[Senate Hearing 111-626]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-626

BALANCING ACT: EFFORTS TO RIGHT-SIZE THE FEDERAL EMPLOYER-TO-CONTRACTOR 
                                  MIX

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

                                HEARING

                               before the

                  OVERSIGHT OF GOVERNMENT MANAGEMENT,
                     THE FEDERAL WORKFORCE, AND THE
                   DISTRICT OF COLUMBIA SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 20, 2010

                               __________

       Available via http://www.gpoaccess.gov/congress/index.html

       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
EDWARD E. KAUFMAN, Delaware

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk


  OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE, AND THE 
                   DISTRICT OF COLUMBIA SUBCOMMITTEE

                   DANIEL K. AKAKA, Hawaii, Chairman
CARL LEVIN, Michigan                 GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana          SCOTT P. BROWN, Massachusetts
ROLAND W. BURRIS, Illinois           LINDSEY GRAHAM, South Carolina
EDWARD E. KAUFMAN, Delaware

                     Lisa M. Powell, Staff Director
                     Roger Yee, Legislative Fellow
                Evan W. Cash, Professional Staff Member
             Jennifer A. Hemingway, Minority Staff Director
           Sean M. Stiff, Minority Professional Staff Member
                      Aaron H. Woolf, Chief Clerk












                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Akaka................................................     1
    Senator Voinovich............................................     2

                               WITNESSES
                         Thursday, May 20, 2010

Hon. Daniel I. Gordon, Administrator, Office of Federal 
  Procurement Policy, Office of Management and Budget............     5
Jeffrey R. Neal, Chief Human Capital Officer, U.S. Department of 
  Homeland Security..............................................     6
Charles D. Grimes III, Deputy Associate Director, Employee 
  Services, U.S. Office of Personnel Management..................     8
John K. Needham, Director, Acquisition and Sourcing Management, 
  U.S. Government Accountability Office..........................    10
Mark Whetstone, President, National Citizenship and Immigration 
  Services Council, American Federation of Governnment Employees, 
  AFL-CIO........................................................    24
Alan Chvotkin, Executive Vice President and Counsel, Professional 
  Services Council...............................................    25
Maureen Gilman, Legislative Director, National Treasury Employees 
  Union..........................................................    28

                     Alphabetical List of Witnesses

Chvotkin, Alan:
    Testimony....................................................    25
    Prepared statement...........................................   103
Gilman, Maureen:
    Testimony....................................................    28
    Prepared statement of Colleen M. Kelley......................   112
Gordon, Hon. Daniel I.:
    Testimony....................................................     5
    Prepared statement...........................................    37
Grimes, Charles D. III:
    Testimony....................................................     8
    Prepared statement...........................................    52
Neal, Jeffrey R.:
    Testimony....................................................     6
    Prepared statement...........................................    47
Needham, John K.:
    Testimony....................................................    10
    Prepared statement...........................................    56
Whetstone, Mark:
    Testimony....................................................    24
    Prepared statement with attachments..........................    71

                                APPENDIX

Background.......................................................   120
Questions and responses for the Record from:
    Mr. Gordon...................................................   127
    Mr. Neal.....................................................   136
    Mr. Grimes...................................................   147

 
BALANCING ACT: EFFORTS TO RIGHT-SIZE THE FEDERAL EMPLOYER-TO-CONTRACTOR 
                                  MIX

                              ----------                              


                         THURSDAY, MAY 20, 2010

                                 U.S. Senate,      
              Subcommittee on Oversight of Government      
                     Management, the Federal Workforce,    
                            and the District of Columbia,  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:53 p.m., in 
room 342, Dirksen Senate Office Building, Hon. Daniel K. Akaka, 
Chairman of the Subcommittee, presiding.
    Present: Senators Akaka and Voinovich.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Good afternoon. This hearing of the 
Subcommittee on Oversight of Government Management, the Federal 
Workforce and the District of the Columbia is called to order.
    Aloha and welcome to all of you, especially to our 
distinguished panelists and guests. I would like to thank you 
all for joining us for this hearing on the efforts to rebalance 
the work performed by Federal employees and contractors.
    The government's workforce has long been made up of both 
Federal employees and service contractors, working side by side 
to provide services to the American people. Over the past 
decade, outsourcing increased significantly and management and 
oversight challenges have emerged. Federal agencies have begun 
to rely so heavily on contractors that agencies have lost the 
expertise needed to accomplish important parts of their 
missions. This is particularly troubling when agencies also 
lack the skilled staff needed to properly manage their 
contracts and oversee the contractor workforce.
    Without question, contractors do provide vital services and 
expertise to the government. After the attacks of September 11, 
contractors helped the Federal Government quickly ramp up 
homeland security operations and stand up the Department of 
Homeland Security (DHS). However, more than 7 years after DHS 
was created, the Department remains too heavily reliant on 
contractors to provide services that are critical to the 
Agency's mission.
    I have long been concerned that contractors at DHS and 
elsewhere are performing inherently governmental functions, 
work that should be done by Federal employees. The Government 
Accountability Office (GAO) has told us that the closer 
contractors come to supporting inherently governmental 
functions, the greater the risk of influencing the government's 
decisionmaking process. However, the line between inherently 
governmental activities and commercial activities has been 
blurred.
    Recently, the Obama Administration directed the Office of 
Federal Procurement Policy (OFPP) to reexamine the definition 
of an inherently governmental function and what jobs or 
functions should be brought back in-house. I look forward to 
hearing from OFPP today on this matter.
    Rebalancing the Federal workforce will not simply be a job 
conversion process. This effort will take considerable 
workforce planning to determine what Federal positions should 
be created and what contracting functions eliminated.
    One issue that we must also address in this right-sizing 
effort is to reform the Federal hiring process. The long and 
complicated hiring process across the Federal Government may 
encourage agencies to use contractors rather than hiring 
permanent staff.
    Senator Voinovich and I have been pressing for Federal 
hiring reform with our Federal Hiring Process Improvement Act, 
and I am pleased that the Senate passed our bill Tuesday night.
    The American people expect strong leadership from the 
Federal Government. We must make sure the Federal Government 
has the people it needs to perform critical functions and to 
properly oversee the important work done by contractors. We 
need to hire the right people with the right skills to perform 
the right jobs; that is a statement that is often made by my 
friend, Senator Voinovich.
    I will work with the Administration to address any 
potential barriers that may hinder insourcing efforts. I 
commend DHS for its efforts to develop and implement workforce 
plans to right-size its contractor mix. This is a big 
challenge, but I think it will finally reduce the Department's 
over-reliance on contractors.
    With that, I look forward to hearing from our witnesses 
today, and I would like to call on Senator Voinovich for his 
opening remarks.
    Senator Voinovich.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Thank you, Senator Akaka.
    I was remarking to Senator Akaka at noon today that I 
admire him so much for his continuing to have hearings just 
about every week dealing with the issue of human capital, which 
has been something that we have been talking about now, I 
think, for about 10 years, and its impact on the delivery of 
services in the Federal Government, and also in regard to 
working harder and smarter and doing more with less.
    I would like to join today's chorus in voicing my support 
for the congressionally mandated work currently underway at the 
Office of Management and Budget (OMB) that seeks to clarify the 
guidelines agencies may use when considering how best to 
accomplish the tasks assigned to them. We must ensure that 
Federal agencies remain in control of their missions, and I am 
hopeful that OMB's work will move us closer to that goal.
    I am also pleased to see the Administration embracing 
strategic human capital management for the multi-sector 
workforce. I have long sought to encourage greater use of this 
tool by Federal agencies. But as demonstrated by strategic 
human capital management's appearance on each of GAO's high-
risk lists issued since 2001, the Federal Government needs 
improvement in this area. I look forward to hearing from 
today's witnesses on how this track record can be improved, 
especially within the context of the multi-sector workforce.
    As today's hearing will demonstrate, bipartisan agreement 
appears to exist on the objectives of workforce balancing 
efforts, but the devil will be in the details, particularly in 
how general guidance issued by OMB is translated into action by 
front-line contracting officers and hiring managers. I am glad 
that today's hearing will allow the Subcommittee to begin an 
examination of this issue.
    I just met with the new head of the Chief Human Capital 
Officer (CHCO) Council who said that if she can get the 
participation of all of the chief human capital officers of the 
various agencies, that will go a long way toward accomplishing 
what OMB wants to get done.
    As agencies progress in workforce balancing efforts, they 
will be confronted with a variety of challenges. Congress and 
the Executive Branch must assist agencies when necessary to 
overcome these challenges.
    First of all, we have got to recognize and address the 
hiring challenges posed by workforce balancing efforts, and I 
think most of us agree that the last Administration went too 
far the other direction. It was interesting though, when the A-
76 procedure was used to decide whether something should be 
outsourced, in about 85 percent of A-76 cases the workers for 
the government won.
    And I said to myself on so many occasions that Federal 
employees were the most efficient organizations, but the fact 
was they were not given a chance to be the most efficient 
organization until they were challenged by the prospect of 
moving work outside of the agency. I thought it was too bad 
that they could not have been challenged and given the right 
to, as I call it, engage in quality management--for the group 
to get together on their own and say, we can do a better job in 
this agency. But in too many cases they had to wait for 
somebody on the outside to compete with them, and then you 
finally got to the Tiger team or whatever new work arrangement 
it was that came up.
    The current Federal hiring process we know will not be up 
to the task of workforce balancing, although, as Senator Akaka 
said, we are very pleased that by unanimous consent, S. 736, 
the Federal Hiring Process Improvement Act, passed the Senate 
Tuesday night. We are hoping we can get it through the House, 
and that the legislation will reinforce the President's 
Executive Order.
    Indeed, the Department of Homeland Security has already 
requested direct hire authority from OPM as part of its 
workforce balancing efforts. We must ensure that the goals we 
are asking agencies to achieve with respect to insourcing can 
be achieved using current hiring tools. If not, the 
Administration or Congress must supply agencies with sufficient 
flexibilities to get the job done.
    If we fail in this responsibility, we will see a past trend 
repeated. Agencies will turn to existing hiring authorities, 
like the Federal Career Intern Program (FCIP), to hire the 
personnel necessary to achieve the tasks assigned them by 
Congress and the Administration. By providing flexibilities 
specifically designed for the unique requirements of insourcing 
critical functions, we can avoid such practices and the concern 
they cause for some stakeholders. I am hopeful that the Federal 
Hiring Process Improvement Act will help in this matter.
    I also want to direct attention and discussion to the 
impact proposed OMB guidance on workforce balancing will have 
on the acquisition workforce. A host of new actions will likely 
be required of acquisition professionals as part of the 
workforce balancing efforts. These tasks will be necessary to 
prevent key functions from being improperly outsourced, but new 
actions will only increase the burdens placed on the Federal 
acquisition workforce. And we have had hearing after hearing on 
that issue.
    I would remind those present today that our acquisition 
workforce grew only 11 percent while contract spending 
increased almost 60 percent between fiscal year 2002 and 2008. 
Increased responsibilities for the acquisition workforce must 
be accompanied by increased funding and support for this 
critical group of Federal employees.
    Finally, we must ensure that workforce balancing efforts do 
not override longstanding government practices of securing 
noncritical, commercially-available services from the private 
sector unless the performance of such tasks by Federal 
employees is the most cost effective option. Such decisions 
must be based on full and complete cost comparisons between the 
Federal and private sectors, particularly under current budget 
restraints.
    Striking the right balance between Federal employees and 
contractors is going to be a difficult task, but a critical 
one. I look forward to today's discussion and to working to 
ensure the success of this effort.
    Thank you, Mr. Chairman.
    Senator Akaka. Thank you very much, Senator Voinovich.
    On our first panel, it is my pleasure to welcome Daniel 
Gordon who is Administrator of the Office of Federal 
Procurement Policy at OMB; Jeff Neal who is the Chief Human 
Capital Officer for the Department of Homeland Security, Chuck 
Grimes, the Deputy Associate Director for Employee Services at 
the Office of Personnel Management; and John Needham, Director 
of Acquisition and Sourcing Management at the Government 
Accountability Office.
    It is the custom of the Subcommittee to swear in the 
witnesses, and I ask you to stand and raise your right hands.
    Do you swear that the testimony you are about to give this 
Subcommittee is the truth, the whole truth and nothing but the 
truth, so help you, God?
    Mr. Gordon. I do.
    Mr. Neal. I do.
    Mr. Grimes. I do.
    Mr. Needham. I do.
    Senator Akaka. Thank you. Let the record show that the 
witnesses answered in the affirmative.
    I want our witnesses to know that although your remarks are 
limited to 5 minutes, your full statements will be included in 
the record.
    Mr. Gordon, please proceed with your statement.

