability, all in the use and management of
interagency contracts.
The rapid growth that we have already acknowledged, of
interagency contracting in the last 15 years, certainly
justifies the attention that these hearings are giving to this
sector of Federal procurement activity.
That said, it is my view that the most important things to
be done about interagency contracting, from where we now stand,
are not actually measures uniquely addressed to interagency
contracts. The key problem areas in my judgment relate to the
inadequacy of the Federal acquisition workforce and the need
for competition in contracting and to the need for sustained
attention to effective contract management. You have heard
something about each of these points from the other panel
members.
Although I strongly believe that we can significantly
improve the performance of the Federal acquisition system, I
think we can do so most effectively by investing in the Federal
acquisition workforce. It is a cliche, but I think an apt one
in this situation, to remember that an ounce of prevention is
worth a pound of cure. If we were as zealous going forward
about properly staffing the Federal acquisition function as we
have been in recent years in investigating what has gone wrong
with the government's contracting response to Hurricane
Katrina, to procuring the needs for our military in Afghanistan
and in Iraq, I think we would see better outcomes.
It may seem to you that I am trying to change the subject
here, from a focus on a particular acquisition technique to a
focus on the human infrastructure of Federal acquisition. But,
candidly, that is exactly where I think the focus needs to be.
If you look back at the last 30 or 40 years of the
evolution of the Federal Government's procurement process, I
think what you will see is that we have swung back and forth
like a pendulum between an emphasis on abuses that called for
additional regulation and an emphasis, particularly in the
1990s, on the excessive rigidities that called for more
flexibility in the operation of our system. And I think there
was in fact a time and a role for each of these policy
responses. But I think we have reached a point at which we
would be better served, and the taxpayers would be better
served, if we could damp down this oscillation and that the
challenges that face us today primarily require better
implementation of existing procurement mechanisms and do not
call for radical new solutions.
Let me offer three illustrations of how problems that
appear to be about the use of interagency contracts can be
ameliorated by solutions that appear to be about the
acquisition workforce.
First, agencies with adequate acquisition personnel will
not find themselves driven to use interagency contracts simply
because they lack the resources to do the procurement
themselves.
Second, if agencies receive adequate funding for their
procurement operations, they will not see the incentives that
Professor Schooner has referred to, that are far too common
today, to host interagency contracts simply as a means of
sustaining their own procurement operations and in effect
supporting other activities at their own agencies.
Third, agencies with adequate acquisition personnel should
be able to devote the resources necessary to the sustained and
careful management of the contracts that they enter.
I do not believe that contractors, as a class, are either
better or worse, more competent or more honest, or less
competent or less honest than the rest of the human race, but I
think it is completely unreasonable to expect that government
contractors will deliver sustained excellent performance unless
they know that the government is seriously committed to
monitoring their performance.
Last point, improvement to our Federal acquisition
operations really should not be a subject for partisan debate
or ideological division. This is not about whether markets or
government action are better means of fulfilling important
public needs.
Public procurement, by definition, is about the interface
of markets and public management. To an impressive degree, I
think, we have actually reached a consensus in the last
generation that important public needs can be well served by
securing goods and services from private enterprise and from
the market. But to make effective use of the productive
capacity and the problem-solving abilities of the private
sector, we need to invest in consistently effective public
management of our government contracts, and I do not think we
have done that adequately.
Thank you.
Senator McCaskill. Well, thank you all.
There is a lot here that I would like to get into, but let
me start with kind of a broad question. As I sit here thinking
about how to fix some of these things, the typical response in
government is, well, who is in charge of it? Where do I go to
get this fixed? What agency head do I call to talk to them
about this?
Now I know we have the Federal procuring policy office. But
should there be someone in charge of all this overseeing that
has not been done?
First of all, let's be honest. I mean you all are very
knowledgeable and interested in this. We are pretty interested
in it. I did not worry about every seat being full today in the
hearing. [Laughter.]
I did not worry about TV cameras knocking me over as I
walked in the door. This is a place that has the attention span
of a kindergartener. This is not some place that people spend a
lot of time trying to really get their teeth into something
that is this complex, this stovepiped, this disparate. It is
really hard for us to fix this thing.
So you all have years of experience in studying this and
understanding it. Where? Who? Other than us just doing
legislation, which sometimes is a little bit like spitting in
the wind, how do we find the right overseers, or do we have to
do this agency by agency and bust up the current system in
terms of some of these schedules and fee-for-service
operations?
Mr. Schooner. If we distinguish, beginning with just the
GSA schedule, I mean the obvious starting place here is at the
Office of Management and Budget. Now you mentioned the Office
of Federal Procurement Policy, but keep in mind if we take the
step forward after the economy act, a lot of this proliferation
comes from the Clinger-Cohen Act. And the bottom line is if we
again take it apart and go back to ITMRA, this is authority
that was vested at the Office of Management and Budget. They
were supposed to manage it.
And frankly, what happened was the OMB thought it was a
great idea. They expected this to be a hyper-competitive
environment, with competition to get onto the vehicles and then
competition at the task and delivery order level. It did not
materialize in the 1990s. And when Steven Kelman was still the
OFPP administrator he came forward and asked the people who
were managing these vehicles to enter into what he called at
the time a Mayflower Compact in which they would commit to at
least having fundamental competition, and it failed miserably.
But at the end of the day, the short answer to your
question is OMB can be tasked with managing this, and frankly
there is no reason why OMB should not be put in a position
where they ought to be shutting these vehicles down.
Senator McCaskill. And do you believe they can shut these
vehicles down without any kind of action on our part?
Mr. Schooner. Oh, yes.
Senator McCaskill. OK, that is good to know.
Mr. Nash. Well, are you saying they will?
Mr. Schooner. No, of course not.
Mr. Nash. I mean they will if somebody forces them.
I think we have tried chaos for 20 years, and I would say
that chaos has not worked all that well. We can probably all
agree on that. So the answer to your question is, yes, we need
leadership, absolutely.
In my written remarks, one thing that I recommended was
that if we establish an interagency, if we let somebody set up
an interagency contract to buy and they become a specialist,
let's say, that we ought to, somebody ought to certify them as
being a specialist.
One of the problems--I teach a lot of contracting officers.
I just came back last night, or this morning--I should have
come back last night--from teaching 30 contracting people, Navy
people. If you look at it from their point of view, and they
asked me to talk about task orders, it is bewildering for them
to know which vehicle to use. There is no catalogue out there.
I looked. I found an IG report, just stumbled on it a year
or so ago. I write a monthly newsletter, and I wrote it up
because at one interagency vehicle, the labor rates, the fixed
labor rates are nationwide. Right next door is another
interagency vehicle where the labor rates are regional.
Well, that makes a big difference if you are buying. In New
York City, you ought to buy off the nationwide.
Senator McCaskill. Right.
Mr. Nash. If you are buying out where Senator Bennett is, I
assume his rates are lower. You are probably better off buying
from the regional.
Senator Bennett. More efficient too.
Mr. Nash. But the normal contracting officer does not have
a clue that is the way it operates. So we have created--I mean
we really do have chaos. I do not know how you make somebody
manage something, but we need leadership, absolutely.
Senator McCaskill. It is fascinating to me that government
does not have to make it work at the bottom line. You cannot
add employees in a business until you have the revenue to add
employees, but we can add employees around here if somebody
thinks they have a good idea. And what a lot of these things
were someone's good ideas that have not, as they have been
executed, turned out to deliver what people thought they could
deliver.
Now what is fascinating to me is you have these agencies
that see getting more money for their agency as the end goal.
They completely lost sight that it has anything to do about
value of the contract.
Is there any place that you all think that we can go to get
a handle on which agencies have done the best job at (A)
marketing themselves to get more money for their agency, or--
well, let's just take that at this point.
Mr. Doke. Let me preface that by responding to your
previous question, and Mr. Nash said leadership is the problem,
and I think that is largely it. I think there is power that can
be used in the Office of Federal Procurement Policy.
The problem you have is that when the administrator tries
to exert that power, the reaction coming back from the other
agencies overwhelms him. He does not have the political stroke
to make it work. He issues a memorandum to the agencies, and
then the bigger agencies--you know there is an old saying, that
no person with a straight flush ever asks for a new deal. Well,
that is what happens. The agencies are happy with what they
have, so they overwhelm proposals for change.
Now you can go to the OMB, which can do that, but then
politics all over enters in. So it is largely exercising
leadership that is there and is necessary to straighten it out.
OMB or the administrator has the power to call for the
information necessary to make a judgment on, those issues, but
it has to be exercised.
Mr. Schwartz. And what you need is sustained attention to
these things. The reason I singled out the response to
Hurricane Katrina or Iraq/Afghanistan addresses the point you
raised about lack of attention span around here.
One of the great things of the last decade was that for a
brief time people outside the Beltway could understand that it
really made a big difference in the quality of their lives and
sometimes as to whether people lived or died, whether the
government was competently spending the money it had to spend.
We have seen some very disappointing results.
The problem is that you can engage people's attention for a
short time, but management, or legislation for that matter, in
reaction to the last scandal, is not going to do it.
So it seems to me I agree with the leadership argument. I
agree that the OMB and the Office of Federal Procurement Policy
need to focus attention, and they need to have backing at the
highest levels in the Executive Branch and from the Congress to
understand that this is attention that will continue to be
paid. It will not be shifted away when that headline is off the
front page.
But you also have to build from the bottom-up, and this is
where my acquisition workforce focuses in. You need leadership
on the top to insist on a higher level of performance and
sustained attention, and you need to hire and promote and pay
people who can master the very complicated procurement systems
that we have now built in this country. Essentially, what we
have done is keep adding, and we never subtract, so that to
master the procurement system today is just a very demanding
task, as Mr. Nash has insisted.
Mr. Schooner. Your question fundamentally begins with a
success metric, and the problem is we have totally polarized
metrics here. For the servicing agency, the only metric is the
generation of fees. For the purchasing agency, the attraction
of these vehicles is the ability to bypass bureaucracy and the
entire world of congressional and regulatory mandates.
Senator McCaskill. Right.
Mr. Schooner. And I think that the best example that your
Committee has familiarity with is what happened at the Homeland
Security Department. They did not have an acquisition
workforce. They had a tremendous reliance on these vehicles,
and this Committee eventually reined them in.
But if we were to look at the other side, and again I go
back to the point that Mr. Nash made about how we get into this
in the first place, economies of scale is a wonderful reason to
buy product in bulk or in volume. But there is no empirical
research that suggests that purchasing services generates
economies of scale, which begs the question, how did GSA grow
so dramatically in the last generation?
GSA has been marketing what they call commercial services.
So, in effect, rather than having people make good business-
based, value type assessments as to how to purchase services,
they go through the GSA filter, they pay the fee and they do
not have to do any thinking. They get whatever employee
augmentation they need, so they can have their personal
services contractor. That cannot be the way that we need to do
business in the long run.
Senator McCaskill. Senator Bennett.
Senator Bennett. Well, thank you, Madam Chairman.
This has been a fascinating discussion, and I have been
making notes and would like to get into virtually all of it.
Let me just share off the top of my head a few comments and
reactions, again out of my own experience. That is always
dangerous because it gets you into anecdotal stuff.
But one of the things I learned, you talked about buying
primarily services. I ran businesses that were entirely
services and learned very quickly and told my potential
customers a very fundamental truth: You want to go where your
account is important.
Now if you are Ford Motor Company, and you are looking for
an ad agency, you want to hire J. Walter Thompson, one of the
biggest in the world. I am using ancient circumstances here
rather than getting to where we are because Ford Motor and J.
Walter Thompson were an item for a long period of time.
If you are a relatively small operation in Salt lake City,
you do not want to hire J. Walter Thompson.
Mr. Nash. That is right.
Senator Bennett. The criteria you were talking about, Mr.
Doke, you might say, well, you have to take into consideration
the management, the experience and so on, and J. Walter
Thompson would always appear as the first choice. But you would
be far better off in a much smaller ad agency that could not
possibly handle Ford but where your account was very important,
and you would get the attention of the head of that agency, who
would probably be better than the very junior person J. Walter
Thompson might apply.
Of course, that is presumably the philosophy behind best
value, that you do not want to say, OK, we are going to create
a sufficient regulatory strait jacket that says you can only
buy this.
You are depending on--to your point, Mr. Schwartz--that the
person doing the purchasing has a little bit of ability, has a
little bit of capacity to make a judgment that says this is the
best one. Even though it may not be the best price, I am going
to an agency where my account is important. And how you do that
in the personnel pool that makes up the Federal purchasing
group becomes an enormous training problem.
I also felt when I was CEO of the company, my biggest
challenge was training my own people to do the right thing
rather than directing them to do the right thing because it was
a whole lot more efficient if they were trained and they made
the decision closer to the problem than if every decision had
to come up to me, and I would clearly, my obvious brilliance to
the contrary notwithstanding, make a whole lot more dumb
decisions than they would if they were properly trained.
All right, the conversation about OMB. I am one of the few
Senators who has worked in the Executive Branch, and I have
dealt with OMB, and I have learned that the law of inertia is
not just a law of physics--and not only the inertia at rest,
but far more pernicious is the inertia of motion. A body in
motion tends to stay in motion and in the same direction, and
this is the way we have always done it, and so this is the way
we are going to do it.
My own hobby horse is that in spite of the fact that the M
was put in OMB during the Nixon Administration, or during the
time I was in the Nixon Administration, it has never really
showed up.
Mr. Nash. That is right.
Senator Bennett. OMB is still Harry Truman's Bureau of the
Budget, and just putting another name in it and another initial
to its acronym does not mean that they spend very much time on
management.
The solution I have tried to peddle within the Congress,
Madam Chairman, has been to switch us to a 2-year budget
instead of a 1-year budget, so that they can spend 1 year
developing the budget and the other year on the M of OMB.
I give you the anecdote of the commandant of the Coast
Guard who was a good friend of mine. I was in the Department of
Transportation. The Coast Guard used to be there. The Coast
Guard gets kicked around more than any other agency. It starts
out in Treasury, goes to Transportation and ends up at Homeland
Security. Where are they going next?
When he became the commandant of the Coast Guard, he said,
now I can finally do the kinds of things the Coast Guard needs
to have done. And when I retired as the commandant of the Coast
Guard, I had accomplished none of them because I spent my
entire time preparing budgets.
Every year, there had to be a new budget. It had to be
prepared, and then it had to be defended. Then the year was
over, and a new budget had to be prepared and had to be
defended. I never got around to all of this.
Those are my reactions to the conversation that you have
had.
Now let me get to a specific question. I think this is
probably aimed at you, Professor Schooner. Let's talk about
another regulation that will go in, that in my opinion will
interfere with management, intelligent management. I am letting
my prejudice here advance the question. But are you familiar
with the high road labor preference?
Mr. Schooner. Alas, yes.
Senator Bennett. Alas, yes. All right. I think maybe we are
on the same page. Would you give us your understanding of it
and how you think that would impact this quality I have been
talking about of having intelligent people properly trained to
make the right kind of decision, or does it put a strait jacket
on circumstances that will make the procurement process worse?
Mr. Schooner. So, in a nutshell, the underlying theory
behind high road contracting as it has been articulated, is
that the Federal Government would give an evaluation
preference, would give a leg up to firms that paid their
employees higher than the minimally required wages under the
relevant labor minimum standard for that type of contract. So,
in effect, the theory is that the firms that paid their
employees the most would be competitively advantaged when they
competed for government contracts.
Again, I may have signaled this, but I find this terribly
frustrated. The Administration has been in office now for a
year. They have spent a disproportionate amount of their energy
in the public procurement space, focused on using the public
procurement process to benefit union members and other special
interests, and it simply does not make any sense.
On the one hand, it is simply inconceivable that the
government would incentivize a contractor to pay its workers
more, particularly in this economy. I mean the bottom line is
the government should be getting bargains because we have
excess capacity out in the workplace.
But I think that the real issue here that is the most
frustrating is if you were to ask what the government should be
focused on, the government should be focusing on getting the
greatest value for its money in everything that it purchases.
And the secondary consideration for that, which is actually the
same, is the government should be trying to maximize the
customer satisfaction of the agencies that are spending that
money. The bottom line is the redistribution of wealth, rather
the generation of value, is simply the wrong path to take in
public procurement.
Senator Bennett. Mr. Doke.
