[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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Nash appears in the Appendix on 
page 71.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Doke appears in the Appendix on 
page 74.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Schooner appears in the Appendix 
on page 80.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Frasier appears in the Appendix 
on page 136.
---------------------------------------------------------------------------
    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.]



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