TESTIMONY OF HON. DANIEL I. GORDON,\1\ ADMINISTRATOR, OFFICE OF 
  FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET

    Mr. Gordon. Good afternoon, Chairman Akaka and Ranking 
Member Voinovich. I welcome the opportunity to appear before 
you today to discuss the Administration's efforts to rebalance 
the mix of work performed by Federal employees and contractors.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Gordon appears in the Appendix on 
page 37.
---------------------------------------------------------------------------
    As you noted, Chairman Akaka, I have submitted a written 
statement, and I appreciate your entering that into the record. 
I will speak very briefly in this oral statement.
    In my former position at GAO where I worked for 17 years, 
as well as in my 6 months at OMB, I have heard again and again 
about situations where the mix of work performed by our Federal 
employees and contractors has gotten out of balance, where 
agencies have contracted out functions that should be performed 
by Federal employees, where agencies have lost control of 
critical functions. I am, therefore, especially appreciative of 
the demonstrated commitment on the part of this Subcommittee's 
leadership to addressing this important issue in general and, 
in particular, in holding this hearing today.
    As you know, the office that I head within OMB, the Office 
of Federal Procurement Policy, issued a draft policy letter in 
the Federal Register on March 31. We are now in the public 
comment period which closes at the end of this month. The draft 
provides guidance about three kinds of functions:
    First, with respect to inherently governmental functions, 
the draft policy letter would remind agencies to adhere to the 
statutory definition of that term in the Federal Activities 
Inventory Reform (FAIR) Act. If you will, it is the law, and it 
must be followed. That definition says that a function is 
inherently governmental if it is so intimately related to the 
public interest as to require performance by Federal Government 
employees. But beyond reminding agencies that they have to 
follow the statutory definition, the draft policy letter 
provides guidance. It provides tools to help agencies apply 
that definition to specific situations.
    Second, with respect to functions that are closely 
associated with inherently governmental ones, where we do use 
contractors to perform that work, the draft policy letter 
reminds agencies that they must give heightened management 
attention to guard against what is sometimes called mission 
creep--expansion of contractors' work into what would be 
inherently governmental functions.
    Third, the draft policy letter would require that agencies 
have the internal capacity to maintain control of critical 
functions, a new category. Those are functions which, although 
they are not inherently governmental, are needed for the agency 
to effectively perform its mission and operations.
    Those are the key points in the draft policy letter. We are 
getting comments. We are looking forward to the comments, and 
we are going to consider them, of course, carefully as we put 
the policy letter in final form.
    We recognize that the road ahead of us will be challenging. 
In many ways, implementation will be far more difficult than 
writing the policy letter. We are asking the agencies to take a 
hard and honest look, to see where they are overly reliant on 
contractors and to promptly take steps to correct imbalances 
that they identify.
    It is worth underscoring, and I know both the Chairman and 
the Ranking Member are very much appreciative of this. It is 
worth underscoring that this will be a joint effort of agency 
leadership and those handling human capital, finance, 
performance, and acquisition in the agencies.
    I believe that we are now on the path to better use of the 
talents of both our Federal employees and the contractors who 
support us. We are already working with the agencies, including 
with OPM and DHS who you will be hearing from shortly on this 
panel, and we are committed to continuing that collaboration.
    I also very much look forward to working with this 
Subcommittee and with other Members of Congress and our other 
stakeholders as we move forward together on this important 
initiative. I am happy to answer any questions that you have. 
Thank you for letting me appear here today.
    Senator Akaka. Thank you very much, Mr. Gordon, for your 
statement.
    And now we will receive a statement from Mr. Neal.

 TESTIMONY OF JEFFREY R. NEAL,\1\ CHIEF HUMAN CAPITAL OFFICER, 
              U.S. DEPARTMENT OF HOMELAND SECURITY

    Mr. Neal. Chairman Akaka and Ranking Member Voinovich, 
thank you for the opportunity to speak to you today regarding 
the Department of Homeland Security's efforts to appropriately 
balance our Federal and contractor workforce.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Neal appears in the Appendix on 
page 47.
---------------------------------------------------------------------------
    My name is Jeff Neal. I am the Chief Human Capital Officer 
of DHS, and as a former career civil servant for more than 30 
years I appreciate your leadership on Federal human capital 
issues.
    In its initial standup of operations, the Department of 
Homeland Security relied heavily on industry to provide 
critical services. While such reliance on contractors made 
sense in a startup environment, operating in that manner today 
may not be the most efficient and effective way to carry out 
our homeland security mission. Since 2007, the U.S. Government 
Accountability Office has raised concerns regarding the 
Department's large number of contract services. The President's 
March 4, 2009 Memorandum on Government Contracting raised 
concern that agencies across the Federal Government may be 
contracting for work that should be performed by Federal 
employees. The Office of Management and Budget has provided 
further guidance on addressing over-reliance on contractors, 
including through the draft policy letter issued on March 31, 
2010, by the Office of Federal Procurement Policy.
    With Secretary Napolitano's leadership, we have been 
working to achieve the appropriate balance between Federal 
employees, military personnel and contract services in DHS. Our 
rationale for implementing the Balanced Workforce Strategy is 
clear-cut, and that is that we must ensure we have an 
appropriate balance between our personnel and contract 
services. We must also create a process that examines that 
balance immediately and ensures examination of it on a regular 
basis.
    We recognize that this is an ongoing workforce planning 
need that requires integration of our human capital, financial 
and procurement planning processes. None of us can do it on our 
own.
    We have begun the integration of these processes through 
our Balanced Workforce Strategy. Some of the elements of this 
are still in the final development and review stage, but we 
believe this strategy and the partnership between our financial 
management, procurement, and human capital offices will serve 
as a catalyst to achieve the more balanced multi-sector 
workforce that we are looking for.
    Our Balanced Workforce Strategy consists of three parts: 
The first part is communication and change management. This is 
a complex and challenging effort that has the personal interest 
of the Secretary and Deputy Secretary. We will soon be issuing 
guidance and direction to component heads and to their staff 
who make decisions about hiring and procurement. I have also 
established a dedicated Balanced Workforce Program Management 
Office within my organization and hired an experienced career 
senior executive to lead this important effort.
    The second part is developing and implementing a repeatable 
process to conduct risk analysis and make multi-sector 
workforce decisions. We are creating comprehensive, specific 
and clear guidance for components on how to make these 
decisions. We will also assist components in developing 
implementation road maps to aid in the transition as 
appropriate.
    And finally, we must have adequate measurement and 
reporting. We cannot change what we cannot measure. Sustainable 
change will require metrics that tell us how we are doing, 
where we have to make course corrections and when we have 
achieved the balance we are seeking.
    Our focus throughout this effort is going to be on our 
vital homeland security mission and having a Federal workforce 
that allows maximum flexibility to accomplish that mission.
    Again, I thank you for the opportunity to appear before you 
today, and I welcome any questions you might have.
    Senator Akaka. Thank you very much, Mr. Neal, for your 
statement.
    Mr. Grimes, will you please proceed with your statement?

    TESTIMONY OF CHARLES D. GRIMES III,\1\ DEPUTY ASSOCIATE 
   DIRECTOR FOR EMPLOYEE SERVICES, U.S. OFFICE OF PERSONNEL 
                           MANAGEMENT

    Mr. Grimes. Chairman Akaka, Ranking Member Voinovich, and 
Members of the Subcommittee, I appreciate the opportunity to 
represent the Office of Personnel Management and Director John 
Berry at this important hearing to examine the Administration's 
efforts to ensure that Federal agencies have the right mix of 
employees and contractors to carry out their missions.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Grimes appears in the Appendix on 
page 52.
---------------------------------------------------------------------------
    The title of the hearing says it all. Right-sizing the 
Federal-to-contractor mix is indeed a balancing act of 
competing issues: The nature of the work, agency mission, 
acquisition, human resources, finance and budget, performance 
management, recruiting and hiring, training and development, 
and retention. And the appropriate balance will differ by 
agency and sometimes even within the agencies.
    A common tool that agencies use to strike the right balance 
is workforce planning. Agencies will be in the best position to 
determine the appropriate Federal employee-to-contractor mix if 
they: Align workforce planning with strategic planning and 
budget formulation; involve managers, employees, and other 
stakeholders in planning; identify critical occupation skills 
and competencies, and analyze gaps; develop strategies to 
address those gaps; build capacity to support workforce 
strategies; and monitor and evaluate their progress.
    The Administration started this process to describe the 
nature of work with regard to whether it must be performed in-
house or whether it may be contracted. Soon after taking 
office, President Obama issued a memorandum for heads of 
agencies expressing concern that the line between inherently 
governmental activities and commercial activities that may be 
outsourced had become blurred.
    After consulting with OPM and other agencies, OMB Director 
Peter Orszag issued a memorandum on July 29, 2009, which 
required agencies to begin developing and implementing 
policies, practices, and tools for managing the multi-sector 
workforce. Specifically, the OMB memorandum directed Federal 
agencies to adopt a framework for planning and managing the 
multi-sector workforce, conduct and report by April 30 of this 
year on a pilot analysis of at least one program or activity 
where the agency has a concern about an over-reliance on 
contractors, and use guidelines for insourcing that facilitate 
consistent and sound application of statutory requirements.
    More recently, on March 31, OMB's Office of Federal 
Procurement Policy published a proposed policy letter for 
public comment on rules for when work must be reserved for 
performance by Federal employees. Of particular interest to OPM 
is a new category of ``critical function,'' which focuses on 
functions that are core to an agency's mission. The draft 
policy holds agencies responsible for ensuring that a 
sufficient number of positions performing critical functions 
are filled by Federal employees having the appropriate 
training, experience, and expertise to understand the agency's 
requirement, formulate alternatives, and manage work products.
    OPM has partnered with OMB to provide technical assistance 
and support specifically to the Federal human resources (HR) 
community in achieving the goals set forth in the President's 
memorandum and OMB directives. OPM's work with OMB has included 
facilitating discussions in which agencies can share their 
experiences and lessons learned; fostering collaboration across 
agencies' acquisition, HR, finance, budget, and performance 
areas; identifying and developing tools to assist agencies in 
complying with the OMB directives; and streamlining the Federal 
recruiting and hiring process.
    One of the tools OPM has developed is an online community 
of practice at the OMB MAX Website to respond to agencies' 
inquiries. OPM has also briefed key stakeholders, such as 
agencies' Chief Human Capital Officers and Deputy CHCOs, in 
addition to hosting a CHCO academy session. To complement these 
efforts, OPM provided an in-person and webcast skill-based 
training class on the Federal Activities and Inventory Reform 
(FAIR) Act, for HR specialists. OPM continues to monitor the HR 
community's training needs, so that it can respond 
appropriately to those needs.
    Another important tool for right-sizing is training. Any 
influx of new Federal employees, whether resulting from 
insourcing or other agency hiring initiatives, is likely to 
require planning for additional employee training. Most agency 
training departments are not able to offer increased training 
assistance without additional resources. Currently, OPM is 
working with the training community to look for ways to 
collaborate and offer training more efficiently.
    Mr. Chairman, I would like to close by emphasizing that the 
effective management of a multi-sector workforce is 
fundamentally a workforce planning issue that must be carried 
out at the agency level. Effective workforce planning requires 
a sound governance structure within each agency that provides 
accountability for workforce planning and analysis. Although 
data collection and analysis may be shared by numerous 
organizations within the agency, there should be one office 
that is responsible for integrating and disseminating workforce 
planning information.
    OPM can do, and has done, a great deal to assist and 
support agencies in developing the capacity to conduct the 
appropriate analyses on which ``right-sizing'' depends. OPM 
looks forward to continuing to work with agencies so they can 
implement appropriate recruiting and hiring strategies to 
achieve the optimal blend of Federal employees and contractors 
to carry out their missions.
    Thank you again for the opportunity to discuss this 
important issue with you. I would be happy to respond to any 
questions you may have.
    Senator Akaka. Thank you very much, Mr. Grimes.
    Now, Mr. Needham, please proceed with your statement.