Mr. Doke. Let me comment on what I will call the elephant
in the room in best value procurement. What people do not think
about is that no government contract can be awarded anywhere,
by anybody, unless the contracting officer makes an affirmative
finding of responsibility. Now the regulations cover a number
of factors in responsibility, but what it boils down to is the
contracting officer must decide that this person can perform
the contract satisfactorily.
Now if that is true, if offerors can do that, then if you
are paying more money to someone who has a higher rating on
management capability, on financial strength, on experience,
more years of experience, what you are doing is saying this
person can perform the contract more than satisfactorily.
If you do that, you are paying for more than you need. It
means that the government has not described what
``satisfactory'' is, if it is higher than you need, and the
minimum needs doctrine has almost been forgotten in government
procurement. That doctrine says that the government cannot buy
what it wants; it can only buy what it needs.
It is limited to what it needs. Why? Because, in 99 percent
of the cases, the only authority to contract comes from
Congress, and it is from your appropriation of money. It is
implied authority, and you cannot imply that Congress intended
for the government to buy more than it needs.
But we forget it when you pay the price premiums, when you
pay the very large businesses more because they have more
experience than the small business concern, and so forth. In
best value procurement, you even can give added points for
exceeding the specification. Now, if you give more money to
somebody for exceeding the specification, and you do not even
have to disclose it in RFP, then you are paying money for
things you do not need, and that is just part of this problem
that is causing some of the dilemma we see today.
Senator Bennett. Anyone want to comment on that?
Mr. Schwartz. I guess I have a somewhat different view. I
have learned to disagree with my friend, with diffidence, but I
guess I think I am coming out in the middle on the spectrum
here. That is, as I tell my introductory classes, if it is your
brother or sister jumping out of the airplane, you do not want
the government to buy the cheapest parachute it can get.
And yes, there is a role for specifications, and there is a
role for responsibility, but I just do not accept the view that
there is nothing to be measured and that in the private sector
we would not take into account things that are not always
wholly tangible, that enter into quality and value for the
taxpayer.
The high road program takes this a step further, and it
does not say you can exercise some judgment. It mandates the
way you are going to exercise that judgment, and that is what I
take to be controversial. So I do think there is a role for
contracting officers, and I am not looking to write a lot more
regulations to constrain that judgment.
The other thing that I think is important to say is if you
give people judgment, it is not true that they will never make
mistakes. But if you do not give them any discretion, they will
always make mistakes.
Mr. Nash. Let me comment on Marshall's thought. I do not
agree with the way Marshall said it, but he did a look at GAO
decisions in 1996, I think it was, and he could not figure out
what the government was getting for the additional dollars that
they paid on these individual procurement decisions. And it is
hard to figure out from a GAO decision because they do not give
you an absolutely full description of the procurement.
I did the same thing in 1997, because I wanted to see what
he saw, and I looked at 44 decisions where the government had
paid more in that particular year, and I agreed with him. I
could not figure it out either.
His recommendation that people--I have no problem with
paying more for something, but my perception is that an awful
lot of contracting officers think that best value means we
should pay more, and in a lot of cases it is wrong.
If you read the GAO decisions, it is fascinating. For
example, in the newsletter, I took the last nine decisions
where the tradeoff was between past performance and price. Past
performance is a way to evaluate the risk of nonperformance,
right. If somebody has not done well in the past, there is a
risk that they might not do your job well.
In eight of the nine decisions, the agency had paid more
for better past performance. In a few of the cases, they had
paid 15 or 20 percent more for very small differences in past
performance--the difference between very good and excellent,
for example. It makes you wonder.
I agree that we ought to have a bunch of wonderfully
competent contracting people out there, but it is going to take
a long time to get there.
I think Marshall's suggestion is an excellent one, that if
we just use transparency and put that data out there in the
open--how much more did you pay and what did you get for it--I
think that would do a great deal to cast light on this system
of how we are buying things, just what kind of decisions. It is
great to have a lot of discretion, but we ought to take a look
every once in a while and see how that discretion is being
exercised.
Senator Bennett. Right.
Mr. Doke. Let me mention that I am certainly not against
best value procurement. That term was introduced into our world
as a marketing tool by a former OFFP administrator. We have had
that type of procurement for 50 years. It started as cost-
technical tradeoffs, but we have had the method for a long
time.
You had to have best value procurements in some cases
because, sometimes, the government cannot describe its needs
adequately. Research and development contracts, many other
things, they just cannot describe it adequately. So the
technical aspect of it was extremely important.
Certainly, when you have that, sometimes the government
needs to buy more than what is satisfactory. You need the best,
the very best, and a technical evaluation is necessary. And
price premium certainly was appropriate in those cases, where
you need the best--health, safety, security, and so forth.
But it is in these other areas where these evaluation
factors are placed that really exclude small businesses, put
them out of the game totally because they really relate to
responsibility. The government can set its own standard for
what is required to perform satisfactorily, and that is
``responsibility.'' And if it does that, you do not need those
factors to do it comparatively.
Senator Bennett. Anyone on this one? I have more, but we
will go back to you, Madam Chairman.
Senator McCaskill. OK. I will take one. We will go every
other one, how is that, until we get worn out.
Parking of funds, that is one of the unintended
consequences of what we have, the chaos that we are living
through as it relates to interagency contracting, that and the
notion that they are supposed to be giving back to the Treasury
Department whatever they are collecting that is over and above
what they are due, based on direct and indirect costs of what
they are executing. Any comments on this phenomenon?
One of the things that is scary about this is we have a
couple of GAO reports where they found this, but we do not have
anything that is overarching as to how common this is. Do you
all have a sense that we are having anti-deficiency violations
on an annual basis as the end of the fiscal year rolls around
and everybody looks for some place to park money?
Mr. Schooner. Yes, but they are not really Anti-Deficiency
Act violations because the way the system has been set up, it
is a tolerated practice. It was never intended. I mean I think
that my written testimony has all the cites in there. But the
bottom line is there is supposed to be a bona fide need in the
fiscal year.
But because of the nature of the revolving funds, one of
the things that the servicing agencies are offering to the
other agencies is do not let your money expire. Just tell me
what you think you want next year. Park it with me, and we will
figure out what you want to spend it on next year.
I mean there is plenty of GAO reports on this. And once
again, if you decided that you wanted OMB to actually manage
this, they could manage it.
Another way to deal with it is to simply have, and again
there is plenty of audits going on, on a million different
things, but you could simply shut down the agencies that do it.
Just shut them down. There is no reason for it whatsoever. It
is just one more pernicious effect of a vehicle. It is a race
to the bottom.
Senator McCaskill. Well, I think it would be kind of hard
to shut down. For example, when they did that on the Border
Patrol, I do not think we could.
Mr. Schooner. No. I am not telling you to shut down the
agency, but you can really shut their procuring off.
Senator McCaskill. Shut down their services and their fee-
for-service. I see, yes, their franchisement.
Mr. Schooner. Right. Again, look, there are many revolving
funds that the government uses that make a lot of sense. For
example, I gave you the anecdote of the government printing
office, and I believe that when I talked about that, there is a
difference between saying, for example, that members of the
public should not be able to mail their holiday cards if they
are not going to buy stamps from the Postal Service, and we
know that the Postal Service is constantly generating income to
deal with their future requirements and that we adjust the
price of stamps periodically because we expect them to
basically be playing at a zero-sum game.
This is a completely different animal. This is all Federal
appropriated money that is being passed around. It is a shell
game.
Senator McCaskill. Right.
Mr. Schooner. And if anybody tells you that the fees are
not a shell game, they are simply coming up with a highfalutin
theory for what is going on. There is no need for this to
happen whatsoever.
Mr. Nash. I went back and looked at the franchise fund
legislation, and it looked to me like the theory was quite
sound. As I understood the way it came out, the theory was that
this is six different agencies----
Senator McCaskill. Right.
Mr. Nash [continuing]. That could buy things, could in
effect be providers of some category of services, OK. In
effect, they were sellers, not buyers, and that to the extent
that they could have been sellers. And I guess that gets us
back to the special expertise, but to the extent that they
could have been sellers accumulating, sort of like warehousers
in a way. We can provide this kind of service, economies of
scale and all the rest. Parking funds probably makes sense,
right, because then they are selling you something.
But it turned out all they were selling was buying
services. They were not accumulating anything. They were not
becoming great at something, and of course that eventually said
that is sort of scandalous because it is all phony.
But I sort of think the original idea was probably an OK
idea. It was the implementation that got it. This 4 percent fee
became the goal.
Senator McCaskill. Right.
Mr. Schooner. Just very briefly on this, if you go back to
this original vision that Mr. Nash describes, the theory was
that OMB would manage it, and they did not.
Senator McCaskill. Right.
Mr. Schooner. And they could have.
Mr. Nash. One of the curious things in the franchise funds
is when the Treasury Department decided they did not want
theirs anymore, they tried to peddle it, and nobody would buy
it. I guess it is gone. Is that right?
Mr. Doke. It is. It dissolved in October of last year.
Mr. Nash. They went around to the whole Federal Government
and said, would anybody like to have this thing? We do not want
it anymore.
Nobody would buy it, which I think tells you what its value
was.
Senator McCaskill. Yes.
Mr. Doke. Which brings up another point. I think Mr.
Schwartz may agree with me on this. In observing the witnesses,
and we had a lot of witnesses at the Advisory Panel, two things
that stuck with me: One, we have talked about, the problems
associated with the charging fees and how much and setting the
fees and the problems, but another problem is the turf battles
that you saw, that came out of the testimony. Once you have an
agency, it is their turf, and they are very protective of it.
That almost precludes any cooperation in trying to solve some
of these problems.
Senator McCaskill. Senator Bennett.
Senator Bennett. All right, let's go back to a specific
proposal that is before us, and we are back to high road for
just a minute.
I would anticipate that this would have a very chilling
effect on small business trying to compete for Federal
purchases. I said in my opening statement I have had the
experience of small businesses running into far too much
difficulty in trying to penetrate the Byzantine labyrinth of
Federal procurement procedures, and one of the additional
problems now is a requirement that you not only go through all
of the procedures, but you change your competitive position in
your nongovernmental marketplace by increasing your labor costs
or other activities.
I do not think it is specifically tied to labor. The
Federal Government could say, well, if you are going to compete
for Federal money, you have to have this kind of carbon
footprint. You have to have fill in the blank, whatever the
flavor of the month for either a Republican or a Democratic
Administration, of the kinds of things they would like to see
happen. And if you will not do this, you cannot compete.
Maybe I am overreacting from my own background as a small
businessman, but I see this as a pretty bad slope to start to
slip down in terms of the way you use the contracting, the
opportunity to sell to the government, as a club to beat people
up to get them to do other things that they would not otherwise
do. And if they do decide to take that, it puts them at a
competitive disadvantage in a free marketplace.
Mr. Nash. Well, a normal company, the big company, one
thing they have learned is that you do not sell to the Federal
Government out of the same unit that you do commercial work
with because of the additional costs. They are mostly overhead
costs, mostly indirect costs, but they are huge. We do not know
exactly how much.
The only study we have ever had of that was the one that
was done by the Analytical Sciences, TASC, the Analytical
Sciences Company, when Jacques Gansler was running it, and they
did. It is not a precise study, but they did do a fairly
detailed study, and they came up with an 18 percent premium
that it costs to do business with the Department of Defense,
mostly in indirect costs.
Senator Bennett. So Boeing has two divisions: One that
produces airliners for American airlines and one that
produces----
Mr. Nash. Sure.
Senator Bennett. I was not aware of.
Mr. Nash. There is a wonderful example in Scottsdale.
Motorola had a commercial division and a government division
about a mile apart in Scottsdale, and the commercial people
were so scared of the government virus they would not deal with
the government division. Finally, the Motorola company decided
to sell the government division to General Dynamics because
they already had the virus, and it could not hurt them any.
Mr. Doke. But before they decided to sell it, the
government contract division, who could not afford to take
their own division's electronics from a competitor because that
would not look good, they took, they bought from their Federal
source--I mean from their electronics microchip company--and
they gave it to the government. They put it on their proposal
as zero cost, so the government could not come in and audit it.
They had to do that because they just would not let the Federal
Government in the door.
Mr. Nash. That is very common. I mean that is across the
board, and you have to.
My advice to small companies has always been you can sell
to the government if you have a product that they will not
touch. They will not make you change it any. They will just buy
your product, firm fixed price, and that is it. But if you
begin to get into modifying your product----
Senator Bennett. Or services.
Mr. Nash [continuing]. All that kind of stuff, government
specs, you are in trouble. It is going to cost a lot more
money. It is going to raise your whole cost of doing business.
Mr. Schooner. Just going back to the original question,
though, the issue is far broader than high road. Keep in mind
that right after the inauguration, the Administration
immediately pumped out three Executive orders that
fundamentally gave union contractors a competitive advantage in
the marketplace.
Now you may, or any individual member of Congress or the
President may, conclude that the single best purpose of your
public procurement regime is to redistribute wealth, and you
may be in favor of unions, you may be opposed to them. But as
we sit here today, I believe that most of us speak for the
public procurement process, which is focused on value for money
for the government and customer satisfaction, so that
government agencies can actually achieve their missions.
All of these social policies, whether it is pro-union or
anything else, at the end of the day, what they do is they
increase barriers to entry. They increase the complexity of the
process. They add to the work that the acquisition workforce
actually needs to do. Therefore, they reduce competition. So,
in the long run, they are not intended to maximize the ability
of the public procurement system to be efficient and to serve
its ultimate purpose.
Now again, countries all over the planet use the public
procurement system to redistribute wealth, but at some point it
seems to be me we ought to start with value and customer
satisfaction, and then worry about redistributing the spoils.
Mr. Nash. Incidentally, it is the 30th anniversary of GAO's
recommendation that you repeal the Davis-Bacon Act. They made
that recommendation in 1980, and that was a sound
recommendation then, and it is still a sound recommendation.
Mr. Schooner. Could we at least raise the threshold? I am
sorry.
Mr. Schwartz. Dual regulation, I think this is something
you will get an unusual degree of agreement on, is a bad idea.
I mean I think that we ought to restrict carbon output, but
those obligations should not be different for government
contractors. Whatever they should be, they should be. So the
idea that you have a backdoor channel of regulating your
economy, or any subsector of it, because you want to be a
government contractor is inherently a bad idea. That we agree
on.
But as the Davis-Bacon Act example suggests, it is
relatively hard to get people to agree across the board that we
are going to focus singlemindedly on value, that we are not
only not going to introduce new distractions from value, but
that we are going to go back and reconsider all the old ones.
Again, I will start with an introductory class, and I say,
I bet you I can find some collateral social and economic policy
where you are willing to say, I do not want my government
spending my taxpayer dollars that way even if it is not best
value. So we all have our soft underbellies on this.
And if somehow you could get an agreement to
comprehensively devote yourself to value in the procurement
system and not to do other things, but that would, among other
things, involve some things that maybe some folks in the room
will not be happy with, including the things that we do to
prefer small businesses. So, if we took the gloves off entirely
and said, we are going back to value and nothing but, I think
people on both sides of the aisle would find the places where
they are unhappy, and there has not been a willingness to do
that across the board.
Mr. Nash. Yes, I agree with that.
The big breakthrough we made on the 800 Panel back in 1991
and 1992 and came into FAS in 1994 was we said we cannot get
rid of all these policies. Most of them, people agree with.
Let's try to simplify. Let's raise what used to be the
Small Purchase Threshold; it is now called the Simplified
Acquisition Threshold. We raised that to $100,000, and we also
put rules in that said let's write a commercial buying set of
rules that does not have to comply with all these policies, and
we did that. That is in Part 12 of the FAR.
So, in buying commercial products and services, and in
procurements under the Simplified Acquisition Threshold, I
think we made great strides in cutting a lot of that mess out.
So your small business can probably do OK selling a commercial
product or selling under $100,000.
Senator Bennett. All right. Yes, sir.
Mr. Doke. When I get a new client, the first thing I ask
when they want to get their first government contract or their
first big government contract, I request the opportunity to
talk to their top management, board of directors if possible. I
sometimes get it, sometimes I do not.
The whole point of it is to ask to discuss with them the
difference between commercial contracting and government
contracting, and the point I try to make is that the government
is not just another customer. It is a different business. And
if you are not willing to understand that it is a different
business, and either have the experience and expertise or be
willing to invest in it to get it, you should not take that
government contract.
After I spend about 1\1/2\ to 2 hours with them in
answering questions, most of them go forward, but I say I have
done my job.
I am not trying to say it is a bad business. I make my
living in this business, so I am not trying to talk you out of
it, although you think I am. What I am trying to tell you is as
a matter of ethical obligation, that if you are not willing to
do these things, you better stay away from it. Some of them
stop right there and do not go forward.
Senator Bennett. OK. Well, I think I am hearing
implementation of high road would make many companies less
competitive for government contracts, that most small
businesses could not absorb the additional costs, and it would,
for those that try, push them into unionization where they
otherwise would not go. Is that a fair summary?
Mr. Schooner. I think the only quibble I would have with
that is the absorption of the costs. I mean it is a pass-
through.
Senator Bennett. Oh, I see.
Mr. Schooner. So the bottom line is it is not going to have
any impact to the corporate bottom line, but the government
arguably would pay more for labor than it otherwise would.
Senator Bennett. The pass-through would be government.
Mr. Schooner. Right.
Senator Bennett. Yes, which is not necessarily something we
want.
Mr. Schooner. It does seem somewhat inconsistent with many
of the goals for our public procurement system--paying more for
the same service.
Senator Bennett. Yes. Thank you.
Senator McCaskill. Let me talk about some of the other
issues here, and I want to wrap this up with transparency, all
of them, because it appears to me that what we did not have 20
or 30 years ago was the ability to put these things out for
everyone to see real-time in a fast and efficient way. Have any
of you given any thought or can you direct us to any written
works that you are aware of?
I get your point that you made, Mr. Doke, about just making
them reveal price premium. Just that alone would have an
amazing impact. Really, what is really going on here is all of
this stuff, you all know about it, but this is really a little
like the Wild West in that nobody really is watching. Nobody is
paying attention. Nobody knows.
Now Hurricane Katrina, Iraq, and Afghanistan, I mean we
figured out. I was reminded of that when you talked about
better past performance. I would like to meet the contracting
officials that are evaluating that better past performance
since I have watched award fees being handed out for
contractors who have been miserable at the execution of their
contracts.
But this transparency issue is fascinating because it seems
like to me if we could do something as simple as after the fact
you have to show all the laundry. You have to show exactly what
the price premium was. You have to show exactly what the
differentials were. Maybe we could even figure out how many
Alaska Native corporations are fronting for major corporations
in major contracting all over this government. It seems to me
that transparency piece, with what we have now with the
Internet, could really be a game-changer.
Mr. Doke. There is just one line item, on a report that has
to be made now, that could be added, that would solve that
problem on price premiums. There are wonderful reports that go
up, that are required all the time through the budgeting
allocation and so forth, and every contract is recorded. But
that information is not it, and it would be very simple to
require it.
Mr. Schooner. But we can do much better. I mean we can take
these steps. If we just take a simple example, look how far we
have come just in the last few years with regard to the Federal
Procurement Data System. It used to be you could only get these
reports in print. Finally, we have the FPDS online, then the
FPDS next generation, but we did not get the leapfrog forward
until we went to USASpending.gov----
Senator McCaskill. Right.
Mr. Schooner [continuing]. Which frankly was piggybacked on
a private sector initiative, but again a big step forward.
Take the next step. It was not so long ago where the
Commerce Business Daily came out in print. We moved to
FedBizOpps. Now you can get the solicitations online. So we are
making progress.
It has frustrated me for years that the public and the
media seem to have no interest whatsoever in the number of
contractor personnel that are dying in Iraq and Afghanistan
instead of our military personnel every year. You read in the
newspapers about the military personnel that die. You do not
read anything about the contractors who are driving the truck
dying all the time. We are talking one out of every four bodies
that came home in a bag or a box since 2007, and the public
will not even talk about it.
But we just saw serious improvements on that because the
Department of Labor recently started publishing the contractor
fatality data from the Defense Base Act insurance claims on the
Web. They just did this recently. It is very easy.
But I want to go to Marshall's point and take it the next
step forward. We have consistently collected and published data
on the awards of government contracts. What we have no insight
into whatsoever is what value the government actually gets for
their money. Let's focus on outcomes of contracts, not just the
beginning, because it is a night and day difference. We could
do that.
Senator McCaskill. OK. Talk about what that would look
like.
Mr. Schooner. Well, the bottom line is one thing that we
could do is correlate, at a minimum. We already have the entry
when the contract is awarded. Why do we not have an entry for
what the final delivered price of it was?
And again, Marshall talked about premiums. We have PPIRS.
We have this past performance database.
Senator McCaskill. Right.
Mr. Schooner. There are many ways that we can----
Senator McCaskill. Which has its flaws.
Mr. Schooner. Oh, just a few, but at least, but again they
are working on that, and it shows you how far we have come and
how much progress we can make.
But we can literally demand anything we want in terms of
information on outcomes, and it seems to me that the
information is easily available, but at some point we need to
take the step forward, saying this is valuable to us as
consumers.
Last point on this, on the defense side of things, we
constantly talk about major systems acquisitions and all of the
terrible things about major systems acquisitions, but we only
track three metrics. We track the original price of the
contract, we track the original schedule for deliveries, and we
track the original performance criteria. But those are
irrelevant by the time the system gets delivered 5, 10, or 15
years later. It has evolved.
What we need to be thinking about are meaningful metrics
that track the value the government gets for the money they
spend, and we are talking about the kinds of things that
private businesses do every single day. They teach it in the
business schools. Successful executives know how to do it. The
government can do it too.
Mr. Nash. Let me give you an example that I just wrote up.
GAO has put cost-type contracts on the high-risk list. Cost-
type contracts are a big thing up here on the Hill. They are
bad contracts, terrible contracts, everybody is saying.
In the last GAO report, they went through all the stuff
about they do not motivate anybody and all this theory. But the
one question they never asked was: How many of the cost-type
contracts that are awarded get fully performed at the original
cost?
When I ask industry people that, they say most of our cost-
type contracts, we perform at the cost. We do not come in and
ask for more money.
But we do not, and that is the outcome issue. We do not
know that. So we say, theoretically, cost-type contracts are a
bad form of contract.
Senator McCaskill. I think you are right. I think we have
not analyzed. But I would tell you in some of the contracts I
have really waded around in significantly, they did not deliver
at the price. The original LOGCAP contract was estimated to be
$700 million a year, and the first year it came in at $20
billion.
Mr. Schooner. With all due respect, keep in mind the value
of the contract is that it is all about surge capacity.
Mr. Nash. Yes.
Mr. Schooner. The contract is an unlimited vehicle that
permits the U.S. Military to send an unlimited number of troops
anywhere on the planet and sustain them indefinitely,
regardless of the requirement.
Senator McCaskill. No. I am telling you the original
estimate in theater by the contingency operation was $700
million.
Mr. Schooner. I will not dispute that there are warts in
the LOGCAP contract. But I believe a generation from now at the
National Defense University, at the War College, at the
military academies, we will look back and say despite the
problems at the margin, that it may be that the LOGCAP contract
is the single most significant advance in military history.
Never before has a military been able to project such potency,
modality, and sustainability anywhere on the planet. We can
send our military anywhere in any numbers and keep them there
indefinitely, and we can fight and have our troops well rested,
well fed, clean, and effective.
I am not saying that there cannot be better cost control,
but the vehicle itself is a remarkable achievement that
military historians will be talking about for generations.
Senator McCaskill. I absolutely could not agree with you
more, that logistical support on a contractual basis is a
breakthrough, but we could spend 4 hours debating how they did
LOGCAP and the way it was executed.
You talk about, and some of you had some really good
testimony, about oversight of the management of the contract.
When I have somebody look at me in the eye, in theater, and I
ask them, why did that contract go from $20 billion to $15
billion in 1 year, and the person in charge of the contract
looked at me and said, it was a fluke. This is not a contract
management that we need to be putting down in the history books
as well managed.
Mr. Schooner. And we come back to personnel once again
which is the one thing you have heard from all of us.
Senator McCaskill. Exactly. So, hopefully, by the time we
have refined our logistical support contracts that began with
LOGCAP I and now we have the evolution of LOGCAP IV, we will
have something that we can be very proud of. But I would say
LOGCAP I and II is not something that any of you would want to
teach.
Mr. Nash. Let me suggest that if it had been a fixed-price
contract, it would have been equally badly mismanaged.
Senator McCaskill. I am sure it would have.
Mr. Nash. The type of contract would not have impacted how
it was managed.
Senator McCaskill. I am sure it would.
Mr. Nash. But I will tell you one thing it would have done.
It would have made Marshall Doke rich. [Laughter.]
Because if it had been fixed-price, there would have been
change orders----
Senator McCaskill. Right.
Mr. Nash [continuing]. To process probably 20 a day in the
history of the contract.
Senator McCaskill. You are exactly right. You could not be
more right about that. There would have been a new history-
making change order operation.
Mr. Doke. Let me disagree with that. I was fortunately
broken into this business as counsel to the Army Contract
Adjustment Board. And you remember when the missile crisis
came, and we were building those silos. There were claims
before that board where they were having 2,000 change orders a
day on that effort.
Mr. Nash. That is right. I was working for one of the
companies, and we converted our contract to a cost
reimbursement contract because it did not make any sense.
Senator McCaskill. Right.
Mr. Doke. I want to toss Mr. Schwartz the softball because
the data, having the system for the data is one thing. But as
we found on the Advisory Panel, there is a great reporting
requirement, but we could not rely on the data because the
people who were entering the data did not know what they were
doing. So it was totally unreliable.
Senator McCaskill. So we get back to acquisition personnel
again.
Mr. Doke. Acquisition workforce.
Mr. Nash. I have to comment on that. Regarding increasing
the acquisition workforce, a group of these contracting people
yesterday asked me this: Who would you hire?
What I said to them, if you are going to increase your
staff in the contracting office, do not hire any more 1102s.
You have plenty of 1102s. Hire clerical people because the
contracting people are doing clerical work 30 percent, 40
percent of their time.
Senator McCaskill. Right.
Mr. Nash. And I say to them, not only are they
underutilizing your skills, but you are all lousy clerks. You
are overskilled, and that is why the data is no good, because
they are not good clerks. If you just hired a good high school
graduate who wanted to be a clerk and had the competence to be
a clerk, you would get a lot better data.
Mr. Schwartz. I think there are other reasons, and one of
them is that what we heard on the panel was that it is easy to
issue mandates to collect this data or that data. But a
contracting officer faced with a choice of getting the contract
out and acquiring the goods and services you need, the last
thing at the end of the day is to fill in some data report. And
so if you want good data, you have to pay for it. It is not
free.
It is certainly true that we found that the government's
data were unreliable, and because we had a variety of expertise
within the panel sometimes you could do a special query, and
you would come back with numbers that we all knew could not be
right.
Senator McCaskill. Right.
Mr. Schwartz. So we have come a long way, but there is a
long way to go to getting reliable data.
And take Marshall's example. I happen to think the middle
ground between us is disclosure of data on things like price
premiums. That is a good idea. But if you tell a contracting
officer, do everything you are doing and do this too, something
is going to break.
Mr. Nash. Yes.
Senator McCaskill. Senator Bennett.
Senator Bennett. I think we have plowed most of the ground
we need to plow. I want to thank the panel for your expertise
and your willingness to mix it up between yourselves, and thank
you, Madam Chairman, for calling the hearing.
Senator McCaskill. Let me see if I cannot, for the record,
summarize some of the high points, so that we can tee off on
these areas as we go forward and as we begin to prepare for the
hearing with the OMB personnel and with procurement policy
folks.
Transparency is important, particularly as it relates to
price premium.
We need to look at whether or not we are developing
competency in an area that is providing these services to other
agencies instead of it being a free-for-all with every agency
thinking they can provide every type of service with
competency.
More guidance in the FAR about what competition really is,
since we have not really defined that. We all use the word, but
it does not mean that it is. I will remember Abraham Lincoln
and his tail.
Contract management by agencies is lacking because many
times the people who are entering into the contracts are not
the people using the services, and therefore you have a
disconnect in the system in terms of overseeing the contracts
and managing them appropriately in terms of getting value
because the folks who are using the services have nothing to do
with executing the contracts.
And overall, we have the acquisition workforce. Senator
Collins, who normally sits in your chair, Senator Bennett,
would be glad that we are ending with that because obviously
she has worked on this for a while, and I have joined her in
that effort. And I know Senator Bennett agrees that you do get
what you pay for, and we will not fix most of these problems
until we get to the point that we have an acquisition workforce
that is the right size and the right competence, to administer
these contracts in a way that taxpayers will get value.
There is an awful lot of work to do in this area. Frankly,
there are some questions that I had that we did not get to. But
we may prevail upon you, a couple of you or maybe all of you,
and will not give all of you all of the questions but divide
them up, because I think all four of you could speak with
authority on any of the questions we would have in this area,
in a way that is very reliable and that frankly I would take to
the bank.
Senator Bennett. I agree with your summary, Madam Chairman,
but let the record show the Ranking Member also summarizes that
he does not like high road. [Laughter.]
Senator McCaskill. I think we figured that out. I think we
figured out the high road part.
Once again, you all generously gave a significant part of
your time this afternoon. This is something I actually enjoy,
this area of government policy. I actually read IG and GAO
reports as recreational reading. I know I am weird, but I do,
and I am going to continue down this path with hopefully some
tenacity and see if we cannot prevail upon OMB.
As I tell the White House how you feel about high road,
Senator Bennett, I am going to also prevail upon them to see if
we cannot get OMB and maybe Jeff Zients, who is supposed to be
performing a government-wide performance function. This would
be a perfect area for this performance officer to dive into
because it is government-wide and there could be real impact
with a little bit of effort from OMB.
So, thank you all very much.
The hearing is adjourned.
[Whereupon, at 4:12 p.m., the Subcommittee was adjourned.]
INTERAGENCY CONTRACTS:
MANAGEMENT AND OVERSIGHT--PART II
----------
WEDNESDAY, JUNE 30, 2010
U.S. Senate,
Ad Hoc Subcommittee on Contracting Oversight,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:32 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Claire
McCaskill, Chairman of the Subcommittee, presiding.
Present: Senators McCaskill and Brown.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. We have plenty to talk about today, so
we will go ahead and get started. I think that Senator Brown
will be joining us and hopefully we will find Mr. Gordon
somewhere before too long so he has an opportunity to speak
today. He is an important part of this subject matter.
We are here today for the Subcommittee's second hearing on
interagency contracts. At the first hearing on this subject, I
told our distinguished witnesses, four of the leading experts
on government contracting, that I really enjoy this area of
government policy. That certifies that I am a weirdo, because
most people don't enjoy the world of government contracting,
and especially interagency contracting, because, frankly, even
within the purview of government contracting, this is very
inside baseball. To really get into the kind of arcane and
acronym-laden world of interagency contracting, you have to
have tenacity, perseverance, and maybe a screw loose.
But I think it is incredibly important that we begin to
take a much closer look at interagency contracting, what it is
trying to be, what it is, and what it has dramatically failed
to be, and I think as we look at interagency contracting and
really try to understand it, we can improve it, particularly if
we get people from the various agencies that are represented
here all talking amongst ourselves and figuring out what works
and what doesn't work.
Thank you, Senator Brown, for being here.
It is intended, interagency contracting, to provide a
benefit to the government. Among those benefits, it should
streamline contracting. It should increase efficiency. It
should leverage the massive spending power of the government in
order to get better value for the taxpayer dollar.
At our hearing in February, I asked our witnesses whether
interagency contracting was getting those kinds of results. I
heard from them that it wasn't, that the government had too
many contract vehicles, that it wasn't getting the best prices,
that nobody knew whether these vehicles were actually improving
government contracting because nobody was in charge or even
trying to collect accurate data as it relates to interagency
contracting.
Last month, the GAO reported many of the same problems.
According to the GAO, there is duplication among interagency
contracts. It is unclear whether or not these vehicles are
saving any money. And the government doesn't have enough
information about interagency contracts to even know if they
are saving money.
This isn't the first time that GAO has reached such
conclusions, and GAO's recommendations echo prior
recommendations of the Special Panel on Government Contracting,
called the SARA Panel, and agencies' Inspectors General that
were never implemented. I plan to ask our witnesses today, who
together have decades of distinguished service as leaders in
Federal acquisition, why these recommendations to improve
interagency transparency and accountability have been ignored
for so long. I will also ask our witnesses how and why
interagency contracting works the way it does today and what
steps we should use to make it work better.