  TESTIMONY OF JOHN K. NEEDHAM,\1\ DIRECTOR, ACQUISITION AND 
   SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Needham. Thank you, Chairman Akaka and Senator 
Voinovich. I am pleased to be here today to discuss civilian 
agencies' development of insourcing guidelines, OMB's proposed 
policy on work reserved for Federal employees, the challenges 
agencies face in managing the Federal workforce and the tools 
that will be available for managing the insourcing process.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Needham appears in the Appendix 
on page 56.
---------------------------------------------------------------------------
    Federal agencies face a set of complicated decisions in 
finding the right mix of government and contractor personnel to 
conduct their missions. In choosing to use contractors, 
agencies must determine what activities ensure governmental 
control over policy and program decisions, and those that are 
critical for retaining long-term agency capacity.
    Importantly, Congress and others have expressed concerns as 
to whether Federal agencies have become over-reliant on 
contractors and whether they have appropriately outsourced 
services. In March 2009, the President tasked the Office of 
Management and Budget to take several actions in response to 
these concerns.
    Last July, OMB issued guidance for agencies to begin the 
process of developing and implementing policies and methods for 
managing the multi-sector workforce. Included in this guidance 
was guidance on insourcing which called for agencies to develop 
planning pilots to address the overuse of contractors.
    Last summer, per congressional mandate, GAO reviewed the 
status of agency efforts to develop and implement insourcing 
guidance. In October 2009, we reported that none of the nine 
agencies, the civilian agencies, with whom we had met had met 
the statutory deadline for this guidance. This was due in part 
to the agencies awaiting OMB direction on the question of 
inherently governmental function, so as to ensure their agency 
guidance was consistent with OMB policy, and they wanted to use 
the results and lessons learned from the pilots to better 
inform their insourcing guidelines.
    OMB reported in December 2009, on 24 Chief Financial 
Officers (CFO) agencies that had pilots underway in one or more 
of their organizations. However, the results of these pilots 
have not yet been released.
    In addition to the insourcing guidance released last 
summer, OMB recently released a proposed policy which is now 
out for comment. The guidance for determining when work must be 
performed by Federal employees is notable in four ways:
    First, it adopts a single governmentwide definition of 
inherently governmental functions in accordance with the 
definition in the FAIR Act.
    Second, it retains the illustrative list of examples of 
closely associated with inherently governmental functions from 
the Federal Acquisition Regulations (FAR), such as preparing 
budgets and developing agency regulation, and it provides 
guidance to help agencies decide whether to use contractors to 
perform these functions.
    Third, it introduces a category of critical functions as 
functions whose importance to the agency's mission and 
operation requires that at least a portion of the function 
should be reserved for Federal employees to ensure that the 
agency has sufficient internal control.
    And last, it outlines a number of new management 
determinations and actions that Federal agencies should employ 
to avoid allowing contractor performance of inherently 
governmental functions.
    Turning to the implementation challenges, once the decision 
to insource is made, the success of implementation will, in 
large part, depend on the ability of the agencies to translate 
mission and human capital requirements into executable plans 
that will assure agency workforces possess the necessary 
knowledge and skills to accomplish their mission, and also to 
oversee contractors.
    This is not an easy task as they will need to align 
workforce planning with strategic planning and budget 
formulation, involve managers, employees and others such as 
financial and procurement offices in this planning process. 
They will need to identify the critical occupations, the 
skills, the competencies, determine what gaps they have in 
their current workforce as well as what contractors they have 
onboard. And last, they will need to develop strategies that 
can be able to be sustained over time, to address these gaps. 
Then most importantly, they will need to monitor and be able to 
adapt implementation as they learn.
    Furthermore, in our 2009 review, we identified several 
challenges that agencies face in replacing contractor functions 
with government positions. Key among them will be limited 
budgets and resources that may constrain insourcing efforts.
    Last, agency implementation of insourcing efforts can be 
facilitated by tools such as:
    Inventories of civilian employees and service contracts to 
identify inherently governmental functions and the universe of 
the total workforce;
    Business case analyses to facilitate agency decisions and 
determine which, when insourcing a particular function, has the 
potential to achieve mission requirements and effective control 
over contractors; and,
    Last, human capital flexibilities to ensure to efficiently 
fill the positions that should be brought in-house.
    In conclusion, Mr. Chairman, OMB's insourcing criteria 
provides a sound basis for agencies to develop their insourcing 
plans and will facilitate decisions on the proper mix of 
Federal employees and contractors to better reform government 
control over functions. However, it is in the formation and 
execution of agency plans and the individual sourcing decisions 
that will ultimate determine the success of this effort.
    That concludes my statement, Mr. Chairman. I will be happy 
to answer any questions that the Subcommittee may have.
    Senator Akaka. Thank you very much, Mr. Needham.
    Administrator Gordon, this Subcommittee has struggled to 
understand exactly how big the Federal contractor workforce is, 
especially those working side by side with Federal employees. 
DHS and the Department of Defense (DOD) have both taken the 
approach of estimating contractor work year equivalents, which 
are similar to a full-time equivalent position (FTE).
    Do agencies need more reliable data on how many non-Federal 
employees they have, and is OMB helping them gather that data?
    Mr. Gordon. Thank you for the question, Chairman Akaka.
    The amount of money that agencies are spending on service 
contracts can be very helpful in giving a sense of where we 
are. That is to say, as was noted earlier, the increase in 
spending on service contracts has far outpaced the increase, 
for example, in our own acquisition workforce that handles 
those contracts.
    Nonetheless, both DOD and the civilian agencies are 
carrying out their statutory mandate to create inventories of 
service contracts and service contractors. DOD's statutory 
mandate began earlier, so DOD is ahead of the civilian agencies 
down that path. But we will be having inventories for service 
contractors, which can be of further assistance in this effort.
    Senator Akaka. Mr. Needham, GAO has emphasized the 
importance of adequate workforce planning to promote efficient 
and cost effective efforts to achieve the right mix of Federal 
employees and contractors. Moving forward, what key 
characteristics of this planning will be the most challenging?
    Mr. Needham. Mr. Chairman, GAO just completed a review of 
three agencies' workforce planning and strategic planning work 
that has been done at the Environmental Protection Agency 
(EPA), the Department of Interior and also the Forest Service, 
and we specifically looked at their workforce planning. What we 
found was that while they had many of the elements that are 
desirable, they were not integrating the workforce planning 
with the strategic planning and the budget formulation, which 
is critical to this effort succeeding. So that is probably one 
of the key challenges.
    When they do this, they need to do a total workforce 
perspective. They need to look at all the players who are in 
the workforce, both contractors and civilian employees, and 
where you have uniform personnel, those as well.
    And also, good data. There has been the development of the 
contractor inventories at DOD. We have found that those 
inventories are not consistent across the services. They count 
service contracts differently. They categorize the services 
that are provided within those contracts differently, and they 
also collect data on FTEs differently. So trying to meld those 
data together is going to be difficult.
    So those are some of the challenges that they are likely to 
face, Mr. Chairman.
    Senator Akaka. Thank you very much, Mr. Needham.
    Mr. Neal, earlier this month, some industry groups 
criticized the Department of Defense's insourcing efforts. They 
claimed that the process at DOD has been quota driven. Do you 
expect similar concerns over DHS insourcing, and what can be 
done to avoid such a perception?
    Mr. Neal. Chairman Akaka, I believe no matter what we do, 
there is going to be a lot of concern about it. This is a vital 
Department. Our mission is absolutely critical to this Nation's 
security, and there is also a lot of money involved in what we 
are doing. So I believe no matter what we do we are likely to 
face some criticism.
    When we do get our guidance out, what everyone will see is 
that we are going to be doing this in a deliberate way. We want 
to make certain that there is actually a process that we can 
use more than one time. As I said earlier, it needs to be a 
repeatable process. This is going to be an ongoing thing for 
this Department and really the entire Federal Government.
    So we are going to have to have a process that allows us to 
look at these contracts, to look at this work and make 
intelligent decisions based on what kind of work is being done, 
what is the risk to our mission by having contractors versus 
Federal employees doing a particular function, and then make an 
informed decision based on the risk, based on the type of work 
and in some cases based on the cost of doing that.
    Senator Akaka. Yes. Mr. Gordon, many positions were 
contracted out over the past decade through a public-private 
competition under the A-76 process. Under clarified guidance, 
agencies may determine that some of these should not be 
contracted out. Are there additional hurdles to insource 
positions that were privatized through A-76?
    Mr. Gordon. Thank you, Mr. Chairman.
    I had the honor in years at GAO of spending a considerable 
amount of time working on issues related to Circular A-76. It 
was a very challenging process, one that was found to be 
difficult I think by all parties.
    I would point out that A-76 was used, I think, for only a 
very small part of the outsourcing that took place over the 
past 10 or 15 years. As Senator Voinovich, I think, pointed 
out, the fact is that under A-76 in the competitions the 
Federal employees at the most efficient organization, as it was 
called, were usually winning. But in fact we all know that 
there was fairly massive outsourcing taking place. It was not 
running through the Circular A-76.
    I am not aware of particular problems in terms of 
insourcing work, or unique problems in terms of insourcing 
work, that was outsourced under A-76, but we would be happy to 
look into that question if it would be useful for the 
Subcommittee.
    Senator Akaka. Thank you very much.
    Mr. Grimes, coming back to a similar question that I asked 
Mr. Neal, how can agencies make sure that workforce planning 
for insourcing considers specific human capital needs and does 
not become driven by quotas?
    Mr. Grimes. I think the best way to do that is to employ 
good workforce planning processes. You look at the work, make a 
realistic determination of whether that work is inherently 
governmental, closely allied with inherently governmental work, 
or critical; and what portion of that critical work needs to be 
in-house in order to maintain control. Once you have made that 
kind of analysis, you can make a more rational decision on 
whether that work should be contracted out, based on costs or 
other things, but not driven by quotas.
    Senator Akaka. Thank you very much. Senator Voinovich, your 
questions?
    Senator Voinovich. We are talking about a big picture here. 
It is interesting. We just had a discussion this afternoon at 
our Thursday lunch club about the EPA in regard to certifying 
contractors that have to be certified to remove lead-based 
paint, and it is a fiasco throughout the Country. If they do 
not get certified and they do the work, they get fined $37,000 
a day.
    I just wonder if from a big picture, Mr. Neal, have DHS 
component agencies really been candid with you, or Mr. Gordon 
at OMB, about whether or not they have the capacity to get the 
job done that needs to be done. Now I do not know what 
oversight you have over Minerals Management Service (MMS). We 
had this terrible spill that has happened in the Gulf. My 
conclusion from a hearing on this topic that I was at is they 
did not have the people necessary to do the job that they were 
asked to do.
    So you start out with that, about where are we. And we keep 
passing laws around here without any consideration to whether 
or not the agencies can get the job done. For example, when we 
did Part D of Medicare, I think that Administrator McClellan 
over at the Centers for Medicare and Medicaid Services (CMS) 
had to hire 500 people, and we had to give him some new 
flexibilities in order for him to move forward with the job. So 
that is the big picture.
    You have the Government Performance Results Act (GPRA). 
Then you look at that, and you say what are the human capital 
challenges that we have, what is the succession plan that is in 
place, and then start to go from that.
    It seems to me that you have to prioritize. Senator Akaka 
and I sent a letter off to OMB about the fact that Mr. Zients 
said to us that he was going to target jobs in the Federal 
Government where we really needed people with qualifications, 
to take advantage of the fact that right now there are a lot of 
people out there that are not working, that we can get in the 
Federal Government now, that we might not be able to get in.
    So it seems to me--and the same way, Mr. Neal, in your 
shop--you have to figure out what are your priorities and how 
they fit with what you are going to ask your people to do on 
workforce balancing. There has got to be some planning of this.
    The next question that you have to ask is we had this 
hearing on internship programs in the Federal Government, and 
the unions are complaining bitterly that DHS was using the 
Federal Career Intern Program (FCIP) to hire all those people. 
The question was whether they were not meeting veterans 
preferences and all the other merit sustem requirements.