I also plan to continue the Subcommittee's oversight of
interagency contracts. This is not something we are going to
fix overnight. But, frankly, we are never going to fix it
unless we improve our attention span as it relates to
oversight. A GAO report every 4 or 5 years repeating the same
recommendations, the same failed policies of not collecting the
data, of not requiring the kind of documentation to prove that
we are getting a better value, if we do not continue to shine a
bright light of attention on this problem, it is going to
languish where it is right now for decades to come, and I think
all of us, if we are brutally honest, know that. We are going
to keep on this until we can get some real change in the area
of interagency contracting.
I want to thank all of our witnesses for being here today
and I look forward to our discussion, and I would let Senator
Brown make an opening statement, but he disappeared on me. See
if he would like to. He can always do it after the witnesses
testify, if he would rather.
Senator Brown. Just my wife calling. Sorry.
Senator McCaskill. And you are welcome to make an opening
statement if you so choose.
OPENING STATEMENT OF SENATOR BROWN
Senator Brown. Thank you. I will get the old glasses, too.
Thank you, Madam Chairman. It is good to be back at this
hearing with you, and as the Ranking Member of this
Subcommittee, it is an honor to join with you in exploring the
important issues of this Subcommittee that go to the core of
how government conducts business.
Unfortunately, I was not a Member of the Subcommittee at
the time of the Part I hearing, where the subject matter
experts from academia and industry provided key insights into
what is working and what is not with regard to interagency
contracting. Taking these lessons learned and applying them to
the way the U.S. Government traditionally does business is
vital to getting the best value for the American taxpayer and
the best value for our dollars, I think is really what concerns
me most, and we have had these conversations before.
As the largest single consumer on the planet, our Federal
Government has spent over $537 billion on goods and services
last year alone. That is $130 billion more than the annual
revenue of Wal-Mart. We are all familiar with the buying and
selling of goods, and we know that if you are purchasing on a
large scale, you expect to get a break. You expect to get the
best bang for your dollar. As the largest purchaser in the
world, the Federal Government should receive these same
wholesale prices. In fact, it should be receiving the best
prices for goods and services in the marketplace, in the United
States or throughout the world, quite frankly.
Unfortunately, that is rarely the case, and the premise of
harnessing this purchase power is at the core of our hearing
today, Madam Chairman, and how we can efficiently and
effectively use interagency contracts to leverage the
purchasing power of the Federal Government to achieve maximum
savings for the taxpayers.
Let me be clear up front. The use of interagency
contracting has significant benefits when used properly, as we
all know. It allows the government to leverage its aggregate
buying power and reduce acquisition costs through simplified
and expedited methods for procuring goods and services.
However, more needs to be done. We need to think outside the
box. We need to do it better. The people expect us to do just
that.
And just as every successful business does, the U.S.
Government should be strategically assessing its requirements
and capabilities, using the most efficient mechanism to achieve
the best value for the American taxpayer. Interagency
contracting can achieve these goals, but as the GAO's recent
report indicates, the government is falling short of these
objectives. The GAO report raises the same troubling questions
on interagency contracting that have continued for over a
decade. How can we expect the government to leverage its buying
power to get the best prices when we continue to create
multiple contracts to purchase the same kinds of goods and
services from the same vendors?
As you know, Madam Chairman, the President in December 2009
implemented a requirement that the government save $40 billion
annually by fiscal year 2011. An important component of his
initiative is the strategic sourcing and the kinds of tough
problems we are taking on here today, and even as the
Administration concedes that the benefits of strategic sourcing
and smarter contracting have not yet been fully utilized.
So the GAO report also identified significant obstacles
that prevent government buyers from realizing the advantages of
interagency contracts. A key problem identified by the GAO is
the government buyers lacked the necessary data on the
available contracts to make fully informed decisions. They also
identified the lack of a cohesive policy for agencies to follow
on interagency contracting. This lack of a clear plan creates a
leadership void that pushes agencies to establish their own
contracts with their own vendors rather than using existing
contracts and saving money. And this duplication of effort
exacerbates the strain on an already stressed acquisition
workforce.
In the report, the GAO also questioned whether the GSA, who
manages the Multiple Award Schedules (MAS) program, the largest
interagency government contracting program, is achieving the
best prices for the taxpayer. Once again, are we getting the
best bang for the dollar? The key problem GAO identified in the
MAS program was the lack of available transactional data that
could be assessed by GSA to negotiate better prices for the
government, and with you, Madam Chairman, I am interested in
exploring the actionable solutions in today's hearing to
address these longstanding issues.
And I would like to leave here knowing who in the
Administration is accountable for ensuring that the government
delivers on its promised acquisition savings. What policies and
guidance are necessary to achieve the benefits of interagency
contracting? I look forward to hearing the witnesses
perspectives on these critical issues. Thank you.
Senator McCaskill. Thank you, Senator Brown.
Let me introduce the witnesses. John Needham is Director in
the Government Accountability Office's Office of Acquisition
and Sourcing Management. He is also the lead GAO for the State
of Mississippi for GAO's ongoing evaluation of American
Reinvestment and Recovery Act program in Mississippi.
Dan Gordon is the Administrator for the Office of Federal
Procurement Policy. Welcome, Mr. Gordon. I know this is your
first time in front of the Subcommittee and we welcome you. In
that capacity, he is responsible for developing and
implementing acquisition policies for the Federal Government.
Prior to his current position, Mr. Gordon served 17 years at
the Government Accountability Office, and was also a member of
the adjunct faculty at George Washington University Law School,
one of the finest law schools in the country, I think. A good
law school. Well, not as good as Mizzou, but I was just trying
to be nice. He is a new witness in front of the Subcommittee. I
am trying to give him a break here. [Laughter.]
Steve Kempf is the Acting Commissioner for the General
Services Administration's Federal Acquisition Service. In that
capacity, he sets strategic direction and oversees the delivery
of over $50 billion worth of products, services, and solutions
to the Federal customers. Mr. Kempf also has held numerous
other positions within the GSA throughout his government
career.
Rick Gunderson is the Acting Chief Procurement Officer for
the Department of Homeland Security (DHS). In that capacity, he
is the lead executive responsible for the management,
administration, and oversight of the Department's acquisition
programs. He previously served as the Assistant Administrator
for Acquisition and Chief Procurement Executive for the
Transportation Security Administration (TSA).
Diane Frasier is the Director of the Office of Acquisition
and Logistics Management and the Head of Contracting Activity
at the National Institutes of Health (NIH), where she oversees
all acquisition, property, supply, and transportation programs.
Prior to joining NIH, Ms. Frasier had a long career with the
Department of Defense (DOD).
Welcome to all of you. It is the custom of this
Subcommittee to swear in all witnesses that appear before us,
so if you don't mind, I would ask you to stand.
Do you swear that the testimony you give before the
Subcommittee will be the truth, the whole truth, and nothing
but the truth, so help you, God?
Mr. Needham. I do.
Mr. Gordon. I do.
Mr. Kempf. I do.
Mr. Gunderson. I do.
Ms. Frasier. I do.
Senator McCaskill. Thank you very much, and we will begin
with Mr. Needham from GAO.
TESTIMONY OF JOHN K. NEEDHAM,\1\ DIRECTOR, ACQUISITION AND
SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Needham. Madam Chairman and Senator Brown, I am pleased
to be here to discuss the Subcommittee's interest in improving
the management and oversight of interagency and enterprise-wide
contracts.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Needham appears in the Appendix
on page 96.
---------------------------------------------------------------------------
There are four types of contracts that agencies use to
leverage their buying power. As you can see from the chart
here,\2\ we have the Multi-Award Schedules, which is run by GSA
and the Veterans Administration. We have the Multi-Agency
Contracts (MACs) and the Government-Wide Acquisition Contracts
(GWACs). Those are the interagency contracts. These, along with
the GSA Schedule contracts, are also enterprise-wide contracts,
which agencies just use within one department, but they also
provide that ability to leverage an agency's buying power, as
well.
---------------------------------------------------------------------------
\2\ The chart referenced in Mr. Needham prepared statement appears
in the Appendix on page 106.
---------------------------------------------------------------------------
In addressing the Subcommittee's interest, I will draw on
our recently completed work at 10 Federal agencies to discuss
transparency issues and the need for a framework for managing
GWACs, MACs, and enterprise-wide contracts, as well as
management and pricing issues specifically associated with the
Multiple Award Schedules program.
In recent years, sales under the MAS program have been
relatively flat and obligations on the GWACs have declined
slightly. Importantly, the total amount of money spent in 2008,
using the three enterprise-wide contracting programs that we
reviewed, is approaching the amount spent for all GWACs during
the same period. Collectively, Federal agencies use these types
of contracts to buy at least $60 billion in goods and services
during fiscal year 2008, with the bulk of the spending, about
$47 billion, being spent on the mass program within GSA and the
VA.
Senator McCaskill. Could I interrupt your testimony just
for a minute?
Mr. Needham. Sure.
Senator McCaskill. Would you go back through, Mr. Needham,
and explain clearly what the difference is between these
different programs, just so that we have it very clear on the
record----
Mr. Needham. Sure.
Senator McCaskill [continuing]. The difference between a
GWAC and a Schedule and so forth.
Mr. Needham. We will start with the Multiple Award
Schedules, which is probably the oldest, and that is run by GSA
and through delegation by VA for the medical area. Essentially,
these are indefinite delivery, indefinite quantity (IDIQ)
contracts. They basically open up and they have a certain
amount of dollars that they allow that agencies can then
basically buy off of. They don't have to go through the
procedures of doing an independent procurement. And so they
basically get task and delivery orders, depending if it is a
service or some goods. And that has been around since early, I
guess, really since before 1950, they have been using that.
The second is what is called the Multi-Agency Contract,
which is also an IDIQ contract, and that is within the
particular agency. Now, they can open it up for access by other
agencies, and that is where it becomes an interagency contract,
but it functions very much like the Award Schedules at GSA or
the VA.
And then third is the GWACs. Now, the GWACs was created
back in the 1990s through the Clinger-Cohen Act and it was
essentially designed to facilitate the procurement of
information systems (IT).
The last contract, which is not an interagency contract, is
enterprise-wide. These are essentially like a MAC, but they are
for a department as a whole. So instead of having multiple
small contracts, they have one large contract where they--it
works somewhat like with the GSA, where you have a large number
of vendors available and the terms and prices have been pre-
negotiated. The Department of Navy has SeaPort, and Homeland
Security has the EAGLE program. So those programs are
relatively recent. They were given that name by the SARA Panel.
The SARA Panel called for kind of a creation of these types
where you have these large agency-type programs.
But those are the four types. Three of them are interagency
and one is not. The growth of the enterprise-wide contracts has
been pretty significant in recent years.
Senator McCaskill. But other agencies can't buy from the
enterprise-wide?
Mr. Needham. No. Only agencies within that department or--
--
Senator McCaskill. So the only people that can buy from
Eagle are people in DHS?
Mr. Needham. Exactly.
Senator McCaskill. OK. Got it. Sorry to interrupt.
Mr. Needham. That is OK.
Senator McCaskill. I will give you extra time. [Laughter.]
Mr. Needham. Thank you. Leveraging the government's buying
power and providing a simplified and faster procurement method
are benefits that these vehicles promise. However, because the
Federal Government does not have a clear and comprehensive view
of who is using these contracts and if their use maximizes the
government's buying power, their benefits can only be assumed,
not assured.
The most basic problem is one of data and governance. No
one knows the universe of contracts available, and when there
is information, there are inaccuracies in the data. Also
problematic is the lack of consistent government-wide policy on
the creation, use, and cost of awarding and administering some
of these contracts. I would point out that it is the least
problem with the GWACs.
While recent legislation and OMB initiatives are expected
to strengthen oversight and management of MACs, there are no
initiatives underway to strengthen approval and oversight of
the growing use of enterprise-wide contracts. This can lead to
a situation where agencies unknowingly contract for the same
goods and services across a myriad of contracts, with many of
the same vendors providing similar products and services on
multiple contracts. This only increases cost to both the vendor
and the government.
As you can see on this new chart here, the top 10 GWAC
vendors offered their goods and services in a variety of
government contracts that all provide information technology,
goods, and services. Of the 13 different contract vehicles,
five of the 10 vendors were on 10 or more of these. You might
ask, why are there so many contracting vehicles? Basically,
when we talked with the departments and agencies we visited
with, they told us that they want to avoid paying fees for the
use of another agency's contract. They want to gain more
control over procurements within their own particular
organization. And they want to allow for the use of cost
reimbursement contracts, which can't be done under IDIQ
contracts, which is like the General Services Multiple Award
Schedules program, for instance.
To get a better handle on these contracts, we have
recommended that OMB improve the transparency of and the data
available on these contracts, building on earlier work that
they had done. And also to develop a framework that provides a
more coordinated approach in awarding MACs and enterprise-wide
award contracts, especially since it is the vehicle for the
Administration's Strategic Sourcing Initiative. And last, we
recommended to OMB that they ensure that agencies do a business
case analysis in which they address potential duplication with
existing contracts before new MACs and enterprise-wide
contracts are established.
Now, I would like to turn to GSA's MAS program--which is
the largest provider of interagency contracts--needs to focus
on being a provider of choice for government agencies. To do
so, it needs to address key challenges in effectively managing
the mass program and offer the best prices to its customers.
When we recommended to GSA they need to collect transactional
data on the mass task and delivery orders and prices paid and
then provide this information to the people who are negotiating
the contracts in the agencies so they have actual data they can
work with so they can negotiate on their own.
To make use of its pricing tools, such as pre-award audits,
and between 2004 and 2008, they saved $4 billion in cost
avoidance by using these pre-award audits. Also to use greater
use of their pre-negotiation clearance panels--it is kind of a
quality control device they have within that--to get the best
price and obtain insight into the marketplace.
And furthermore, GSA needs to strengthen its Program
Office's authority, clarify roles and responsibilities, and
realign its structure to facilitate consistent implementation
of the policies and the sharing of the information across the
multiple units within the business portfolios.
And it also needs to improve its measurement of the program
performance through more consistent metrics across the GSA
units that manage the interagency program, including metrics
for pricing, and I will give you an example on this. We found
that they look at the competitiveness of their prices with the
private sector. They need to look at the competitiveness of
their prices with other agency contracts. That would be one
area in terms of pricing where they need to focus.
And finally, GSA needs to put a greater emphasis on
customer satisfaction and outreach, starting with improving
their customer surveys, so that they can get the kind of
insights they need to evaluate program performance. Perhaps,
Madam Chairman, a more responsive GSA would lead to agencies
looking to GSA for goods and services rather than creating
their own vehicles to meet their own needs.
In agreeing with our recommendations, both OMB and GSA
recognize the importance of addressing these problems and the
need to resolve them so as to take advantage of the
government's buying power for more efficient and more strategic
contracting.
Madam Chairman, this concludes my prepared statement. I
will be happy to answer any questions you or Senator Brown may
have. Thank you.
Senator McCaskill. Thank you, Mr. Needham. Welcome, Mr.
Gordon.
TESTIMONY OF HON. DANIEL I. GORDON,\1\ ADMINISTRATOR, OFFICE OF
FEDERAL PROCUREMENT POLICY, U.S. OFFICE OF MANAGEMENT AND
BUDGET
Mr. Gordon. Thank you, Chairman McCaskill, Ranking Member
Brown. I am very appreciative of the invitation to be here and
to speak with you about this important topic. Let me begin by
commending the Subcommittee for focusing attention on this very
important subject.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Gordon appears in the Appendix on
page 116.
---------------------------------------------------------------------------
Interagency contracting, as you said, can be a way for the
government to leverage its buying power, and as Senator Brown
pointed out, to make better use of its overstretched
acquisition workforce. But there are serious risks when
management has been deficient, and I believe that GAO was right
to include interagency contracting on its High-Risk List in
2005.
I believe, though, that there have, in fact, been
improvements, and today, notwithstanding the ongoing challenges
that I will be talking about, the facts are better than they
are often portrayed to be and better than they were just a few
years ago, partly due to the efforts of you, Madam Chairman,
and other Members of Congress.