    I would like maybe Mr. Neal or Mr. Gordon to explain why it 
is that--Mr. Grimes, you might be involved too--why it is that 
you use the FCIP and not the normal process competitive hiring, 
to hire those people. So it really gets into the issue of if 
you are going to move people back in, how many of those people 
that are working for the contractor might come back?
    In Cleveland we have the Defense Finance and Accounting 
Service (DFAS). They went to the private contractor now, but 
they are coming back into Federal service. That is going to 
take a while because how do you figure out the pay that they 
had with the schedule, and so forth.
    Will you comment on that? Is the system that we have in 
place competent to do the job that is necessary on the 
workforce balancing front, or do we have to understand that you 
are going to have to have flexibilities to get the job done?
    Also, do you have sufficiant capacity to make the 
determination, of whether a certain contract should be 
insourced? And are you going to determine if they have the 
determination?
    And Mr. Needham, how do you create metrics to make sure 
agencies strike the right balance between Federal employees and 
contractors?
    Now I have raised a bunch of questions, but I think this is 
the big issue that we have to look at here.
    Mr. Gordon. Senator Voinovich, I am happy to start, 
although my colleagues both from across the Executive Branch 
and my former colleague, John Needham from GAO, are welcome to 
chime in afterwards.
    Looking at the big picture is extremely helpful here, and 
making priorities has to be done. There is a huge amount of 
work to do, but if we do not set priorities we could end up 
doing nothing at all.
    Our priorities at OFPP are three, and they are related very 
much to the subject of this hearing today:
    Number one, we have to strengthen the acquisition 
workforce. We are spending more than twice as much as we were 
spending 8 years ago, and yet, as was noted earlier, our 
acquisition workforce has barely grown 10 percent. We have got 
to increase the acquisition workforce. The President's budget 
include $158 million to invest in the civilian agencies' 
acquisition budget. That is a very high priority for us.
    We need to improve hiring. We need to improve training. We 
are working with OPM to improve the hiring process, as you 
know, Senator. We are focused on both entry level hires and 
mid-career hires. We do have a once-in-a-generation opportunity 
to renew the acquisition workforce because now the Federal 
Government is for many reasons the employer of choice. So we 
are working very hard with OPM and the agencies to strengthen 
the acquisition workforce.
    We need to show fiscal responsibility. We need to save 
money and reduce cost in acquisitions.
    And our third priority is we have to rebalance our 
relationship with contractors, and the hearing today is a 
central part of our rebalancing that relationship.
    When we asked agencies last summer in their pilots, where 
are you most concerned that you are out of balance between your 
contractors and your Federal workforce, the two top areas were 
IT and, very notably, acquisition. We have acquisition shops 
that are so short-staffed that they have contractors managing 
contractors, contractors writing statements of work. It is no 
wonder that we have had the challenge of organizational 
conflicts of interest showing up in our acquisition workforce.
    Senator Voinovich. Let me just say this, what you are 
saying that has to be done will not happen that way.
    Mr. Gordon. I will tell you, Senator, it took a long time 
for us to get into this hole. We will not get out of this hole 
overnight, but I do believe we are on the right path towards 
correcting these imbalances.
    Senator Voinovich. Mr. Neal.
    Mr. Neal. The capacity issue is one that I am worried about 
when I look at what we have to do just in the Department of 
Homeland Security--the number of contracts we have, the number 
of contractors doing work, just the sheer magnitude of the 
Department with 188,000 civilian employees and 42,000 military. 
I am concerned about our capacity to be able to actually do all 
of the planning that needs to be done, to be able to do the 
reviews. So to try to mitigate that concern, what we are going 
to be doing is trying to set some priorities based on risk, 
looking at types of contracts, types of work, finding out which 
ones might pose the greatest risk to us and addressing that 
first. That will be the No. 1 issue.
    The capacity of procurement staff, much like the capacity 
of the human capital staff, was reduced years ago. Not long 
before the number of contracts started going up, the number of 
human resources professionals in the Federal Government and the 
number of contracting professionals sort of took a nosedive. So 
the staff that we have in these offices to carry this stuff out 
in some cases may be lacking. So that is a real concern.
    The other concern in looking at this tendency over the 
years to rely on outsourcing is that there is a form--I do not 
mean this term to be negative, but there is a form of 
bureaucratic inertia that keeps an organization, a large 
organization heading in the direction it is heading. 
Kickstarting it and getting it out of that pattern makes it a 
little bit more challenging.
    On top of that, we are talking about having to make 
decisions that in some cases will cause us to ramp down a 
contractor workforce at the same time we have to ramp up a 
Federal workforce. And we have to do it exactly right. We do 
not have a big window where we can start hiring Federal staff 
and keep Federal staff on board for a year while we are 
downsizing a contract. We are going to have to be able to time 
those just right, to be able to make it work. That, to me, is 
also a significant concern.
    So the execution of this will be difficult. I am not going 
to pretend that it would be easy.
    You did ask about the Federal Career Intern Program. We 
have used the Federal Career Intern Program extensively in the 
Department of Homeland Security, most extensively in Customs 
and Border Protection. It was the way we doubled the size of 
the Border Patrol and the way we have done a lot of hiring of 
our Customs and Border Protection Officers (CBPO).
    We have used the program extensively. There is some good 
news to report about that though.
    Senator Voinovich. The point of this, and I have taken too 
much time, but the issue is how come you used FCIP and you did 
not use the regular system in order to hire new people?
    Mr. Neal. It was the most expeditious way to do the hiring. 
When they were trying to ramp up, this was before my tenure, 
but when they were trying to ramp up they decided that it was 
the easiest way to get it done.
    There was some good news about it. The good news is that 
more than 20 percent of the people who were hired were 
veterans. More than 30 percent of the people who were hired 
were minorities. A substantial number, well over 1,000 of them, 
were current Federal employees from the Transportation Security 
Administration (TSA). So it provided a good career opportunity 
for our Transportation Security Officers. So there was actually 
some good news out of that story, but it was the most 
expeditious way to get the hiring done.
    As you know, the Federal hiring process is quite a 
challenge. It seems to be designed to see how desperately 
someone really does want to be a Federal employee.
    Senator Voinovich. Any other comments?
    Mr. Needham. Senator, you asked about metrics. Some of the 
work we did over at the Defense Department with their 
acquisition workforce was the problem of data, how much data do 
they have and what do they know about their workforce. Efforts 
are underway now to address that, but there are a lot of gaps, 
and agencies just do not have the kind of insight they need.
    One of the issues that needs to be measured with the 
acquisition workforce is churn. We have repeatedly found when 
we are looking at contracts, when we go to talk to the 
contracting officer, they are gone. People come in; they go 
out.
    I know the Federal agencies are using the career intern 
program to bring in new personnel into acquisitions. But will 
they stay? And how long will they stay? That is something that 
does need to be measured.
    Senator Voinovich. I have taken too much time. Thank you.
    Senator Akaka. That is all right. Well, we will do a second 
round here.
    Mr. Grimes, the difficult Federal hiring process can lead 
to over-reliance on service contractors. As you know, Senator 
Voinovich and I have been working to streamline hiring through 
our Federal Hiring Process Improvement Act which passed the 
Senate on Tuesday night. OPM also recently issued guidance on 
implementing the President's hiring reform memorandum. How do 
you expect these efforts will assist agencies to address the 
challenges in hiring and retaining employees, particularly for 
hard-to-staff positions such as the acquisition workforce?
    Mr. Grimes. Thank you, Chairman Akaka.
    We expect these hiring reforms will dramatically improve 
agencies' abilities to hire the right person into the right job 
at the right time. The goal is to reduce the length of the 
hiring process to an average of 80 days from the time the job 
is announced to when the person comes onboard. That is roughly 
the average in the private sector. It is about half of the time 
that it takes now, so it would be a dramatic improvement.
    I realize that this does not seem very fast, but it is a 
lot faster than before, and it is an average.
    Of course, we are very concerned about being respectful of 
merit system principles and veterans' preference, but I think 
that these reforms do respect those principles and that 
agencies will be able to get the folks in that they need to get 
in.
    Senator Akaka. Mr. Neal, to follow up, how will DHS make 
sure it does not slide back into contracting for services 
without first considering whether hiring is more appropriate 
and consulting with the human capital professionals?
    Mr. Neal. Mr. Chairman, that is one of the reasons, the 
primary reason that what we want is a repeatable process, so we 
can make these decisions on an ongoing basis in a way that does 
not look like it is the first time we have ever made a decision 
like that.
    So we want our managers to know that they do need to do the 
proper planning, that they do need to look at the type of work 
that is being done, they need to look at what kind of risk 
might be introduced by using a contractor to do the work, and 
that needs to be a routine part of any service contracting 
decision.
    So we believe as we implement this process and refine the 
process, it will become something that just becomes a normal 
part of the way we conduct business. And we will not be just 
blindly making a contracting decision. It will be an informed 
decision based on a variety of considerations.
    Senator Akaka. Thank you.
    Mr. Grimes, as a veteran and as the Chairman of the 
Veterans Affairs Committee, I am a strong supporter of veterans 
preference in Federal hiring. Some agencies, such as DHS, may 
seek to convert some contractors that already are working for 
the Department directly into Federal employees. How can 
agencies preserve veterans preference particularly if they want 
to directly convert certain contractors into Federal employees?
    Mr. Grimes. If we were to get such a suggestion, Chairman 
Akaka, we would like to work closely with the agency, and if 
any legislation were required, then work with you and the 
Subcommittee, to make it work. At this point in time, not 
having seen any particular proposal, I do not know how that 
would work, but we would need to make it work.
    Senator Akaka. What about veterans preference, Mr. Neal?
    Mr. Neal. Mr. Chairman, we are very strong supporters of 
veterans preference. As a matter of fact, at the American 
Legion Convention last year, Secretary Napolitano announced a 
goal of increasing the number of employees, of veterans 
employed in DHS to 50,000. Right now, about 25 percent of our 
workforce are veterans. Those men and women are throughout the 
Department, in every type of occupation. We have the fourth 
largest percentage of veterans in our workforce of any Federal 
department or agency. So we are very proud of our 
accomplishments in that area and what we believe is the respect 
we have shown for the service of the men and women who have 
served in the Armed Forces.
    Senator Akaka. Thank you for that.
    Mr. Gordon, generally, a service contract is an agreement 
for a private firm to provide particular services to the 
government, not a contract to bring on a certain number of 
people. In reality, service contractors often work side by side 
with Federal employees. In your experience, as contracting has 
proliferated, has the role and use of service contractors 
changed?
    Mr. Gordon. Mr. Chairman, I think that it has. You could 
see this in both the reports from GAO, which I highly value and 
not only because I used to work there, and I hear it all the 
time when I go out and listen to people. I go out and listen to 
our workforce every few days.
    In these 6 months that I have been at OMB, I have been at 
dozens of meetings with the agencies, with Federal employees 
and their unions, with contractor associations, and what I hear 
is that contractors are being used today in ways that are 
dramatically different from the way they were used 15 years 
ago. Contractors are being used in ways that are much closer to 
policy decisions than would have been thought permissible 15 
years ago. Contractors are much closer to the decisionmaking 
process.
    I think it is noteworthy that the Acquisition Advisory 
Panel, the SARA panel, congressionally commissioned, in their 
final report, they talked about concern that contractors are 
getting closer and closer to the decisionmaking process in the 
agencies, so that you begin to have questions about whether the 
decisionmaking process is affected by the corporate interests 
of those contractors. We need to be sure that work that is 
inherently governmental is done by Federal employees 100 
percent of the time and that closely associated work, which can 
be done by contractors, does not expand or preempt the ability 
of our Federal officials to carry out their public service.
    Senator Akaka. Thank you very much for that. Senator 
Voinovich, now for your further questions.
    Senator Voinovich. Yes, I want to get back to the question 
that I asked of Mr. Neal. You just outlined how the intern 
program resulted in somethings that I think are very good. As a 
matter of fact, what you just said reflected a chart I had here 
at that hearing.\1\
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    \1\ The chart referenced by Senator Voinovich appears on page 135 
in the April 29, 2010 hearing titled ``Developing Federal Employees and 
Supervisors: Mentoring, Internships, and Training in the Federal 
Government.''