We have succeeded in addressing the abuses that raised
justifiable concerns just a few years ago: Out-of-scope work,
inadequate competition, improper parking of funds, and unclear
responsibilities of the various agencies. Those were issues
that caused GAO to put interagency contracting on its High-Risk
List in 2005, and I think it is notable that they are not
issues in GAO's most recent report. But we have much more work
to do, especially in leveraging the government's buying power.
Let me say a couple of words about the improvements to the
management of the process, because management has not been
adequate in the past. GAO, as well as the SARA Panel, the
Acquisition Advisory Panel, have praised the management
improvements put in place over the past few years, especially
with regard to OMB's role in considering business cases by any
agency that wants to serve as the executive agent for a GWAC.
Second, we have put management controls in place with
respect to assisted acquisitions, situations where one agency
helps another one conduct a procurement. Again, the lack of
clarity about the two agencies' respective responsibilities was
cited by GAO in 2005 as one reason that interagency contracting
was added to the High-Risk List. OFPP issued guidance on
interagency acquisitions in 2008 that addressed this management
responsibility, and I think with some success in terms of
implementation by the agencies. Notably, DOD and the Department
of Interior did an assisted acquisition together recently in a
way that can serve as a model for interagency contracting. The
result was increased competition, lower cost, and the services
that are being purchased will provide better support for our
service members and their families.
But we need to do more to improve management, especially
with respect to what are called Multi-Agency Contracts. This is
the area where I think there has been the greatest concern
about the problems with data and with proliferation, and we
have shared that concern. OFPP will be issuing guidance this
summer requiring that agencies do a business case before they
award a contract with the intent of having it widely used by
other agencies.
I should note, though, as I explain in my written
testimony, that the review we have conducted over the past
several months has persuaded me, at least, that the MACs, as
they are called, are not used as much as is often thought. Some
have suggested that agencies are placing more than $100 billion
worth of orders on other agencies' contracts, and in fact, I
think the accurate figure is probably below $5 billion.
Notwithstanding that, we need to improve management in this
area and we, in OFPP, will continue to focus on it.
I would like to spend a moment talking about our efforts to
leverage the government's buying power. In this regard,
schedules probably represent the greatest opportunity for
strategic sourcing, and we have only begun to tap that
potential. Recently, at the beginning of this month, GSA
awarded a set of Blanket Purchase Agreements (BPAs), that offer
real potential for substantial government-wide savings on
office supplies, of which the government buys over $1 billion
worth a year. The bottom line is that these BPAs were
negotiated government-wide and they will be open to every
Federal employee at every Federal agency government-wide, with
expected savings of something like $200 million over the next 4
years.
In conclusion, progress has been made, but we recognize
that we in OMB have much more work to do with our agencies in
the Executive Branch. We will continue to focus on improving
management and on leveraging the government's buying power.
This concludes my opening statement. I would welcome any
questions. Thank you.
Senator McCaskill. Thank you very much, Mr. Gordon. Mr.
Kempf.
TESTIMONY OF STEVEN J. KEMPF,\1\ ACTING COMMISSIONER, FEDERAL
ACQUISITION SERVICE, U.S. GENERAL SERVICES ADMINISTRATION
Mr. Kempf. Good afternoon, Chairman McCaskill and Ranking
Member Brown. My name is Steven Kempf and I am the Acting
Commissioner of the Federal Acquisition Service within the U.S.
General Services Administration. Thank you for inviting me to
appear before you today to discuss the Government
Accountability Office's report findings and to speak about the
benefits of interagency contracting.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Kempf appears in the Appendix on
page 127.
---------------------------------------------------------------------------
GSA's Administrator, Martha Johnson, has focused on three
specific goals in our agency: Operational excellence, customer
intimacy, and innovation in all that we do at GSA. The Federal
Acquisition Service, FAS, seeks to instill these three
principles in how we support our customers and conduct our
operations. FAS offers a wide array of products and services,
including our fleet of over 215,000 vehicles, the government's
largest telecommunications program, Networx, and the issuance
and management of over three million purchase and travel cards,
to name just a few. We also manage five Government-Wide
Acquisition Contracts, and the Multiple Award Schedules
program, which provides a vast selection of over 22 million
professional services, equipment, and supplies on over 18,000
contracts with the private sector.
With respect to the GAO report, I would like to state that
GSA agrees with the recommendations made and actions were
already underway to address each one of them identified in the
report. Furthermore, we have been working with our Office of
the Inspector General (OIG) to target mass contracts for pre-
award audits. We have asked our IG to perform more audits, but
with shorter durations and with a focus on delivering
actionable information to our contracting officers.
The Schedules program had nearly $50 billion in sales last
fiscal year. Given the breadth and scope of the program, we
take the stewardship of the Schedules very seriously. We strive
for operational excellence in all we do, and here is what we
are doing to improve our performance.
GSA is investing in its acquisition processes to develop a
more agile, modular system which will drive process
improvements and deliver better quality contracts. Our
Enterprise Acquisition Solution is a long-term multi-year
effort that will support the creation of an electronic end-to-
end contracting system. When we embarked on this endeavor, our
very first priority was the pricing module. This module is
currently in user testing and will be piloted on three
schedules this fall. This new tool will greatly enhance our
contracting officers' capability to negotiate better prices
under the Schedules.
GSA is also enhancing our customer-facing systems. One of
these systems is GSA Advantage. GSA Advantage was actually
launched before Amazon and is the government's online shopping
tool. Each day, GSA Advantage records 500,000 hits from its
pool of 600,000 registered users. This fall, the upgrade to GSA
Advantage will include using Web tool features such as enhanced
search capabilities, product recommendations, price
comparisons, commercial pictures and description of offerings,
and direct links to companies' shipping and tracking Web sites.
The enhancement of Advantage will also allow for easier price
comparison for all of our users, whether they are purchasing
from GSA or not.
GSA's eBuy is yet another e-tool available to our customers
to support acquisitions. This is an online tool used to compete
procurements. This fiscal year alone, GSA eBuy has already seen
agencies post almost 30,000 requests for quotations, an
increase of over 14 percent from last year. Industry has
responded with almost 90,000 quotes, resulting in contracting
officers making an estimated $3.4 billion in awards this year
using the eBuy system. eBuy is a convenient tool for conducting
competitions under both the Schedules program and our GWACs.
GSA is currently in the second generation of its GWAC
offerings. The Office of Management and Budget has designated
GSA to manage GWACs for information technology services. Ours
are Alliant, Alliant Small Business, VETS, COMMITS, and 8(a)
STARS. Four of the five managed GWACs are devoted solely to
small businesses.
GSA has a special commitment to support service-disabled
veteran owned businesses through its VETS GWAC. The statutory
government-wide procurement goal for these businesses is 3
percent. In 2008, agencies did not even reach half of that
goal. The VETS GWAC program is ideally suited to help close the
gap.
Alliant, GSA'S only enterprise GWAC, provides agencies
access to highly qualified industry partners. This past week,
Alliant exceeded over $1 billion in awards in just its first 14
months of operation. Alliant generates robust competition among
our industry partners, with an average of four bids per task
order, and Alliant Small Business, also in its first year, is
providing strong competition, receiving an average of five bids
per task order.
GSA has an obligation to assure that we work with
contracting officers to ensure that they understand how best to
utilize our acquisition vehicles. To this end, FAS has
partnered with the Federal Acquisition Institute (FAI) to
develop training, which we expect to be available early this
fall. This first course will be GSA's internal use, focusing on
the proper award of mass contracts. A second course will be a
Schedules 101 course for our customers, and finally, an
advanced use of Schedules course. Future plans include courses
on GWACs, sustainable acquisition practices. This year at the
GSA Training Conference and Expo, we delivered over 20,000
hours of training on 152 different courses, free of charge for
our customers.
GSA's programs offer enormous cost and time savings to our
Federal customers. We continue to strive to deliver operational
excellence in all that we do at GSA and support to assist other
agencies in the delivery of their mission. The value in
consolidating requirements and leveraging the buying power of
agencies across the government is a role uniquely managed by
GSA.
Thank you for allowing me to appear before you today, and I
am happy to answer any questions you might have.
Senator McCaskill. Thank you, Mr. Kempf. Mr. Gunderson.
TESTIMONY OF RICHARD K. GUNDERSON,\1\ DEPUTY CHIEF PROCUREMENT
OFFICER, U.S. DEPARTMENT OF HOMELAND SECURITY
Mr. Gunderson. Madam Chairman and Ranking Member Brown,
thank you for this opportunity to appear before you to discuss
the Department of Homeland Security's contracting program, and
in particular, its use of interagency contracts. As the Acting
Chief Procurement Officer for DHS, I am the lead executive
responsible for the management, administration, and oversight
of the DHS acquisition program. In that capacity, I oversee and
support nine procurement offices within DHS. The mission of my
office, in conjunction with the component contracting offices,
is to provide the needed products and services to meet the DHS
mission and to do so in a way that represents sound business
and demonstrates that we are good stewards of taxpayer dollars.
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\1\ The prepared statement of Mr. Gunderson appears in the Appendix
on page 133.
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The threats we face are variable, and as a result, the
acquisition program must be flexible and provide alternatives
to deliver effective solutions. Similarly, the contracting
officers and program managers must assess each requirement and
determine the optimal acquisition and procurement strategy to
meet the given need. This strategy includes the examination of
existing contracts, both internal and external to DHS, as well
as the award of new contracts.
Determining the procurement strategy is an important part
of the pre-award process and is critical to the execution of
the program and delivery of needed capability in a timely and
cost-effective manner. In accordance with the Federal
Acquisition Regulation, the contracting officer first considers
required sources for particular supplies and services. They
also consider existing available contracts, including the
General Services Administration's GWACs, Multiple Award, and
Federal Supply Schedules. Additionally, if a particular need is
covered by a Federal Strategic Sourcing Initiative, the
contracting officer will leverage the vehicle to achieve
demonstrated savings as well as to limit the resources
necessary to execute a new procurement.
While these different contracting alternatives are utilized
regularly, given the unique scope of the DHS mission, there is
often a need to conduct a new procurement. In situations where
there are like needs across the Department, an enterprise-wide
contract may be determined to be the best strategy. An
enterprise-wide contract can provide a combination of benefits,
including, one, support of specific mission needs; two, support
of strategic sourcing initiative; three, a vehicle to be used
by various contracting activities in lieu of conducting
multiple new procurements; and four, assisting in achieving
socio-economic objectives, such as small and small
disadvantaged business goals.
As noted in a GAO report, DHS regularly leverages its EAGLE
and First Source contracts, enterprise-wide vehicles for IT
services and products, respectively. Shortly after DHS was
formed, the Chief Information Officer recognized a need to
establish an enterprise architecture for DHS and to develop a
strategy for an IT infrastructure that both integrated systems
and eliminated inefficiencies. Given the preexisting IT
environments, we recognized that this would be a challenging
undertaking and would not be completed in a short time frame.
As a result, we determined that a cadre of contractors that
were familiar with the DHS IT infrastructure would be best
positioned to deliver the needed capability in the most cost
effective and timely manner possible. While the products and
services available under these contracts are similar to those
found under GSA programs, this rationale justified the award
and use of the contracts.
Another example when an enterprise-wide contract is the
best strategy is our Professional, Administrative, Clerical,
and Technical Services (PACTS) program. This service-disabled
veteran owned small business set-aside was established to
increase opportunities for SDVOBs and better position DHS to
meet the Federal-wide goal of 3 percent. Since the award of
these contracts, DHS has increased its awards and we are
currently on target to meet the Federal goal this year.
While enterprise-wide contracts have been integral to our
contracting program, contracting officers and program managers
have effectively utilized GSA contracts where appropriate. Over
the past 3\1/2\ fiscal years, DHS has awarded approximately
$9.6 billion on its EAGLE and First Source contracts, but also
awarded $7 billion on GSA contracts, including nearly $1.4
billion on IT efforts. Having the flexibility afforded by
alternative contracting vehicles has proven both effective and
beneficial to the contracting and program offices in their
efforts to deliver mission capability.
Thank you for your continued support of the DHS acquisition
program and for the opportunity to testify today, and I look
forward to your questions.
Senator McCaskill. Thank you, Mr. Gunderson. Ms. Frasier.
TESTIMONY OF DIANE J. FRASIER,\1\ DIRECTOR, OFFICE OF
ACQUISITION AND LOGISTICS MANAGEMENT, NATIONAL INSTITUTES OF
HEALTH, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
Ms. Frasier. Good afternoon, Chairman McCaskill and Ranking
Member Brown. Thank you for the invitation to appear before you
today to discuss efforts by the NIH to ensure competition,
efficiency, and transparency in its interagency contracting
program.
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\1\ The prepared statement of Ms. Frasier appears in the Appendix
on page 136.
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In response to the Clinger-Cohen Act, NIH established the
NIH Information Technology Acquisition Assessment Center
(NITAAC), program to provide technical and acquisition subject
matter expertise in the area of technology management to the
NIH. NITAAC established several indefinite delivery contracts
with the goal of providing a means for the NIH acquisition
community to acquire in the most efficient manner the most up-
to-date information technology solutions and products for its
laboratories and programs. News of the value and effectiveness
of using the acquisition vehicles established by NITAAC quickly
spread and other components within HHS, as well as other
Federal agencies, began using these vehicles in order to meet
their information technology needs.
In September 2000, NIH was designated as an Executive Agent
by the Office of Management and Budget to establish and
administer Government-Wide Acquisition Contracts. Three
contract programs were established with 128 prequalified and
well-recognized prime contractors, offering a full array of IT
expertise and solutions in the form of customized IT support
services, maintenance, and computer products.
Since the inception of NIH GWACs, 14 Federal departments
and more than 21 agencies have utilized them to fulfill
critical information technology needs. During fiscal years 2001
through 2009, departments and agencies have placed task and
delivery orders against these NIH contracts, resulting in
obligations ranging from $68 million to $1.1 billion for a
given fiscal year, totaling $6.7 billion.
Currently, NIH is not managing any multi-agency contracts.
NIH does take advantage of the GSA Multiple Award Schedules to
obtain supplies and services that it cannot acquire either
through its internal inventories or through other NIH
contracts.
With each iteration of its GWACs, NIH strives to enhance
competition, efficiencies, and transparencies. These GWACs give
Federal agencies access to the most progressive and innovative
technologies and solutions available from contractors that are
expert in both IT and health-related fields. Further, within
the advent of the Affordable Care Act, solutions made available
through these vehicles will go far in assisting Federal
agencies in executing reform initiatives and aligning with the
Federal health architecture.
NIH continually strives to ensure that small and small
disadvantaged businesses receive a fair proportion of the total
dollars awarded under the NIH's GWACs. In fact, 70 percent of
our GWAC awards were made to small businesses.
NIH has streamlined the task order process under the GWACs
through the development of agile Web-based tools that enable
Federal agencies to ensure fair opportunity and obtain the
highest level of service at fair and reasonable prices. NIH
also provides its customers with acquisition and technical
expertise to assist them in defining the requirements in a
manner that promotes high-quality solutions.
NIH's GWACs offer competitive pricing. In fact, HHS
designated one of these GWACs as a strategic source as it
offers pricing at rates lower than established catalog or
market prices.
Pursuant to its Executive Agent designation, NIH is
required to maintain transparency with respect to its overall
management of the GWAC program. In this regard, NIH regularly
reports to OMB on its performance metrics and its ongoing
efforts to improve contracting practices, competition, and
financial management. Transparency is further achieved through
outreach to customer and contractor communities, active
involvement in NIH's Industry Advisory Committee, which is
utilized to enhance communications between NIH acquisition
management personnel and the GWAC holders, and a Web site
containing a wealth of useful information.
As an Executive Agent, NIH provides an alternative to
Federal Government agencies in meeting their IT requirements
through a value proposition that best supports health care
reform initiatives, efficiency, competition, and transparency
through acquisition process and meaningful small business
participation.
Thank you for the opportunity to testify before you today.
I am happy to answer any questions you may have.
Senator McCaskill. Thank you, Ms. Frasier.
Let us get started with the overall problem that we don't
really know if these contracts are saving money, and if so, how
much, because of the lack of reliable data that we can compare
across these various contracting vehicles. I am always hesitant
to start talking about databases because we have already had so
many hearings about flawed databases in this room that I have a
headache from it. Creating a database doesn't do you much good
if it is not gathering accurate information consistently, if it
is not reliable, and just creating another database doesn't
work.