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    The question though is if you are in the position where you 
are going to have to bring on people rather quickly, does the 
current system--we have the President's Executive Order out 
there and then our legislation. It is going to take a while to 
implement these new reforms. I mean the living process is going 
to be a whole new ball game for a lot of these agencies. You 
are going to have to change the system around and so on. How 
are you going to meet workforce balancing hiring targets amid 
these changes?
    It might be interesting that you are talking about getting 
on some more procurement people, Mr. Gordon. But though your 
office is tasked with leading insourcing efforts, OFPP is 
relatively small. Is it 17 people? The question is how many 
people have you brought on to help you with your job?
    You say that you do have enough, but I would be interested 
to know, have you brought any on? If you have, how did you get 
them?
    I am trying to get at this issue of how do you make the 
change. Like the Department of Homeland Security, let's say to 
balance the Department's workforce you have to hire another 
3,000 to conduct border security.
    I think, Mr. Grimes, one of the things I am looking for 
from the Director is the answer to what people want to do 
there.
    But let's imagine that you have to do that, Mr. Neal. How 
are you going to bring on those people in a short time? Or if 
you decide that you are going to go and say this is inherently 
governmental, and you are going to bring people from outside to 
do the job, how are you going to bring them on?
    And then, Mr. Gordon, you tell me, how are you getting 
these people? Have you hired any? If you have, how did you hire 
them?
    Mr. Neal. In looking how to do this, it is clear that the 
Federal hiring process is one of the obstacles. We were very 
happy to see the memo from President Obama. We are delighted to 
see a move away from a very cumbersome application process to 
the use of resumes, which certainly makes a lot of sense to us. 
That is an obstacle to people applying for Federal jobs. So 
those things, we see as very welcome improvements, and I do not 
think we can do that fast enough.
    The other thing that we have been doing is we have been 
discussing with Director Berry some options to try to do a 
direct hire authority for contractor conversion. What we have 
been looking at is really a unique solution to this unique 
problem of how we can----
    Senator Voinovich. But it gets to the point that OPM has 
the opportunity to grant flexibilities to shops. In my opinion, 
if you are going to do this thing rapidly, there is going to 
have to be a lot of creativity where you are going to have to 
look out. Mr. Gordon, my record says you have 17 people. I do 
not know how many you have now.
    But how are you going to tailor these things in order to 
get the job done while the new hiring system gets into place 
and we get comfortable with it? That is the real issue.
    Mr. Neal. We believe we have actually come up with an 
innovative way of using direct hire authority. We recognize 
that there are concerns about direct hire authority. Every time 
an agency asks for it, there is interest in that. A lot of 
folks are concerned about whether or not it has an ongoing 
impact on the merit system and the Federal competitive process. 
So what we have been discussing is what we are calling a 
disposable direct hire authority, usable only once for each 
position that is converted from a contractor position to a 
Federal position.
    So if you filled 3,000 positions, as each one is filled, 
the direct hire authority for that would go away. The next time 
that position is filled it would be through normal attrition, 
and it would be filled through the normal Federal competitive 
hiring process. That is a very different way of approaching 
direct hiring authority. We do not believe there is any 
regulatory or statutory bar to doing it that way. It is simply 
in the way it would be granted.
    We have had a number of discussions with Director Berry 
about that. A member of my staff is going to be meeting with 
another member of his staff within the next couple of days to 
discuss it in much more detail.
    But we believe that is an innovative approach that would 
allow us to address our immediate hiring needs and the needs 
that we will have as positions get converted, but not walking 
away from the merit system and just using direct hire as a 
normal way of doing business. We believe this would actually 
solve the problem and address the concerns about direct hire 
authority.
    Senator Voinovich. It is good news to me. I think you 
understand that you are going to have to have some real 
flexibilities in the beginning as the thing starts to trickle 
down.
    Mr. Neal. Yes, Senator. Absolutely. And I love hearing 
someone talk about giving us flexibility. That is a very good 
thing for us.
    Senator Voinovich. Mr. Gordon, have you hired anybody. You 
had 17 staffers at OPM. How many do you have now?
    Mr. Gordon. We have a very small shop, sir, although we are 
a policy shop. We are not the people that are carrying out the 
policy. We work very closely with our colleagues and friends 
across the agencies, but we can only do it by working together.
    Senator Voinovich. So OMB has got a different hiring system 
than the other agencies?
    Mr. Gordon. No, the hiring system is very similar. I was 
about to say I am pleased to tell you that we have actually 
just hired a senior level person, the Associate Administrator 
for Acquisition Workforce, a very important role in our office, 
to support the acquisition workforce.
    Senator you are a longstanding supporter of improving our 
hiring process, and we very much appreciate that.
    I would also say that it is not just a challenge of hiring. 
There is also the challenge of training. We need to be sure 
that we are providing the right training. Especially in the 
acquisition area, training needs to be a combination of book-
learning and on the job training.
    Senator Voinovich. Mr. Gordon, Senator Akaka has had a 
hearing on training.
    Mr. Gordon. It is very much appreciated, sir. Thank you.
    Senator Voinovich. The other question is the General 
Schedule (GS)----
    Mr. Gordon. GS salaries, yes, sir.
    Senator Voinovich [continuing]. In terms of its relevance 
to some of the challenges that you may have, to get the people 
that you would like, that you need to have to do some of these. 
I mean in some of these cases where you have outsourced, it is 
just a matter of finding the right people. With the IT field, 
it is tough--cyber security experts, for example.
    Has anybody looked at general salary schedule, to determine 
whether or not it is competitive enough to draw these folks in? 
And if it is not, can you change that within an agency, on a 
temporary or limited basis, in order to get somebody that you 
really want?
    Mr. Neal. We do have a degree of flexibility within the 
general schedule by using recruitment bonuses, using retention 
allowances. Those are two tools we can use.
    In some occupations, we are concerned about whether or not 
the general schedule provides the flexibility. You mentioned 
one that is very high on our priority list right now, and that 
is cyber security professionals. Everybody is looking for cyber 
security professionals right now because of the concerns about 
security in that environment. So that talent is going to get 
more and more expensive.
    It is a simple supply and demand issue. As that talent gets 
in more and more demand, it is going to be more and more 
expensive. The most we can pay somebody as a GS-15 is in the 
high 150s. If you are looking at a true expert in cyber 
security, 150K is not impressive. So we are very concerned, 
particularly in cyber security, about our ability to recruit 
the right----
    Senator Voinovich. The fact is if you have a cap on what 
you can do, the only choice in some instances is say we have to 
go to a contractor to get the help, right?
    Mr. Neal. Yes, Senator, because they can pay what they 
want.
    Senator Voinovich. The last thing I want to mention is one 
of the things that Senator Akaka and I did, and I really 
thought we were going to raise the profile of this function, is 
the human capital officers in the various agencies. I am very 
disappointed here with you, Mr. Neal. We had hoped that over 
this period of time there was going to be upgrading. In fact, I 
asked the previous Administration, have you done an analysis of 
the human capital people that you have? They said, ``Oh, yes, 
we are getting it better.''
    Is that happening as you have looked at these DHS 
components?
    Or, Mr. Needham, have you looked at agencies to see whether 
or not they have the people there, say in that human capital 
area?
    And last, but not least, is we hoped the CHCO Council would 
upgrade the agency CHCOs and that they would get together and 
that with all these challenges facing Federal HR, maybe assign 
a couple with Ms. Medina, the new person.
    Mr. Neal. Kathryn Medina?
    Senator Voinovich. Yes, to do that. And the thing that I 
was impressed with is that John Berry is going to the meetings.
    But I am saying it seems to me that is an absolutely 
wonderful opportunity. When I was governor, that is what we 
did. We brought these people together, even in the information 
technology (IT) area, and started to have them talk to each 
other. It is amazing how you will find one or two places that 
really are doing the job, and then you can use those as models 
to help the other people.
    But if they do not get together, if they do not have the 
leadership, then it does not accomplish what we want it to 
accomplish.
    Mr. Neal. As a chief human capital officer, I certainly 
appreciate the work that the two of you did since my position 
exists because of that work, and I think DHS is very fortunate 
that we have a Chief Human Capital Officer whose job is to be 
the Chief Human Capital Officer and nothing else. So that is 
all I do, which is more than enough, believe me. So I think 
that has been a real benefit for us.
    We have had, as you know, an issue within DHS with turnover 
in Chief Human Capital Officers. I am number five. I have 
actually outlasted a couple already, and I intend to be around 
for quite a while.
    Senator Voinovich. Good.
    Mr. Neal. So I do not plan to go anywhere anytime soon.
    As a former career Federal employee, I actually am covered 
by the retirement system, and I am not even eligible to retire 
for another year and a half. So I think everybody is stuck with 
me for a while.
    The Chief Human Capital Officers Council, I think, is an 
extremely important tool. I have been very pleased to see that. 
I have gone to every meeting since I was appointed to this 
position 11 months ago.
    Director Berry has been at every meeting. He is very 
actively involved, and he has begun the process of turning that 
into a very deliberative body. He is putting larger issues on 
the table. Instead of going to a meeting where we just hear a 
bunch of reports about things that are going on, we are 
actually having real discussions about issues and debating some 
of those issues, and trying to identify issues that need 
governmentwide solutions and where OPM and OMB can help us.
    OMB is also attending all of those meetings. The last 
meeting was this week. Jeff Zients was participating in that 
meeting and has been in many of the meetings.
    That partnership between OPM and OMB and the agencies, I 
think, is really vital. What I have seen so far is really 
encouraging, that we are actually able to talk about 
substantive issues.
    Senator Voinovich. Thank you.
    Mr. Gordon. If I could, just a word, Senator, to add to 
that. I will tell you that within OMB, under Jeff Zients's 
leadership--he is our Deputy Director for Management as you 
know--we have a team that is integrated in just the way you are 
talking about, Senator. That is the E-Government team, the 
controllers shop, the financial management shop, the personnel 
and performance team, and us in the Office of Federal 
Procurement Policy.
    The leadership meets very regularly, very frequently. We 
talk constantly about issues. I could give you lots of 
examples, whether it is the challenge of insourcing at the 
Department of Defense where the performance and Federal 
procurement teams are working very closely together, the issue 
of hiring, especially veterans preferences where we meet and 
talk about it together. We are doing this in a coordinated 
fashion, so we are sharing information.
    And I think it is fair to say that Jeff Zients's vision, 
and it is a vision that we share, is one of sharing lessons 
learned across the government. So when you have a success story 
at an agency that is integrating its approach properly, we 
share that with other agencies to show them a path forward. I 
think it is working, although we appreciate that we have a lot 
of work ahead of us.
    Senator Voinovich. Thank you.
    Senator Akaka. Thank you very much, Senator Voinovich, for 
your questions.
    I want to thank this wonderful panel and thank you 
especially for your responses to our questions. Without 
question, some things are changing, the culture is changing. To 
hear you say that you are talking to each other, breaking down 
barriers that separated us before and to begin to speak about 
issues that concern the people who work in the Federal 
Government is really wonderful to hear.
    So I want to thank you so much for this. It will be 
valuable for what we are doing here legislatively, and 
hopefully we can continue to work together with you to improve 
the working conditions, the morale and all of that of our 
Federal employees.
    So I just want you to know that you have been very helpful. 
Thank you very much.
    Mr. Gordon. Thank you.
    Mr. Neal. Thank you.
    Mr. Grimes. Thank you.
    Mr. Needham. Thank you.
    Senator Akaka. And now I call on the second panel to come 
forward. I would like to welcome our second panel. Good to have 
you here, Maureen Gilman, Legislative Director of the National 
Treasury Employees Union; Alan Chvotkin, Executive Vice 
President and Counsel at the Professional Services Council; and 
Mark Whetstone, President of the National Citizenship and 
Immigration Services Council at the American Federation of 
Government Employees.
    It is the custom of this Subcommittee to swear in all 
witnesses. So will you please stand and raise your right hand?
    Do you swear that the testimony you will give before this 
Subcommittee is the truth, the whole truth and nothing but the 
truth, so help you, God?
    Ms. Gilman. I do.
    Mr. Chvotkin. I do.
    Mr. Whetstone. I do.
    Senator Akaka. Thank you. Let the record note that the 
witnesses answered in the affirmative.
    As a reminder, although statements are limited to 5 
minutes, your entire statements will be included in the record.
    Mr. Whetstone, will you please begin with your statement?

TESTIMONY OF MARK WHETSTONE,\1\ PRESIDENT, NATIONAL CITIZENSHIP 
   AND IMMIGRATION SERVICES COUNCIL, AMERICAN FEDERATION OF 
                 GOVERNMENT EMPLOYEES, AFL-CIO

    Mr. Whetstone. Thank you, Chairman Akaka and Ranking Member 
Voinovich. My name is Mark Whetstone, and I am the President of 
the American Federation of Government Employees' National 
Citizenship and Immigration Services Council. I greatly 
appreciate this opportunity to provide our union's input in 
today's hearing.
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    \1\ The prepared statement of Mr. Whetstone with attachments 
appears in the Appendix on page 71.
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    As an employee of the Citizenship and Immigration Service, 
I am regularly employed as an Immigration Services Officer at 
the Nebraska Service Center, where I adjudicate benefit 
applications and petitions. I hope that my own experiences will 
provide the Subcommittee with an important perspective that 
might otherwise be missed, that of rank and file Federal 
employees who work on the front lines in the Department of 
Homeland Security and are confronted every day with the 
consequences of wholesale privatization.
    In fact, I used to work as an Immigration Information 
Officer (IIO), and the Members of this Subcommittee may 
remember that beginning in 2003 the previous Administration 
reviewed for privatization the work of several hundred IIOs in 
DHS who are responsible for the investigation and adjudication 
of applications for immigration benefits. If not for the 
extraordinary leadership of Chairman Joe Lieberman and the key 
support from Ranking Member Susan Collins for the amendment to 
stop the IIO privatization study, I would not be here today 
because my job and many other inherently governmental employees 
would have likely been privatized.
    Please allow me to present AFGE's recommendations for 
rebalancing the Federal Government's civil service and 
contractor workforces:
    First, expand, clarify and, above all, enforce the 
definition of inherently governmental. OMB's proposed 
definition of work that should be reserved for performance by 
Federal employees should abandon the implication that 
contractors should necessarily perform commercial functions, 
establish a rebuttable presumption that Federal employees 
should perform functions that are critical and closely 
associated with inherently governmental functions, should 
adequately protect the public from the contractor influence on 
agency decisionmaking, and should provide meaningful criteria 
to identify crucial functions and those positions necessary to 
develop, and maintain, sufficient organic expertise and 
technical capability.
    Second, compile and review service contractor inventories, 
consistent with the law, and then integrate the results into 
the budget process. Although the definition of inherently 
governmental is important, the processes by which the agencies 
identify contracts that include functions that are 
inappropriate for contractor performance and then correct those 
contracts through insourcing or modification are even more 
important. If we are serious about ensuring in-house 
performance of functions that should be reversed for the 
Federal employee performance, then we must block attempts to 
gut the requirement that non-DOD agencies establish contractor 
inventories.
    Third, correct through insourcing or modification contracts 
that include functions that should not be outsourced where 
inappropriately outsourced or inefficiently performed, 
consistent with the law. We have heard the DOD term ``target-
rich environment.'' Given the documented large number of 
contracts that were awarded during the previous two 
Administrations without competition, that include functions 
that are inappropriate for contractor performance and are being 
poorly performed, it is safe to say that we are in an obscenely 
wealthy target environment. Everywhere one turns, almost 
literally, there are opportunities to insource, consistent with 
both law and public interest.
    Given its critical importance, I want to address the 
Transportation Security Administration, specifically the 
Screening Partnership Program (SPP). This is the system that 
converts the inherently governmental Federal screening duties 
performed by the Transportation Security Officers to private 
contractors. The SPP is contrary to the congressional intent to 
federalize the airport security and violates statutory 
prohibitions against the outsourcing of Federal jobs without 
allowing Federal employees to compete for those jobs.
    Before privatizing work performed by Federal employees, 
agencies are generally required to demonstrate through a cost 
comparison study that a contractor is more efficient. The SPP 
includes none of the safeguards such as the cost comparison of 
the Federal employee performance to that of the contractor, 
risk analysis determination or any demonstration of savings.
    This concludes my statement. I look forward to responding 
to your questions.
    Senator Akaka. Thank you very much, Mr. Whetstone.
    Mr. Chvotkin, please begin with your statement.