For example, flat-screen TVs. The Federal Government
probably buys thousands and thousands of them every month. Is
there any place I could go right now if I wanted to know what
the average price of a flat-screen TV that we are paying for in
the government? Is there anyplace I could go and find that
information? Anyone?
Mr. Kempf. I think there are some places you could go and
get some prices on it. I think GSA Advantage is one place that
would list some prices that we have negotiated under the
schedules for prices for those kinds of products.
Senator McCaskill. And, Mr. Gunderson, before you buy a
flat-screen TV at DHS, do you look at those schedules?
Mr. Gunderson. The buying activity would examine--for that
type of item, they definitely----
Senator McCaskill. You need to hit your microphone, sir.
Mr. Gunderson. Oh, I did. I am sorry. Definitely, the
contracting officer would utilize the GSA opportunities for
those types of items and go there and they would do a
competitive buy off of there.
Senator McCaskill. OK. So are you saying with confidence,
and I know, Ms. Frasier, you escaped DOD. I hate to take you
back there, because that is a contracting morass, a special
kind of contracting morass that I am fairly familiar with. Are
you all confident that anywhere you go in the Federal
Government that they are checking the GSA Schedule and they are
getting at or near the lowest price on the GSA Schedule for a
47-inch flat-screen TV?
Ms. Frasier. The community is taught that they should be
reviewing all the prices and selecting the best price
available. However, in practice, whether they are or not, that
is debatable. But they have been instructed that it is the
rules under the Federal Acquisition Regulation that is what
they should be doing, seeking the best prices, making the price
analysis.
Senator McCaskill. And who is in charge of trying to figure
out if we are doing that? This is so fragmented. That is why
there is no accountability. And I know Mr. Needham could
probably talk all day about that. But they are supposed to,
right? And I am talking about something really simple, a flat-
screen TV. But is there any confidence that people are actually
doing that? I don't sense that there is.
Mr. Gordon. Chairman McCaskill, if I could----
Senator McCaskill. Sure.
Mr. Gordon. Your example of a flat-screen TV is actually a
particularly good one because the approach we are taking as we
are moving forward with strategic sourcing is to focus on lines
of business, if you will. In IT, as I am sure you have heard,
we in OMB are taking initiatives to rethink the way the
government is doing its IT projects with my colleague, Vivek
Kundra. We are rethinking how that works.
I will give you an example of another line of business,
overnight delivery services. We discovered, and this is
consistent with your question, all sorts of agencies had all
sorts of arrangements with the companies that do overnight
delivery. We were paying a whole range of prices. So what we
have now done is a Government-wide Strategic Sourcing
Initiative, and we now have good prices for overnight delivery.
One of the challenges, though, for us at OMB is ensuring
that the entire government uses that contract. Once we have
those good prices, we need to get the word out and be sure that
the agencies are taking advantage of those good prices rather
than, as is implicit in your question, not checking and perhaps
paying more than we should.
Similarly, with our new Blanket Purchase Agreements (BPAs),
for office supplies, one of our responsibilities at OMB,
working with our partners at GSA, of course, is to get the word
out so that a contracting office, whether it is someone sitting
in a national park in Wyoming or a military base overseas,
knows we have these BPAs. That is where we should be buying.
Senator McCaskill. Well, it would be nice if they could
call them something other than BPAs, because that is part of
the problem here. In preparing for this hearing, I felt like I
was in the Armed Services Committee. You guys have as many
acronyms as they do. BPAs is our version of Costco, right?
Mr. Gordon. Actually, I am not a member of Costco, so I am
not positive. [Laughter.]
Senator McCaskill. Well, it is an attempt--a BPA is a
Blanket Purchase Agreement where you know there is a widget
that everyone uses and you get a best price possible for that
widget. Then everybody can buy the widget for that price.
Mr. Gordon. Yes, but the problem is, too often, we have had
single-agency BPAs, which in my view defeats the purpose.
Senator McCaskill. Right.
Mr. Gordon. That is why in office supplies we said, we are
not doing single-agency BPAs. These BPAs are going to be
available not only to every Federal employee, but the Federal
employee doesn't need to know the name BPA. They don't need to
know the acronym. They don't need to know a number. They don't
need to say, ``Hello, I would like the BPA price.'' If they
walk up to one of these 11 small businesses and one large
business--that large business is Office Depot--if they walk
into an Office Depot with their government charge card, they
will get those prices. They don't need to ask for them. They
don't need to come up with acronyms and numbers.
Senator McCaskill. And can they click and get those prices
and have them delivered?
Mr. Gordon. You bet. They will get them automatically.
Senator McCaskill. OK. So why don't we just require
everybody to do that?
Mr. Gordon. We are moving out right now on that front. But
this is the beginning of a process. Office supplies are our
first success story. We need to do more. IT is one of the areas
where, in my opinion, we have the richest areas of opportunity
for more strategic sourcing.
Senator McCaskill. Well, if we have one big vendor and 11
small ones and we have Internet capability, I guess I don't get
why don't you just say you have to? Why don't you just say,
everybody in the Federal Government, you can no longer buy
office supplies except through this vehicle. I mean, if this
were a business, we would have done this decades ago because we
would have cared how much money we spent.
Mr. Gordon. I appreciate the point, and let me tell you,
when we met with industry, and I was there in the meetings with
industry in December and January, they said, if you want to get
good prices on these BPAs, you are going to need written
commitments from the agencies that their people will have to
use them. So we heard, we went to the agencies--and GSA was
very helpful on this--we came with letters of commitment of a
quarter-of-a-billion dollars a year, where agencies said, we
will tell our people to use these BPAs. We are right in line
with your question.
Senator McCaskill. Well, I guess I am curious, why do we
have to get it in writing from them? Why don't we just say they
have to? I mean, can't the President just say to the Executive
Branch, you guys have to buy office supplies through this
purchasing mechanism?
Mr. Gordon. We certainly want them to, but there could be
reasons--there can be all sorts of specialized reasons, unique
circumstances. I am not sure that it is helpful to make----
Senator McCaskill. For office supplies?
Mr. Gordon. I am not sure that we need to make it illegal
to buy elsewhere, but we certainly want this to be their--this
should be the default. This is where they go. They buy from
these BPAs.
Senator McCaskill. I think you are going to be disappointed
unless you make it illegal.
Mr. Needham, yes?
Mr. Needham. We looked at BPAs last year and what we found
is that of 320 cases, they didn't go for discounts in 47
percent of the cases that we looked at. And it is often
incumbent--it is like with task orders on these interagency
contracts. You need to have some initiative at the contracting
officer level to do this. They have to have some incentive.
Right now, they are held accountable for--when I have talked to
contracting officers, they are held accountable for playing by
the rules. They want to make sure they follow the rules and
they want to make sure they do it well and quickly. But in
terms of getting a discount, there is no incentive for----
Senator McCaskill. There is no incentive for a lower price.
There is incentive for getting it there on time, because the
people who they are serving are--that is the squeakiest wheel
that they have got.
Mr. Needham. Right. Another point on BPAs, when we looked
at them, of the 320, they are required every year under the FAR
to go back and review whether or not the prices they negotiated
originally are good. In only 19 of the 320 cases, or about 6
percent, did they actually do that.
Senator McCaskill. Oh, Lord.
Mr. Needham. So there is that issue that there has to be
initiative at the contracting officer level to make sure----
Mr. Kempf. Chairman McCaskill, that is one of the things
that we have started to do at GSA, and I talked a little bit in
my testimony about some of the training. And one of the things
that we recognize, and I think it was apparent in the first
panel, is that we have an acquisition corps that needs a little
bit of training.
One of the things that I always hear when I go out and talk
about the Schedules program is they are difficult. They don't
understand how to use them. We run into some of the things that
Mr. Needham spoke about with respect to how do you do a BPA?
How do I get the right prices? How do I manage it?
So that is one of the things we were working with FAI in
developing a couple of courses----
Senator McCaskill. What is FAI?
Mr. Kempf. The Federal Acquisition Institute.
Senator McCaskill. Thank you.
Mr. Kempf. To develop courses on how to use the Schedules
appropriately and how to use the Schedules in an advanced
manner on things like how to develop a BPA and how to get the
right prices.
One of the things that we need to learn how to do, the
contracting corps, that is, is to learn how to leverage the
Schedules when they do buy, so aggregating requirements,
learning to buy at the right times of the month, all of those
things that can actually drive discounts lower when they
compete the procurement, either for a single buy or for
something like a BPA.
Senator McCaskill. Senator Brown.
Senator Brown. Thank you, Madam Chairman. I have enjoyed
your line of questioning, and just to, if I may, play off it a
little bit, with regard to the BPAs, it seems like we just need
to make a decision and stick to it and tell them what they need
to do, not sort of, kind of.
I find, being here over 100 days now, that the biggest
problem we have is people just need to make decisions and stick
to them and then let people know what the consequences are if
they don't do it. It seems kind of common sense.
I believe, similarly to you, Madam Chairman, that if we
don't do it, they will--if we don't draw the line in the sand,
it will not get done. So I know the President has made an
effort and a commitment to try to save money, and as you know,
we are struggling with a whole host of things, Madam Chairman.
Later, we are doing an unemployment extension. We are looking
for summer jobs money, FMAP, and we are talking $40 billion
that the President feels he can save in government waste or
overpayments or streamlining, consolidating.
When do we start getting really serious about this and what
efforts are you actually doing to save me, my kids, and my
grandkids--when I have them--some money? I mean, when are we
going to have that money available so we can put it to other
uses, because it seems to me, as a newcomer here, that we are
just not focusing on making those tough decisions, and just
doing basic things that would save us dollars immediately. So I
am wondering if each one of you could kind of tell us what you
are doing to adhere to the Administration's request to save $40
billion.
Mr. Gordon. Senator Brown, if I may, we take it very
seriously and we view it as our responsibility. I view it as my
personal responsibility in this job to see to it that we save
that money and reduce the risk that our taxpayers face when we
don't do a good job contracting. We are doing it on many
different fronts, but I can go through the high points here.
We are terminating programs that are not effective so that
we are cutting back on acquisition and not buying things that
we can't afford or that we don't need.
We are focused on strategic sourcing. We are focused on
cutting back and revamping the way we do IT procurements, the
way we do financial systems management procurements. We need to
save money. We have gone too long getting used to the idea that
contractors can go over the budget, beyond the Schedule, and
not deliver what they have promised us.
Senator Brown. And get rewarded.
Mr. Gordon. Absolutely. We are trying to change that
culture.
I will tell you, and it is a point that you mentioned,
Senator, in your opening remarks, and I think it is absolutely
true, part of the problem here is that our acquisition
workforce has not been supported. We have not invested in them
adequately. The President's budget includes $158 million to
build up our civilian agency acquisition workforce. That is
sorely needed. We pay a price when we don't have well trained,
adequately staffed acquisition offices.
We are also working to reduce the use of no-bid or sole
source contracts. We have to be sure that we get adequate
competition. That drives prices down.
We have got to be moving more to fixed price contracts,
because cost reimbursement contracts and especially time and
materials contracts risk costing us too much.
Let me stop there, but we are completely focused on the
very concerns you are raising.
Senator Brown. So do you have a number that you have
ultimately saved to date or you plan to save in the future?
Mr. Gordon. We are focused on the $40 billion challenge
from the President. Our report that came out recently talked
about $19 billion in savings plans. Both the terminations and
the strategic sourcing will provide very real savings.
Senator Brown. OK. Does anyone else want to comment?
Mr. Gunderson. Yes, thank you. I am going to echo some of
what Mr. Gordon said, because in response to last July's OMB
memo on achieving these savings and reductions of high-risk
contracts, we actually developed a plan and submitted it and it
addressed a lot of the things that Mr. Gordon mentioned, such
as what are we going to do to reduce the use of cost type, time
and material, labor hour contracts? What are we going to do to
increase competition?
A lot of that gets to how well do you define your
requirements. A lot of times, if you don't have good
requirements, you are going to be forced into cost type
contracts. So we are working with our program offices to get
them better trained and also better staffed so they can define
those requirements.
We are also looking at increasing the strategic sourcing
opportunities across the Department. Where we can in-source
things that used to be contracted out which are better suited
to be done in house, we are doing that, seeing some savings
there. And also, where it is appropriate to have a program
reduction or an elimination, we have also looked at those
opportunities.
I don't have the numbers with me today, but we already have
seen millions in savings and we are going to continue to do
that over the next 2 years to meet the goals.
Senator Brown. Madam Chairman, it would be helpful if maybe
at some point we get an update as to what the goals are and
what they have saved to date so we can report back to our
folks, our citizens at home as well as our leadership.
The Economy Act was passed in 1932. It is a method of
avoiding duplication of work on the government's behalf, and as
you know, it was done in an effort to foster broader
interdepartmental procurement. It provided one Federal agency
would buy goods and services from another rather than from
private industry. In addition, we have 34 separate funding
authorities for multiple agencies, some dating back as early as
1958.
On the funding authorities, and this question is to the GAO
and OFPP, on the funding, are there still 34 funding
authorities, and if so, why? Should these dated funding
authorities be reviewed to align with how the Federal
Government does work today?
Mr. Needham. Senator Brown, that is an interesting
question. In terms of 34 funding authorities, we will work to
get that defined. I don't have an answer right now for you. But
I know going through, there are multiple authorities, and I was
thinking of a book that was written about a dozen years ago. It
was called ``The Tides of Reform,'' and it started with the
Economy Act. It talked about all the different pieces of
legislation that have occurred over the years, and the author,
who used to work for this Subcommittee at one point, said that
administrative sediment just builds up and builds up, and there
has not been really a comprehensive look-back, because we
passed a number of reforms back in the 1990s and there is not
really a systematic thinking of how do these all fit together
and how do they interplay so that they actually can be
operationalized by that contracting officer.
It is a difficult job for the person who is trying to write
the contract and do the buying for the government because they
have so many rules they have to comply with. Now, General
Counsels' offices will typically try to make those work for
them, but there are a lot of rules.
In terms of those different funding authorities, they are
pretty well defined for each in the FAR, and so people know
where they are. But in terms of the actual inventory of them,
we can get that information for you later.
Mr. Gordon. Senator Brown.
Senator Brown. Yes.
Mr. Gordon. It is interesting that you raise this issue
because it reminds me that we actually have made some progress.
If we had been having this hearing six or 7 years ago and we
talked, for example, about franchise funds, which are one of
those funding authorities that have caused confusion, where I
worked at the time, GAO had concern that these franchise funds
were being abused, that one agency would use another to do an
assisted acquisition. That is to say, the Department of X would
have the Department of Y run an acquisition for them. And we
discovered when I was at GAO that one year's funds would be
shifted over, parked there, and then they could be used in
future years, taking advantage of what was essentially a
loophole, and it was a cause for real concern.
The Department of Interior's National Business Center was
one of those franchise funds that came under a lot of criticism
for that very reason. At one point, DOD was prohibited from
using those franchise funds outside the Department until the
situation was corrected. The situation was corrected, and in
fact, the National Business Center has received a clean bill of
health from the Inspectors General at both DOD and the
Department of Interior. That is why this past year DOD was able
to again do an assisted acquisition with Interior for the
Military One Source program in a way that turned out to be a
model use of the flexibilities that interagency contracts
provide.
It is, I think, a very nice case study of a problem that
was recognized here on the Hill and elsewhere, the problem
being addressed, and the situation being improved.
Senator McCaskill. So nobody is parking funds anymore, Mr.
Gordon?
Mr. Gordon. I would not be willing to say that no one was
parking funds.
Senator McCaskill. I am willing to bet there is some
parking still going on.
Mr. Gordon. What I will tell you is people, if they are
doing it, know that it is not proper. And in fact, 6 or 7 years
ago, and this was mentioned, I think, in either a GAO report or
an IG report, one of the agencies, one of the franchise funds
that I think no longer is in operation in the acquisition area
actually had on their Web site one of the attractions of using
them was that you could park your funds. Those days are gone,
which is not to say we have perfection. We don't have
perfection, but we have addressed the problem. People at least
know that it is not proper.
Senator McCaskill. Well, since we have talked about parking
funds, the thing that got my attention in this area when I
first arrived here there was a hearing, I believe in this
Subcommittee, where there was a lot of talk about interagency
contracting and there were examples of advertisements that we
examined, including the ability to park funds and then the
fees.
Why are agencies able to charge other agencies fees, and
has that been the appropriate incentive to streamline and
maximize value for taxpayers? Or, in fact, have the fees been
just a way that we can play a shell game with the public's
money?