  TESTIMONY OF ALAN CHVOTKIN,\1\ EXECUTIVE VICE PRESIDENT AND 
             COUNSEL, PROFESSIONAL SERVICES COUNCIL

    Mr. Chvotkin. Mr. Chairman, thank you very much for the 
invitation and the opportunity to appear today before the 
Subcommittee.
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    \1\ The prepared statement of Mr. Chvotkin appears in the Appendix 
on page 103.
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    As you well know, the debate about the right balance 
between Federal employees and Federal contractors to maximize 
the government's ability to meet its missions is not new. 
Although the size of the Federal workforce is growing, there 
has been too little attention to targeted hiring, to permit the 
Federal Government to restore core capabilities across a wide 
range of functions, with a special focus on the critical 
acquisition workforce.
    Over the past several years, Congress has pushed Federal 
agencies to undertake comprehensive workforce skills competency 
analyses and strategic workforce planning. Senator Akaka, you 
and Senator Voinovich have reinforced the importance of that in 
the legislation which was passed just this past Tuesday. 
Regrettably, agency efforts have been far too ineffective in 
that regard.
    An organization's primary workforce objective must be to 
have the right number of people at the right place, with the 
right skills at the right time, to fulfill its organization's 
current and future needs. There is no magic formula for 
determining the right mix of Federal employees and contractors 
to meet mission needs, but it is not about a fight between 
Federal employees and contractors.
    An agency must assess the total resources available to it 
to execute its mission, whether Federal employees or 
contractors. That assessment should have but one goal: To 
ensure that the delivery of services in support of Federal 
missions is done in a manner that best serves the interests of 
the American taxpayer.
    Regrettably, based on extensive examples we have collected, 
nonstrategic insource is occurring regularly, from Maine to 
Ohio, and from California to Hawaii.
    As we consider the many aspects of workforce planning on 
the insourcing question, it is best to analyze these issues 
from two broad categories of work.
    The first is work involving activities that must or should 
be performed by Federal employees, such as inherently 
governmental functions or those activities that are not 
inherently governmental per se but are critical to an agency's 
ability to maintain control and direction of its missions and 
operations. And I am staying away from code words like 
``closely associated'' because these terms are rarely defined, 
and specifically using phrases like ``functions critical to an 
agency's ability to maintain control and direction of its 
missions.'' Such work requires one set of strategic thinking 
and planning.
    The second broader category involves all other types of 
functions not in the inherently governmental realm which 
require a different set of processes.
    The Professional Services Council has been a strong 
supporter of initiatives such as that undertaken by the 
Secretary of Defense in April 2009, to focus on the hiring and 
development of thousands of professionals with those critical 
skills. In an April 2009 letter to Secretary Gates, we endorsed 
his initiative but raised concerns about the challenges of 
implementation.
    Mr. Gordon already talked about the OFPP policy letter 
entitled ``Work Reserved for Federal Employees.'' The policy 
letter is balanced. It is founded on sound management strategy 
rather than on ideology and provides a narrowly tailored single 
definition of inherently governmental functions as required by 
Congress and the White House.
    It also offers meaningful and relevant guidance to agencies 
in making the determination of what work, other than inherently 
governmental functions, is best performed by Federal employees 
and what is appropriate for contractor performance.
    Critically, the proposed policy letter requires agencies to 
develop a focused, strategic human capital plan to define those 
critical skills they need to meet their missions and ensure 
they have enough internal staff to maintain government control 
of operations.
    We intend to comment by the June 1 deadline as he 
suggested.
    While these agency workforce efforts are important, 
significant challenges and questions remain, and they need to 
be addressed continuously and immediately. Specifically, 
agencies should pay careful attention to the principles set 
forth in OMB's July 29, 2009 policy guidance as well as the 
proposed policy letter.
    In these policy documents, OMB makes clear that the 
Agency's highest priority must be to bring in-house the 
inherently governmental activities that may have been 
outsourced, followed by addressing any residual core set of 
capabilities that are essential to enable the agency to manage 
and control its operation. But OMB explicitly states that not 
all activities or functions closely associated with inherently 
governmental activities must be performed by Federal employees.
    We have witnessed thousands of contractor positions being 
insourced. The objectives of the Secretary's workforce remain 
both appropriate and important. But unfortunately they have, in 
the field, devolved increasingly into a numbers game to meet 
personnel and dollar value quotas that each of the military 
departments has been given. Indeed, the so-called savings from 
insourcings have already been baked into the current and future 
year budgets of the Department of Defense, without the benefit 
of real analytical rigor.
    We are pleased that the House Armed Services Committee has 
taken another important step to prevent DOD from setting 
insourcing quotas and to provide greater transparency into 
DOD's current insourcing initiatives. That committee's action 
is a step in the right direction towards establishing an 
accountable process for how DOD implements its Strategic 
Workforce Initiative, and that prohibition should be made 
governmentwide.
    Insourcing for the sake of insourcing is no more 
intelligent, no more effective and no more defensible than 
outsourcing for the sake of outsourcing, nor should government 
accept repeating the mistakes of past outsourcing efforts when 
implementing insourcing initiatives. OMB has taken strides to 
craft appropriate guidance to balance the workforce of Federal 
agencies, yet all the tools to conduct comprehensive insourcing 
decisions have not been established.
    Where the guidance exists, we should demand that it be 
followed. And where the tools are insufficient or nonexistent, 
we should work expeditiously to repair or create them. As 
taxpayers, we deserve no less.
    Thank you for the opportunity to provide this statement. I 
look forward to your questions.
    Senator Akaka. Thank you very much, Mr. Chvotkin.
    Ms. Gilman, will you please proceed with your statement?

TESTIMONY OF MAUREEN GILMAN,\1\ LEGISLATIVE DIRECTOR, NATIONAL 
                    TREASURY EMPLOYEES UNION

    Ms. Gilman. Chairman Akaka and Ranking Member Voinovich, I 
am pleased to be here today on behalf of the National Treasury 
Employees Union (NTEU), to provide comments on efforts to 
right-size the Federal employee-to-contractor mix.
---------------------------------------------------------------------------
    \1\ The prepared statement of Colleen M. Kelley submitted by Ms. 
Gilman appears in the Appendix on page 112.
---------------------------------------------------------------------------
    The dramatic increase in Federal Government contracting 
over the last decade has resulted in contractors 
inappropriately performing inherently governmental functions 
and erosion of the in-house capacity of agencies to perform 
many critical functions central to their ability to accomplish 
their missions.
    One example of over-reliance on contractors is the 
Department of Homeland Security. DHS has approximately 188,000 
civilian employees and 200,000 contractors working for it. As 
Chairman Lieberman noted during a recent hearing, the sheer 
number of DHS contractors currently onboard again raises the 
question of whether DHS itself is in charge of its programs and 
policies or whether it inappropriately has ceded core decisions 
to contractors.
    Concerned that the line between what is inherently 
governmental and what can properly be contracted out had become 
blurred, President Obama ordered OMB to undertake a 
comprehensive review of the Federal contracting process, 
including clarification of what constitutes inherently 
governmental functions.
    NTEU believes that the term ``inherently governmental'' 
should be defined exclusively by the Federal Activities 
Inventory Reform Act. The Act defines inherently governmental 
as a function which is so intimately related to the public 
interest as to mandate performance by government employees. 
Examples include those activities that require either the 
exercise of discretion in applying government authority or the 
making of value judgments in making decisions for the 
government. This definition is longstanding and provides 
sufficient guidance and needed flexibility in determining which 
functions are best reserved for government workers.
    NTEU is pleased that in late March, OMB's Office of Federal 
Procurement Policy issued a proposed policy letter on 
inherently governmental functions and other work reserved for 
performance by Federal Government employees that adopted this 
definition of inherently governmental.
    Under the policy letter, OMB also provided guidance on two 
concepts related to inherently governmental functions: Those 
closely associated with inherently governmental and critical 
functions. NTEU believes that these types of functions should 
rarely, if ever, be contracted out, even under the 
circumstances outlined by OMB in the policy letter.
    NTEU also believes that in its final policy guidance OMB 
should expressly repudiate the presumption in the 2003 
revisions to the A-76 Circular that a government function is 
commercial in nature unless affirmatively shown otherwise. The 
presumption is not only bad policy; it is at odds with the FAIR 
Act's definition that simply delineates between commercial and 
inherently governmental functions.
    Because of the recent history of over-reliance on 
contractors, efforts to right-size the Federal employee-to-
contractor mix will have to involve an increase in insourcing. 
In determining what criteria agencies should use in deciding 
whether an activity should be insourced, NTEU believes Congress 
has clearly indicated the direction that should be taken. 
Section 736 of the 2009 Omnibus Appropriations Act requires 
agencies subject to the FAIR Act to devise and implement 
guidelines and procedures, to ensure that consideration is 
given to using, on a regular basis, Federal employees to 
perform new functions and functions that are performed by 
contractors and could be performed by Federal employees.
    Last July, OMB issued guidance providing agencies with 
criteria to facilitate consistent and sound application of 
insourcing requirements set forth in Section 736. The criteria 
consist of four sections that address different aspects of the 
statute, and describe circumstances and factors agencies should 
consider when identifying opportunities for insourcing.
    Also, the 2010 Consolidated Appropriations Act requires 
agencies to create an annual inventory of all contractors 
providing services for the government and to review whether to 
return the work to government employees. By providing agencies 
with the necessary framework to better monitor and oversee the 
vast number of service contracts, they will be better able to 
determine if contractors are meeting their responsibilities or 
if the agency would be better served by having Federal 
employees perform that work.
    In addition to the criteria outlined in these pieces of 
legislation, NTEU believes other criteria that agencies should 
consider, in identifying which functions should not have been 
outsourced and should be brought back in-house, include the 
following:
    Has there been an actual monetary savings realized as a 
result of the contract?
    Has the contractor defaulted on the statement of work?
    Was the contract renewed without a recompetition?
    And what other costs do agencies incur in the contracting-
out process?
    By clarifying the type of functions that should be 
restricted to performance by Federal employees and providing 
agencies with guidance on bringing contracted-out work back in-
house, a more appropriate balance in Federal contracting can be 
achieved, resulting in more efficient and effective delivery of 
services to the public.
    Thank you again for the opportunity to submit our views 
here today. I would be happy to answer any questions.
    Senator Akaka. Thank you very much, Ms. Gilman.
    Ms. Gilman, as the government rebalances its workforce, an 
increase of thousands of Federal employees in an agency may 
bring about challenges in areas such as training, security 
clearances, and office and equipment needs. What challenges do 
you expect as the Federal workforce grows, and how can agencies 
best manage these challenges?
    Ms. Gilman. Well, I think, Mr. Chairman, as Mr. Neal said 
previously on behalf of DHS, and I believe OPM concurred, they 
need to be doing planning for that now. And I believe some 
agencies are doing a good job of planning for that. They need 
to make sure that they have the appropriate resources in place. 
They need to have processes in place to bring employees on in a 
fair manner.
    Normally, NTEU is a big supporter of competitive hiring and 
thinks it should be used whenever possible. If there is a 
situation that is out of the ordinary, where there is a 
critical need, where contractors have been performing 
inherently governmental functions, for example, and that 
workforce needs to turn over quickly to Federal employees, we 
would support working with the agencies and OPM to find ways to 
make that happen quickly outside of the normal competitive 
process.
    Senator Akaka. Mr. Whetstone, new government employees may 
be hired to manage and oversee contractors. Federal managers 
also will need to supervise new Federal employees hired during 
insourcing efforts. It is important that agencies provide the 
right training for the employees. What can agencies do to 
ensure that supervising and nonsupervising employees receive 
the proper training?
    Mr. Whetstone. Well, I think that Ms. Gilman hit it on the 
head as well when she said that they need to start planning 
now.
    It would be very critical to have an extensive training 
program for just the matter that you are talking about. I think 
most of that training actually is in place now with the 
Department of Homeland Security. It would be a matter of 
ramping up the volume of training that you would need when you 
bring the accessions from the insourcing.
    Senator Akaka. Mr. Chvotkin, in theory, the Competitive 
Sourcing Initiative was supposed to push agencies to contract 
for services that the commercial sector could provide at a 
lower cost. This led to controversy on how to account for 
contract costs versus in-house costs.
    In your testimony, you fault agencies for not performing 
in-depth cost analysis before insourcing. Often contracting 
involves different direct and indirect costs that are difficult 
to compare with the costs of hiring, and the data available may 
be inadequate for a sound comparison. The question is how do 
you recommend agencies address these challenges through in-
depth cost analysis?
    Mr. Chvotkin. Mr. Chairman, it goes to one of the very 
hearts of the whole issue. As you laid out earlier, cost is an 
element for those activities that are not inherently 
governmental and are not critical for an agency to perform its 
mission.
    The mythology is that contractors are more expensive than 
Federal employees. What I suggested in the testimony and what 
some agencies have tried to do is to put a balance together, to 
try to identify cost comparability. It is impossible to have 
accurate costs on both sides. The contractor costs are pretty 
clear because that is what the government is paying. You would 
always know those kinds of costs. Federal employee costs are a 
lot more challenging and a lot more difficult to arrive at. But 
the inability to have a perfect answer does not mean we should 
have no answer.
    So we have suggested a number of alternatives. The Defense 
Department has a rudimentary cost analysis memo out that we are 
going to be commenting on very shortly and raising some 
questions about it.
    The A-76 model that you are so familiar with had a cost 
comparison tool that compared the most efficient organization 
on the government side against work to be performed by Federal 
contractors. It is not perfect by any means. I think we would 
all agree on this panel that the cost model was not perfect, 
but it was a model that agencies were familiar with and can 
use.
    Right now, Federal agencies have no model that they can 
rely on. One of the gaps in the OFPP policy letter is they 
highlight the issue of cost and then do not give the tools to 
any of the agencies to provide that.
    Senator Akaka. Thank you.
    The monetary costs and benefits of insourcing or 
outsourcing are frequently discussed but not as much as other 
costs and benefits. For example, I believe that every person 
who works for the Department of Veterans Affairs, no matter 
what their job, should feel that they are part of a critical 
mission, serving our Nation's veterans. I think contractors may 
not feel that as much. On the other hand, contractors can move 
quickly, and offer more flexibility and innovation.
    I would like to hear your thoughts on how the nonmonetary 
costs and benefits of contracting decisions should be 
evaluated.
    Ms. Gilman. Mr. Chairman.
    Senator Akaka. Ms. Gilman.
    Ms. Gilman. If I could start, I think some of the issues 
that were outlined by the Office of Federal Procurement Policy 
are a good place to start. I think there are things that are 
inherently governmental and are critical to agency mission in a 
sense that can be defined.
    I think you are right. I think all of the employees that we 
represent feel that they are critical to the agency and to the 
work that they do. But I think that there are definitions of 
critical in the sense of actually using discretion and 
judgment, binding the government in decisions, that should 
never be done by contractors. I think that area may be broader 
than OMB included in its initial draft of its policy letter.
    Senator Voinovich alluded to the oil spill in the Gulf and 
the agency that is supposed to be overseeing that clearly not 
being up to the task to do that. That is the agency's 
responsibility, to put in place measures, so that the 
contractors that came in to do the drilling really did have the 
ability to prevent what is happening now. That was the agency's 
responsibility, whether it was done with Federal employees or 
contractors, to oversee that work, and it was not done.
    And I think that is a legacy of some of the contracting 
that we have seen over the last 10 years, and I think it is a 
legacy that we need to turn away from. We appreciate the 
efforts of yourself and this Subcommittee and the 
Administration to do that.
    Senator Akaka. Thank you.
    Mr. Chvotkin. Mr. Chairman, again, I think you have put 
your finger on an important area. It is unquestionable that 
contractors performing work under a contract of the Federal 
Government are seeking to make a profit, and some of them do. 
Sometimes that profit is little, and sometimes others are 
better at it.
    But the mythology that you touch on is that contractors do 
not feel aligned or supportive of a mission and that for some 
reason the work in those agencies is only driven by the profit 
motive. Having had the privilege of working with so many of our 
member companies, contractors who are supporting the Veterans 
Administration are veterans. Contractors who are supporting the 
Agency for International Development have spent their life in 
the community of international development, many of them having 
served in the Peace Corps and at the agency beforehand. So to 
simply dismiss that service as their being unsupportive of the 
mission or otherwise being only interested in a profit motive 
undervalues the contributions that so many of these individuals 
have made, as well as the companies.
    There are truly noncost factors to be taken into account. 
Many of those are set by the agencies themselves in the 
contract. I think we ought to evaluate those, and I would be 
happy to work with you to identify some of those in greater 
detail.
    Senator Akaka. Thank you. Mr. Whetstone.
    Mr. Whetstone. I think that you will find that in my 
particular agency we have currently some folks that were 
contracted to do investigation checks for the Interagency 
Border Inspection. This is what we have always felt to be an 
inherently governmental duty--look up databases, conduct 
national security checks.
    There is a place for contractors, of course. This is not 
one of the areas. The Agency would let this vital duty that is 
done by adjudication officers, trained Federal employees be 
done by contractor staff who might not have the benefit of the 
extensive training of adjudication officers.
    I think when you reach into the nonmonetary costs of this 
contracting, this is not an area, that should be allowed to 
occur, and I think that would be devastating. It could be a 
devastating cost in the end if somebody is ill trained or if 
corners were cut in any way.
    Senator Akaka. Thank you. Mr. Chvotkin, at the conclusion 
of your testimony, you said we should not repeat the same 
mistakes of past outsourcing efforts as we implement 
insourcing. As you know, I was critical of the conduct of 
outsourcing in A-76 competitions. What were the biggest lessons 
from outsourcing that we should apply now as we rebalance the 
workforce?
    Mr. Chvotkin. Mr. Chairman, thank you for picking up on 
that conclusory statement. There were several lessons that we 
learned.
    First of all, the process, to the extent that it was true 
or not, gave the impression that it was quota driven, that 
agencies had a specific number of employees that they should 
look to outsource. I do not believe the agencies ever had that, 
but the Congress was right in putting a limit, a freeze, and 
saying no quotas. It ought to be strategic. It ought to be 
looking to the right mix of employees.
    Second, it took a long time to get the cost methodology 
correct.
    Third, there was no opportunity for the respective parties 
to challenge the agencies and Congress spent a lot of time 
looking at the roles and responsibilities and rights of various 
parties to the process. Remember the OMB Circular went through 
a number of changes itself over time, including with the 2003 
revision.
    So commenting on those to make sure that:
    First of all, we do not have a quota driven process.
    Second, that we have a transparent process so that 
everybody knows the rules of engagement. That A-76 went through 
a number of changes.
    Third, that we have accountability for it. So much of what 
was taking place in the Executive Branch agencies at the time 
was invisible, and companies and Federal employee organizations 
had to use alternative means like protests to try to drill down 
into the agencies. We do not need to go back that way.
    As I said in my statement, this is not a question of 
contractors versus Federal employees. There is a role and a 
responsibility for each. We ought to create a process that 
values that.
    Senator Akaka. Thank you very much.
    Let me follow up with Mr. Whetstone and Ms. Gilman. What do 
you think are the lessons we should take from outsourcing 
efforts and apply that to insourcing?
    Ms. Gilman. Well, I think the No. 1 lesson is that agency 
heads need to be responsible for the mission of their agency, 
and that decisions need to be made based on having the agency 
currently and into the future be able to accomplish those 
missions. There have been a lot of questions raised here today 
about agencies losing capacity in critical areas because so 
much work has been contracted out.
    I think that the A-76 process was actually used in a 
relatively small number of cases. Most of the contracting work 
was done outside of the A-76 process. Federal employees were 
not given an opportunity to compete for the work in a lot of 
instances.
    There was no transparency; I agree on that. And there was 
not accountability for the questions about if you contract this 
work out today, how is your agency going to maintain capacity 
in the future on the critical missions that you are charged 
with delivering.
    Senator Akaka. Well, Mr. Whetstone?
    Mr. Whetstone. I would say one of the critical lessons 
learned that we need to pay attention to is that the agencies 
need to find the balance in exactly where the line is drawn on 
what items are actually contracted out and what are not. If 
they take the approach like they did in the past decade, they 
will leave behind things that should rightly be brought back 
into the Federal service. Interagency border inspection checks 
were not identified as something to be brought back into the 
Federal service, and I think that is an error that DHS needs to 
look at.
    So, when agencies are considering insourcing, everything 
needs to be on the table. They need to be able to review each 
and every item and determine what should be and what should not 
be, and not be so territorial as what should remain in the 
contracting realm.
    Also, the transparency is a great point. Sometimes these 
decisions are made in the back room, and you never know how 
they came around to them. I think that transparency is a vital 
component to a lesson learned.
    Senator Akaka. Thank you.
    Ms. Gilman, during these tough economic times, many people 
are looking for jobs. This presents the Federal Government with 
an opportunity to recruit top-notch employees. We need to 
ensure that government employment continues to be attractive 
enough that we retain new Federal employees once the economy 
gets better. What do agencies need to do to retain new hires?
    Ms. Gilman. Well, first of all, before they get to 
retaining them, they need to hire them. And I did want to 
congratulate you on getting your bill through the Senate this 
week, to improve the hiring processes, which I think will do a 
lot and is very important, especially at this time when as you 
say there are so many good people looking for work. We really 
need to get our hiring processes in order, so we can attract 
the best people into the Federal Government.
    Once they are here, I think there are a number of things 
that can be done to try to retain them. Training, which you 
also have legislation on, that NTEU supports--providing 
adequate training and support is a very good way to keep 
people.
    There are many flexibilities available to agencies: 
Retention bonuses, excuse me, awards and extra annual leave. 
All of these things can be given to good performers to give 
them incentives to stay.
    But I think one of the most critical things that agencies 
can do is respect the employees, allow them to have a process 
for communication, to share ideas on how the work can be done 
better. Having them feel that they are really contributing to 
the mission of the agency, I think, is one of the best ways to 
keep them in the Federal workforce.
    Senator Akaka. Mr. Chvotkin, earlier this month the 
Professional Services Council (PSC) sent a letter to the 
Department of Defense, stating that its insourcing efforts are 
quota driven. Also, recent recommendations by the Acquisition 
Reform Working Group, which PSC is a member of, raised similar 
criticisms. Can an agency release human capital targets in a 
way that does not imply a quota?
    Mr. Chvotkin. They can, Mr. Chairman. Our concern with the 
quota-driven approach taken by the Defense Department to date 
has been really on the budget side. Commands and activities 
have been given mandatory reductions in spending, as well as 
positions to achieve. We think those are quota driven.
    It is rare, but if the process is strategic and if the 
process is transparent so that the agencies are identifying 
those functions that are inherently governmental, they ought to 
come back in-house without question and without regard to cost. 
That is not a quota.
    If an agency is looking at its core capabilities--Senator 
Voinovich and you talked earlier about cyber security 
professionals--sufficient to maintain the agency's mission and 
operation, that is not a quota-driven approach. That is a 
strategic hiring approach and we fully support that.
    Senator Akaka. Well, I want to thank you, this panel, very 
much, and also all of our witnesses.
    As we have heard, insourcing is an important new issue that 
deserves close oversight. Many of the issues that this 
Subcommittee has examined, especially hiring reform, will play 
important roles in the insourcing process. Human capital 
planning is also important as agencies look at their current 
workforce needs and bring inherently governmental work back in-
house.
    As always, I want to thank Senator Voinovich who has been a 
partner on these issues, and I hope that in our time left here 
together we will continue this important work.
    The hearing docket will be open for 2 weeks for additional 
statements or questions from other Members who may have some 
questions on anything pertaining to the hearing.
    This hearing is adjourned.
    [Whereupon, at 4:50 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

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