Mr. Gordon. I am perfectly willing to go first, but I don't
want to deny my colleagues the ability to respond.
Senator McCaskill. Well, you can start, Mr. Kempf, because
I think some of the agencies say they are starting their own
enterprise efforts because you are too expensive.
Mr. Kempf. Well, the General Services Administration,
especially the Federal Acquisition Service, and I think the
Public Buildings Service (PBS), to a certain extent, as well,
we recoup our costs through the setting of fees. We don't
intend to ever collect more than we actually need or the costs
of our operations. We get very limited appropriation, and in
our mind, it creates an incentive for us to hold down costs, to
deliver goods/services, and provide what the customers want.
So it makes us look at the breadth of services we have and
to make sure that they are--in many ways, it is just like
entrepreneurship that you would see in the private sector to
make sure we are delivering what the agencies want, because
they do not have to use us, with limited exceptions. They can
go elsewhere, which sometimes they do.
Senator McCaskill. Well, let me ask Mr. Gunderson and Ms.
Frasier, do you think that your agencies have looked inward in
terms of providing interagency contracting vehicles because the
fees at GSA were too high?
Mr. Gunderson. In the case of EAGLE and First Source, our
IT contracts, that was not the primary driver of deciding that
we needed to have those contracts. If you probably do the math,
we could probably say that from a financial perspective, we are
better off. But the reason EAGLE and First Source were set up
was to meet the kind of the strategic IT mission that we saw,
bringing all these different IT legacy environments together.
How are we going to consolidate the number of data centers? How
are we going to get to an enterprise architecture?
We felt having a suite or a cadre of contractors that would
become more familiar with the Department's IT environment over
a short period of time, they would be better positioned to
respond to the individual orders going forward. So in that
situation, the fees were not the primary issue for us.
Senator McCaskill. OK. So the fees were not the primary
issue. I get the sense that EAGLE really came about because you
all wanted your own deal.
Mr. Gunderson. In the sense we felt that it would both meet
the mission need better, delivering the products and services,
and from a business standpoint, we also felt it was going to be
a good business deal for the Department and the public.
Senator McCaskill. Was that intuitive that you felt it was
going to be a good business deal, or is there any data that you
can give us to support that?
Mr. Gunderson. If you look at, historically, what we have
spent to date--if you want to look at it financially first, if
you look at----
Senator McCaskill. I do.
Mr. Gunderson [continuing]. The amount of money that we
have spent, on EAGLE, I believe it is over $8 billion so far.
If you look at the fees associated with that, and there are
some caps that would be invoked in there, there would still be
millions of dollars of fees that would be associated with that.
And if you look at the cost, the estimated cost to
establish those contracts, the EAGLE and First Source
internally, we estimated those to be a few million dollars. I
would probably say $3.5 to $4 million. So from a financial
perspective, we see it in a positive manner.
Senator McCaskill. Well, I would really like to see the
numbers. The auditor in me would like to see you demonstrate
that what you have done has saved taxpayers money.
Mr. Gunderson. Yes. The estimates I gave you, they are
based on labor hours of FTE that were associated with the
program and setting that up, also other miscellaneous costs,
support contract costs, facility costs associated with
establishing a competition, and things like that. So we can
provide information to you.
Senator McCaskill. Mr. Gordon, I know that you are supposed
to be policy. Part of the problem here is that there is no one
really in charge, and I know the challenges that DHS had in its
infancy. They were significant. You were cobbling together a
bunch of agencies and you were asked to do it overnight and
there were incredible demands in terms of IT capability. I
understand that it is almost instinctive, almost a reflex that
you would want to have this inside and not be relying on
outside contracting with another government agency.
But I don't get the sense that these decisions are being
made with money as the primary driver. I get the sense these
decisions are being made so the agencies can maintain
flexibility and responsiveness as opposed to whether or not any
money is going to be saved.
And I guess I am saying that, Mr. Gunderson, because I
don't think that it is easy for you--I don't think there was a
financial analysis done prior to making the decision to do
EAGLE, was there, an in-depth financial analysis as to the
costs?
Mr. Gunderson. That preceded my time at the Department, so
I would have to go back to see when the numbers came together.
Senator McCaskill. Mr. Gordon, so do you require that the
numbers come together before something like this happens?
Shouldn't there be somebody saying that you are going to
have to jump through the hoop of a cost-benefit analysis prior
to creating another contracting vehicle which adds to the
complexity and to the maze, that adds to the stress to the
acquisition, that makes the acquisition force even more
confused, that makes it even less likely that we are going to
get a handle on all this?
Mr. Gordon. I very much share your concerns, especially
regarding the burden on our acquisition force and the confusion
that this can create and the extra cost to industry.
As I said in my opening statement, the business case model,
I think, makes sense. We have used it successfully in GWACs so
that when NASA, for example, wanted to be allowed to continue
to be the executive agent for a GWAC, our rules require them to
come to OMB. They need to tell us what fees they are going to
charge and we need to review them to be sure that those are
reasonable, because these should not be profit centers. These
should be reimbursing costs, but not profit centers.
We want to know why it makes sense for them to do it. What
advantage do they have? With respect to NASA, for example, they
told us they can provide high-end, high-tech IT and draw on
their in-house scientists and engineers. So they could make a
strong business case.
But in our view, before any agency creates a new multi-
agency contract, they should have to do a business case, and in
fact, we will be issuing guidance later this summer that
requires that.
Beyond that, I think that even in the case of an
enterprise-wide contract, a business case approach should be
taken. Agencies should not create these confusing vehicles
without being sure that they are justified.
Senator McCaskill. Ms. Frasier, while we are on this
subject, GAO indicates that NIH gets high marks from its
customers. Now, I don't think most taxpayers would understand
why the National Institutes of Health is a store of choice for
government agencies buying stuff.
Explain to me why you think you are, and if you all are so
good at it, why don't we just take those people that are doing
it for you and give them to Mr. Gordon and grow his shop to the
point that they could really direct, not just policy, but
direct acquisitions in the Federal Government?
Couldn't we cherry-pick the best out of all the agencies,
put them in one place, dredge all the law out there that you
were talking about, the multi-layering of the different laws
that the people sitting in these chairs have done because they
thought they were doing the right thing, dredge all that out,
start with a fresh slate of rules, maybe a new piece of
legislation that would clean out all the old stuff and make it
modernized, make it more IT-friendly as it relates to
acquisition and purchasing? Give me an argument why we
shouldn't do that.
Ms. Frasier. Well, first of all, just let me say why NIH is
involved in IT procurement. Back in 1996, we had needs for IT
for both the folks in our labs, all of our centers and
institutes, and we developed the NITAAC program for NIH. What
happened was that we never precluded any other agency from
using our vehicles, and when word got out about our vehicles
being available, they began to use it.
The infrastructure that we have established, and actually
established in great part due to OMB's guidance and oversight,
is an infrastructure that looks at customer service as being
our primary focus, making sure that we have the contracting
officers in place, making sure that we have a help desk that is
useful to our customers, and a vehicle that is streamlined and
efficient, plus using IT, since we are an IT program, using IT
to reinforce the streamlining and efficiency.
As far as developing one particular cadre of professionals
to look at all of IT, there is a reason that we have multiple
agencies, and there are certain needs that need to be met by
those agencies and they have that requisite expertise.
Certainly, we are very proud of our NITAAC program and
would welcome if Mr. Gordon wanted to take our program and
infrastructure and to work closely as we do with some of our
industry partners. But we do have to recognize that there are
reasons why there is a GSA, why there needs to be IG contracts
within some other agencies, that our vehicles cannot meet their
needs.
Senator McCaskill. Senator Brown.
Senator Brown. Mr. Gordon, you spoke earlier in your
testimony that you are recognizing that there is money there
that needs to be saved, and you are working to meet the goals
set up by the Administration. And something, based on the
hearing that the Chairman held, which I found fascinating, is
that there are many contractors that owe us money, either
through overpayments or fraud or administrative errors and the
like that is hundreds of millions of dollars and has been owed
forever.
When you were talking about contracts, you talked about not
only the structure of contracts, the type of contracts, and
even if they don't deliver, they still get a bonus. And we have
another situation where we know who owes us the money. We know
that it has been certified appropriately as to what that number
is, yet we haven't gone out and actually gotten it. Do we have
a lot of extra money lying around, or should we go collect it?
I mean, as an attorney, I remember I didn't have any
receivables, because you have to pay the bills. Well, the
Federal Government needs to pay the bills, as well. Is there a
plan to collect that money?
Mr. Gordon. Absolutely, Senator. I appreciate the point. We
are very much supportive--there has been a recent initiative to
avoid improper payments. Actually, Chairman McCaskill, I
believe, has sponsored legislation that would help crack down
on tax delinquents that are trying to get Federal contracts.
Now, it is true that IRS already has a program in place so that
it can offset tax debts, but too often, we have situations
where contractors with tax debts or tax delinquencies are
nonetheless getting contracts and we need to address that and
be sure that it is justified if it does happen.
So we are very much focused on avoiding improper payments.
There is a ``do not pay'' list that was recently announced. We
need to take steps to be sure that when you have, as you said,
Senator, you have a settled obligation to the Federal
Government, we need to collect on that obligation.
Senator Brown. Well, I commended the President for that
``do not pay'' list. I thought that was a good first step, and
I am wondering what is being done to try to collect the money
that is owed. What is actually being done? Do you have
attorneys? Do you have collection? How is it being done?
Mr. Gordon. A number of steps are underway, including, as I
said, through the IRS. Incidentally, you mentioned another
important point, which is this problem that GAO has highlighted
of contractors getting award fees even when not justified. We
are providing further guidance to see to it that companies
don't get award fees when their performance doesn't justify
that.
Senator Brown. Yes, please address that. That is driving me
and many other just average citizens crazy when the government
is the only place where you don't perform and you get a bonus.
It just blows my mind.
Interagency usage fees, Mr. Kempf. As you know, the GAO
report discusses some of the reasons the agencies establish and
use multi-agency contracts and enterprise-wide contracts is to
avoid fees and have more control over procurement, so I would
like to just focus on those fees. Why are there fees in the
first place? Just three very short questions, you can answer
them in whatever order you want. What are your fees and how are
they determined, and what is actually done with the revenue
collected from the fees?
Mr. Kempf. Basically, GSA, at least the Federal Acquisition
Service, is not funded through appropriations, so we run
ourselves much like a business. We recover our costs and only
our costs. Each year, we set our fees and decide how to spend
our money with personnel and with all the other things we need
to run our organization. We pay our own rent. We also pay for
overhead for the services we get from something like our Chief
People Officer and all the rest of that. So we set our fees in
line with our cost structure.
We also invest in equipment and systems, like our
Enterprise Acquisition System, GSA Advantage, eBuy, and some of
the other e-tools that support our program and that the
customers use to buy through GSA. So, essentially, we are set
up by statute that way. The Federal Acquisition Service was set
up by statute and that was the way that they determined we
would operate.
Senator Brown. So do you actually have a budget? Do you
have a yearly budget? Because I know the Federal Government
doesn't have a budget yet, but do you actually have one?
Mr. Kempf. Actually, last week, myself and our Management
Council got together and we decided how many people we could
hire, what we were going to invest in in terms of our IT
infrastructure, what kinds of things we were going to do with
the money. We set up a rate structure for what we would charge
for the many services we provide.
And we do a little investment on things. One of the things
that we are doing this year is providing agencies a carbon
footprint tool that was developed with some of our money. So
we, like almost every other entrepreneurial organization, does
invest some of our money into tools and infrastructure and
research and development, if you will, for future services and
products for the agencies.
One of the things that we did this year was invest money in
training, in development and training, because we felt that our
customers needed to learn how to use our tools and our
contracts better than they were using. So we invested some
money with the Federal Acquisition Institute to develop some
training for our customers.
Senator Brown. Do you run a surplus or a deficit?
Mr. Kempf. We try to get to zero. But, of course, we have
$9 billion a year that runs through our program. Last year, we
had a $200 million surplus.
Senator Brown. And what happens to that? Does it just go
back to the general Treasury?
Mr. Kempf. We have a cost and capital plan that was set up
in our legislation. One of the things we did with the surplus
money last year was to increase our reserve fund. We need about
a month-and-a-half reserve to operate the program, and our
reserve fund was low, so we invested most of the surplus into
the reserve so that we would have adequate financial capital to
run the organization.
We also invested a lot of the money that actually was
surplus last year that actually came from--one of the things
that we do is we run the Federal Government's fleet, so one of
the things we have to do is guess what gas prices are going to
be, and one of the things we did last year was we guessed a
little wrong, so we got a little extra money in there from
that. So what we did, we invested that $70 million that we
thought came from that in the fleet in alternative fuel
vehicles where we could provide those to the agencies at a cost
that would buy a regular sedan for.
Senator Brown. And are you in good fiscal shape this year?
Mr. Kempf. Absolutely. Right now, we are running--we think
we will be probably at about $100 million in the black, but we
don't know exactly what is going to happen between now and the
end of the year. One of the things that we have set up is we
have to upgrade our infrastructure. Like I said, we are
spending some money on what we call FSS-19, was the backbone of
most of the services that we provide and we are upgrading that
so that Advantage is much better. We have an Enterprise
Acquisition System that we are putting in place for all of our
contracting across FAS so it will be much more robust and will
also provide some other tools, including transparency and more
pricing information.
One of the things that we need to do is get better business
intelligence through our operations. I think GAO talked about
that. One of the ways we will be able to do that is with the
new infrastructure, we will be able to collect better
information, share it with our customers, and make better
decisions about what we would need to do to get better prices
for the agencies.
Senator Brown. Now, I know the Administration is trying to
save that $40 billion. Is some of the profit the hundreds of
millions that you are, in fact, making or saving or whatever?
Is there any plan to turn it over to the people?
Mr. Kempf. Well, actually, in addition to what we do, we
are also following the same guidance from the President on
saving money, so we are watching what we spend with our--we are
using our own BPAs to cut our costs in terms of our office
supplies, our real estate expenses. So we also watch what we
spend, too, so that we can either keep our costs at the same
rate or in some cases lower them.
Senator Brown. Mr. Gordon, we talked about the importance
of having a business case to mitigate the rapid growth of these
contracts, and from your testimony, you indicated that business
cases are currently required only for Government-Wide Agencies,
GWAC vehicles. Can you explain to me what specific criteria
OFPP uses to determine whether or not to approve an IT GWAC?
For example, in the GSA Alliant and the Alliant Small Business
GWACs, what unique requirements did these two contracts have
that other existing IT GWACs don't have?
Mr. Gordon. Thank you. Mr. Kempf may actually want to
address this, as well, but I----
Senator Brown. Yes, both of you, if you could. That would
be helpful.
Mr. Gordon. Absolutely. From our point of view, the
question is, is there justification for another GWAC? The fact
is, just a few years ago, there were more GWACs and there were
more executive agencies. We have cut back. Today, the only
Executive Agents are GSA, NIH, and NASA. To have a GWAC, in our
view, the agency needs to show justification. They need to show
that they will be meeting a need.
In NIH's case, the unique aspect of health IT is one of the
key reasons that it made sense, just as, as I mentioned in the
case of NASA, there was the issue of very high-end, high-tech
IT, where they were able to draw on their scientists and
engineers within NASA. They also need to show us that they will
be charging a reasonable fee structure, responding to your
concern, Senator.
This is not an effort to set up profit centers at the
agencies. They need to tell us how they are going to manage
these contracts. We need to have an assurance that we in OMB
will get regular full reports about what is happening. We need
transparency about the transactions under the GWACs.
And I think it is noteworthy that both GAO and the
Acquisition Advisory Panel, the SARA Panel, have actually
commended that process within OMB and said that the business
case approach works. What we want to do is expand it so that it
applies to multi-agency contracts and probably enterprise-wide,
as well.
Senator Brown. And just not to jump in, Mr. Kempf, so what
can we do in the Senate to assist you folks in doing what you
need to do, because taking off what Senator McCaskill said, I
am sensing that the government is so big, it can't get out of
its own way. There are so many rules and regulations, so you
need an attorney. Now you need attorneys to kind of review all
the contracts to make sure that they match and this and that.
It just seems like we are so overwhelmed with rules and
regulations. We need to streamline and be lean and mean and be
able to react, not only as we are dealing with, like, the
situation in the Gulf, but just basic purchasing. I mean, how
long does it take to buy the paper products? It takes forever.
We need to do it better.
Is there something that we can do, that we are missing? I
mean, it is nice to bring you folks up here and have you
testify and we do the whole boogie-woogie--I call it back
home--but give us some suggestions because I am happy to work
with the Chairman and try to come up with some solutions to
make it easier and save us real money without going through the
machinations. Is there something that we are missing and we can
help with? You are all silent.
Mr. Needham. I would say that----
Senator McCaskill. Really, they are not asking us to do
anything.
Senator Brown. Especially lately.
Mr. Needham. To pick up on the Chairman's earlier point
about shining a bright light, the fact that you are paying
attention to this, the fact that there is this Subcommittee, is
a very important step, because when you start asking questions,
people have to start thinking about what they have done or not
done or where things stand.
I mean, we are now beginning--we are rethinking a lot of
the approaches to what we are doing in terms of work. This
whole issue of interagency fees is an issue we looked at about
8 years ago. We need to go back to it. There needs to be
constant follow-up and improvement. I think the word that was
very popular years ago is called continuous improvement, and to
do that, you need to pay attention to it, and what you are
doing here helps doing that, and what we do and also what the
agencies are doing to keep that mindset of continuous
improvement and keep going back and using some good data to
say, OK, we have moved forward and how do we keep doing it
again.
Mr. Gordon. I very much agree. I think that the fact that
this Subcommittee exists, the fact that you are focused on
improving our contract management is a service to the Congress.
I hate to say this, it sounds masochistic, but I think you
should bring me back up here at some point and ask me further
questions and say, Mr. Gordon, have you made progress, because
I think we need to be held, in our agencies and at OMB,
accountable for this. We need to ensure that strategic sourcing
is working, that we really are saving the $40 billion, that we
really are reducing the risk. That is our commitment. That is
our plan. We have made progress. But we expect to be held
accountable.
Senator McCaskill. Go ahead, Mr. Gunderson.
Mr. Gunderson. In addition to the continued awareness that
we have here, I think, any opportunity there is to support
workforce initiatives in the acquisition workforce is critical.
The things that have been talked about today, certainly in your
opening remarks about best value, being more efficient, being
more effective, if you ask any contracting officer or any
program manager, they want to accomplish that, and they are
doing the best that they can to try and find that balance
between mission and business. As much as we can continue to
invest in that workforce, get them the training, get the
appropriate staffing in the respective offices, that will go a
long way.
Senator McCaskill. Well, I know Senator Collins has done
great work on acquisition workforce and I have been happy to
work with her, and I know Senator Brown supports those efforts,
also. The acquisition workforce is very important.
I would like you all to give some thought to the multi-
layers of laws that bring to bear in this area, because there
is a tendency around here to always think prospectively about
what law needs to be passed rather than retroactively what laws
need to be changed that are currently on the books. We have a
tendency--I thought the analogy of the sediment was a good one,
where we layer and layer and layer, and we go back and look at
something that was passed in the 1930s and it probably doesn't
work as well today as maybe a new way of looking at it, a new
way of writing. And the rules and regulations get in the way.
I am usually somebody who is saying we need more rules and
regulations, because without them, you get waste, fraud, and
abuse. And sometimes with them and because of them, you get
waste, fraud and abuse, because they get so darn complicated.
So we need to find that where the pendulum is in the middle,
where we have enough regulation that people can get in trouble
for waste, fraud, and abuse, but not so much regulation that
they get in trouble for waste, fraud, and abuse because they
were so darn confused. And I think we are dangerously close to
that area right now because this is such a thicket of acronyms
and contracting vehicles and different types of things.
Let me ask GSA, you really are the bulk of the money in
terms of what we are purchasing. I think the GAO report said
about $60 billion a year, and close to $50 billion of that was
through GSA. We talk about the GWACs and the multi-agency
contracts and the government-wide contracts, but that is really
still a pretty small piece of the action. Where most of the
action is is in GSA.
And when I asked the experts in February, what should your
role be, what should GSA be doing, what are they doing right
and what are they doing wrong, and there was not an unanimity
of opinion on that panel as to what your role should be. Do you
think your mission is still valid, and if it is still valid,
should we be focusing on your acquisition workforce with the
thought that if we get your acquisition workforce up to par, we
get more bang for our buck because of the number of contracts
that are actually running through GSA as opposed to the other
contracting vehicles?
Mr. Kempf. I would say that GSA's mission today is more
important than ever, and I think this hearing highlights that.
Our Administrator, Martha Johnson, has set out three areas for
us to look at to guide our actions moving forward. Those are
operational excellence, customer intimacy, and innovation. She
feels, as do I, that if we focus on those things, we will get
done right what we need to do to support our programs.
And that is why we are spending some money focusing in on
our systems so that--one of the interesting things we get to do
with our job every once in a while is talk to some of the
foreign governments who come here, and one of the things that
they invariably want to look at is how the Schedule program
works and our system like GSA Advantage. They are thrilled when
they see GSA Advantage, and my CIO and I always say, oh, if we
could just start with a blank slate and start all over, and
that is essentially what we are doing, is upgrading our systems
so that they support the kind of decisions that our contracting
officers make, that we can add efficiency.
One of the things we did about 2 years ago was starting--
the first thing we did was look at an acquisition process
improvement program, where we laid out the requirements from
start to finish for all acquisition processes in GSA, and we
are developing a system that will support that from beginning
to end.
The other thing that we are doing is looking at the process
improvement particularly in the Schedules program, where we
have looked at how do we improve the many kind of steps that we
take, the big steps that we take, the modification of the
contracts, the exercise of the option, how long the contracts
ought to be, how does a contracting officer work in that
program, and really get down and make the system and make the
process as effective as it can be so that they can make the
right decisions.
One of the things we focused in on specifically was a
pricing tool. We saw that people were using spreadsheets. They
were getting information in from the vendors that was paper,
and we are moving toward a paperless environment. But one of
the tools I looked at the other day, I talked about our
Enterprise Acquisition System, is actually looking at getting
all of that data in electronically, and the way that the
contracting officers can look at that data in a way that they
couldn't before.
So the only way that they could get this data--think about
a contractor like Dell that might have 1,000 different kinds of
component IT products on their Schedule. Somebody would have to
actually build a spreadsheet. One of the things that this
system will do is actually build--well, you get the information
in electronically. You can see the differentiation in the price
on the products. You can compare it to other products in
Advantage and even import information from other contracts,
whether they be governmental or commercial, and compare the
prices so that you can see as a contracting officer, are you
getting the very best price on that kind of product.
So the power of that tool and the flexibility will give the
contracting officers greater flexibility and better
intelligence to make decisions about how to award the contract,
at what price, and they will even be able to see where the
contractors might be playing a game with the way they are doing
the pricing. So those kinds of things are essential for us
doing well.
We have about 300 contracting officers that are warranted
in the Federal Acquisition Service. We have about 800 1102s,
which is the contracting professional series. We probably could
use more. We have been able to hold our own in hiring. We
continue to increase the ranks, try to bring more in so that we
can deliver and get the products onto Schedule quickly, that we
can staff the GWAC programs and all of our other programs that
we haven't talked about today that are very important, like
running the credit card programs, the City Pair program for
airline tickets, and the Networx program. All of the other ones
that require contracting resources at all, as well.
Senator McCaskill. Well, I know that as someone who doesn't
have time to shop anywhere but on the Internet, that the
private sector has figured this out pretty well. There are very
few things that I can't easily compare quickly with a few
clicks. For the consumer out there, the electronic methodology
is growing by leaps and bounds in terms of delivering the best
value most effectively, and I just know that the Federal
Government is lagging behind. I know that we are going to get
there. I just worry how many contractors and how many different
IT contracts is it going to take for us to get there.
Mr. Kempf. Well, that is one of the things I talked about
earlier that we are doing with Advantage. As I said, Amazon
actually started after Advantage. We were actually one of the
first in the market in it. But we didn't have the resources to
build the technological advances in it that they did. But I
think the advances that we are going to build into the system
that are scheduled to be released this fall will be really
important for that tool.
One of the things that the other contracting officers using
the GSA Schedules have been asking for years, when you go to an
Amazon Website, you see that bright, clear picture and
description. We are going to be using commercial descriptions
that we get from a service that will look like an Amazon----
Senator McCaskill. Are you going to have reviews?
Mr. Kempf. Excuse me, which reviews?
Senator McCaskill. You should have reviews for the
products.
Mr. Kempf. Oh, yes.
Senator McCaskill. You should have the various agencies----
Mr. Kempf. Well, this is----
Senator McCaskill [continuing]. Post reviews, so when other
agencies come to look, they can say, hey, don't trust this
contractor----
Mr. Kempf. Don't buy that one.
Senator McCaskill [continuing]. He didn't deliver what he
said he was going to deliver. You should put up there shopping
reviews just like the consumers have. There is no reason not
to.
Mr. Kempf. We will take that under advisement. But one of
the things we will be able to do----
Senator McCaskill. Don't be so worried about getting sued.
Mr. Kempf. Yes, that would never happen. [Laughter.]
But one of the things that this will actually do when we
get there is once you pull up a product, you will be able to
see other products similarly priced. That is one of the things
that our current infrastructure doesn't support. So we will be
able to be much more useful for the contracting officers in
making decisions.
One of the things that they have been saying to us is the
pictures, I can't tell from the pictures, because one of the
things that we say, when you get your Schedule, you have to
give us the pictures and we post them. Some of the contractors
will give us like their icon. So when you are looking to see
the picture, you see an icon of their company because they
didn't have the wherewithal to provide the kind of pictures----
Senator McCaskill. Well, if they can't figure out how to
give you a digital picture of what they are trying to sell the
government, we probably shouldn't be doing business with them.
In this day and age, seriously.
Mr. Kempf. Well, we are going to fix it for them one way or
the other.
Senator McCaskill. My teenagers could handle that for them.
[Laughter.]
So I think that is something you need to be more adamant
about.
Mr. Kempf. Absolutely.
Senator McCaskill. I think sometimes the relationship
between the vendors and the government gets a little confusing
sometimes. I think that we forget how much money these vendors
potentially have to be made off the Federal Government. There
is not a bigger purchaser in the world than the U.S. Federal
Government. That is not something I am bragging about. I am a
little worried that I can say that. But we have incredible
power and it is untapped. Make no mistake about it, it is
untapped. We are doing--we are nibbling around the edges in
unleashing the purchasing power we have.
But I think that this particular panel has demonstrated,
and I know there are many others like you, dedicated government
employees that are not in this for the big money. You don't go
into acquisition in the government because you want to be a
star. You go into it because you are driven by a desire for
public service and trying to do the right thing, and I do think
that there is great potential.
I have an unrelated question to this subject matter.
Senator Brown, do you have any other follow-up questions on
this subject?
Senator Brown. I just have one.
Senator McCaskill. OK.
Senator Brown. Mr. Gordon, one of the things I enjoyed when
the President was in his early days is he was going to do a
top-to-bottom review of every Federal program to see where the
waste was and attack it and get rid of it, streamline,
consolidate, etc. You can do this offline because I know we are
kind of getting along here, but I would love to know what has
been done, what the plan is to continue with that effort. Have
we realized any savings? Is there anything, once again, we can
help in that regard?
And then also, I will just throw this out there. Is there a
mechanism--I would rather pay the people who are working for
you in the form of a retention benefit of sorts to say, OK,
listen. Here is our budget. This is what we spend. You spend us
X and you are going to get a little piece, almost like an
attorney getting his third or whatever, to incentivize the
people who are working for us for retention and obviously
enjoying coming to work and be kind of pit bulls to find out
where the waste is and go after it and have it be interagency
competition, whatever. Just get everyone thinking outside the
box. Is there a program like that at all or not?
Mr. Gordon. Senator, thank you. I will tell you that my
boss, Jeff Zients, our Deputy Director for Management, is the
country's Chief Performance Officer and he is very focused on
the fact that we need to get rid of programs that are not
performing. OMB recently talked about an initiative to address
the 5 percent of the weakest programs and to see to it that we
are moving forward with what works and stopping what is not
working. We would be happy to discuss it further with you
offline, if you would like.
Senator Brown. Thank you. I am sorry, sir. Mr. Needham, did
you want to----
Mr. Needham. I was just going to mention that GAO has a
body of work underway under the Acquisition Workforce and we
are looking at many facets, but we are going to probably try to
look at some of those issues of incentives as well as the
training and so forth that they are undergoing, because there
is an issue of retention. Once you train people, you need to be
able to keep them.
Senator McCaskill. Well, and that is--somebody who is
really qualified and trained in acquisition in the Federal
Government is so ripe for the picking by the private sector.
There is nobody that a government contractor wants more in
their operation than somebody who really understands the
process of government acquisition, because I talk to business
people all the time that just give up on trying to do business
with the Federal Government because they can't get past the
complexity of it. So if you have an acquisition professional in
your private company, then all of a sudden, you have got a leg
up and you know how to do business with the government.
So I think looking at that, I think it is a great idea that
GAO would look at the incentives, could we do financial
incentives for acquisition personnel on cost savings. The most
frustrating thing about government is that we want it to behave
more like a business, and frankly, it is not, but in the area
of acquisition, we certainly can get much closer to that goal
of having some kind of bottom-line capability of, well, can we
save this year compared to last year? How can we--and giving a
little bit of that money to the people who helped figure out
how to do it, I think is a great idea.
Mr. Needham. I think it may contribute to stability. I
mentioned to Ms. Frasier when we came in, I met her about 7
years ago, and very often as I go across agencies, I don't meet
the same people year in and year out. They change over. When
you do see stability, that helps add into the quality of the
work that they are doing.
Senator McCaskill. Thank you, Ms. Frasier, for staying put.
I want to thank all of you for being here today, but while
I have Mr. Gordon here, I want to ask him an unrelated
question. I have been working very hard to do away with the
notion that we have corporations in this--doing business with
our Federal Government that don't have to compete and that
aren't small and aren't economically disadvantaged. I have no
problem with the 8(a) program. I think the 8(a) program has a
wonderful purpose for small companies trying to get their foot
in the door.
There are very few Alaska Native corporations that fit that
definition, and we all know that they were given special status
for an inexplicable reason, frankly. I am not really sure why.
I wish them great success. I think they can continue to be very
successful as corporations. I just don't understand why they
don't have to compete.
So I have been working on this and was very pleased that we
passed a law, a law that is now on the books that all sole
source contracts over $20 million, that there must be a
justification, and I have learned that there has been a delay
of the implementation of this law and that there is Tribal
consultation going on and I wanted to give you an opportunity
to answer on the record why the implementation of the $20
million cap is not occurring and what is the time line. How
quickly can this law actually go into effect, because it is the
law.
Mr. Gordon. I appreciate it, Senator. It is the law and I
can assure you that the Administration is very supportive of
increasing competition. Nonetheless, in this case, because the
law will affect Indian Tribes as well as Alaska Native
corporations, we are doing outreach to those groups. We want
that outreach to be fair, but we also want it to be
expeditious. We expect to move forward very promptly with
outreach and then with issuing a new regulation to implement
the statute.
Senator McCaskill. Well, I am going to be watching this
very carefully, and I am not really sure what the consultation
is about. It is not like you are going to change the law in
these meetings. I think a $20 million cap on non-compete is
fair. While there may be some of these corporations that
justifiably belong in the 8(a) program because they are small
and they are trying to find their way, as you are well aware,
as everyone that does anything in government acquisition is
aware, there are a whole bunch of them that haven't been small
for a long time. They are mega, multi-national corporations,
and the notion that some of these corporations, as large as
they are, never have to compete should be offensive. It should
be offensive to anybody in the field of acquisition.
So I urge you to put a burner under this effort and make it
go quickly. I certainly admire you wanting to do outreach at
all points of your job. I think that is important. But I am
frustrated that this isn't going more quickly and I am going to
continue to express that frustration and I wanted to get that
on the record today. And I apologize to all of you, since it is
not particularly on the subject matter. Now you really will
look forward to coming back the next time, because you know
anything is fair game, Mr. Gordon, when you come in front of
this Subcommittee.
Mr. Gordon. Thank you, Senator. I would be honored to be
invited to come back.
Senator McCaskill. If it has to do with contracting, it is
fair game.
Thank you all, and we will continue to follow up.
The hearing is adjourned.
[Whereupon, at 4:21 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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