[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
         INSOURCING GONE AWRY: OUTSOURCING SMALL BUSINESS JOBS

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

                                HEARING

                               before the

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             JUNE 23, 2011

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 112-024
              Available via the GPO Website: www.fdsys.gov



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York

               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page

                           OPENING STATEMENTS

Mulvaney, Hon. Mick..............................................     1
Chu, Hon. Judy...................................................     3

                               WITNESSES

Ms. Dawn L. Hamilton, President and CEO, Security Assistance 
  Corporation, Arlington, VA.....................................     5
Mr. Bryant S. Banes, Managing Shareholder, Neel, Hooper & Banes, 
  P.C., Houston, TX..............................................     9
Ms. Bonnie C. Carroll, President, Information International 
  Associates, Oak Ridge, TN......................................     7
Ms. Jacque Simon, Public Policy Director, American Federation of 
  Government Employees, Washington, DC...........................    10

                                APPENDIX

Prepared Statements:
    Ms. Dawn L. Hamilton, President and CEO, Security Assistance 
      Corporation, Arlington, VA.................................    30
    Mr. Bryant S. Banes, Managing Shareholder, Neel, Hooper & 
      Banes, P.C., Houston, TX...................................    36
    Ms. Bonnie C. Carroll, President, Information International 
      Associates, Oak Ridge, TN..................................    41
    Ms. Jacque Simon, Public Policy Director, American Federation 
      of Government Employees, Washington, DC....................    47
Additional Materials for the Record:
    Letter from Rep. Mick Mulvaney to The Hon. Daniel I. Gordon, 
      Administrator, Office of Federal Procurement Policy........    68
    Letter from Rep. Mick Mulvaney to The Hon. Jacob Lew, 
      Director, Office of Management and Budget..................    71
Statements for the Record:
    Clarke, Hon. Yvette..........................................    74
    Business Coalition for Fair Competition......................    75
    PAR Government Systems Corporation and Rome Research 
      Corporation................................................    87


         INSOURCING GONE AWRY: OUTSOURCING SMALL BUSINESS JOBS

                              ----------                              


                        THURSDAY, JUNE 23, 2011

                  House of Representatives,
                       Committee on Small Business,
                 Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
room 2360, Rayburn House Office Building. Hon. Mick Mulvaney 
(chairman of the subcommittee) presiding.
    Present: Representatives Mulvaney, Landry, Chu, Schrader, 
and Critz.
    Chairman Mulvaney. Good morning to everyone. Welcome. We 
are going to go ahead and start on time. This is the new 
government. We are actually starting on time. We will finish on 
time. Thank you very much for coming in.
    Some explanation of how we are going to proceed today. I 
was just telling the ranking member, Ms. Chu, that ordinarily 
when we have these 10 o'clock meetings we are under the gun 
with votes that are imminent. We just learned that we will not 
have votes probably till around noon today. So I will be a 
little slower with the gavel. If you go over a few minutes on 
your opening testimony, that would be great. We will also give 
more latitude to the members in their five minutes of 
questioning.
    As I was discussing with Ms. Carroll before the hearing, 
five minutes, if you have not done this before, really is not 
that long a period of time. And this is an important topic that 
I think it is important enough for us to build a good solid 
record on all sides of this issue. So we are going to try and 
do this as thoroughly as we can today.
    The order of business is I will give a brief opening 
statement. Ms. Chu will give her opening statement as the 
ranking member. Then we will introduce each of the witnesses. 
We will introduce them together and then we will have you take 
your testimony and then we will go back and give every member 
of the Committee a chance to ask a round of questions. I will 
then make a closing statement, as will Ms. Chu, and we will 
wrap up.
    So again, thank you. We are going to go ahead and call the 
meeting to order. And I want to thank you again for 
participating.
    In 1987, Ronald Reagan brought attention to the need for 
the federal government to procure commercial goods and services 
for the best value whether from government employees or from 
the private sector. He recognized that inherently governmental 
work should be performed by government employees, but that, at 
the same time, inherently nongovernmental functions could and 
should be performed by the private sector, including small 
businesses. Such an outsourcing of nongovernmental functions 
would encourage private growth, help small business, and 
actually save the taxpayer money.
    Toward that end, we support the continued insourcing of 
inherently governmental work. This hearing then is not about 
outsourcing military operations, for example. This hearing is 
about the recent push to insource inherently nongovernmental 
work for alleged cost savings.
    Over the past five years, primarily at the Department of 
Defense, there have been concerted efforts to take commercial 
or nongovernmental functions performed by the private sector 
and make them a permanent government function.
    In the 2006 National Defense Authorization Act, the 
Secretary of Defense was instructed to ensure that 
consideration is given to using Federal Government employees 
for any work done by federal employees since 1980, and any work 
that is inherently governmental was not competitively awarded 
or was poorly performed due to excessive costs or inferior 
quality.
    In the 19, excuse me, the 2008 National Defense 
Authorization Act, that guidance was expanded and codified to 
ensure that the Department of Defense civilian employees are 
used on a regular basis to perform activities that are 
currently performed by contractors but could be performed by 
federal employees.
    In 2009, insourcing was expanded even further to include 
agencies outside the DoD and agencies were directed to produce 
specific guidance on insourcing. We are still waiting on much 
of that insourcing guidance from the civilian agencies. 
However, this lack of guidance has not stopped those agencies 
from insourcing but has merely meant that the insourcing that 
is being done is being done without any transparency or without 
any regular process. Even at the Department of Defense where 
there is a detailed guidance on insourcing, the cost 
comparisons used to justify insourcing commercial or 
noninherently governmental work previously performed by small 
business has not held up to scrutiny, and yet there is no 
process for the small businesses to challenge the decisions.
    Insourcing was initially sold as a way to save the 
Department of Defense as much as 40 percent. President Obama 
claimed that it would save as much as $40 billion a year. 
However, after years of implementing this policy, the 
Department of Defense has admitted that they have not achieved 
significant cost savings. In fact, in February, the Army froze 
all insourcing efforts without direct approval of the secretary 
due to cost increases.
    Our national debt stands at $14.3 trillion. Our federal 
deficit is higher now than at any point since World War II. The 
federal budget comes in a $3.7 trillion--a quarter of our 
entire GDP. And the federal workforce has expanded to over 2.1 
million employees. We need to find ways to both reduce spending 
and to keep it low. Continuing the policy of insourcing 
commercial functions without demonstrable cost savings 
increases the size and the cost of the federal government and 
moves us in exactly the wrong direction.
    When the government chooses to consider insourcing, the 
burden should fall on the government agencies to prove that the 
full, long-term cost (including pay, benefits, and support) of 
hiring and training new federal employees is, in fact, less 
than a temporary government contract. Recent reports indicate 
that it is not.
    I want to thank the small businesses that have come here 
today to testify about the lack of transparency in the 
insourcing process and the need to reform the process to ensure 
that taxpayer dollars are being used to maximize productivity 
and not to maximize government employment or union membership. 
I would also like to thank the work of outside groups, 
including the Business Coalition for Fair Competition for 
documenting the many instances in which the government has 
sought to compete directly with small business to provide 
commercial items to the federal government.
    I look forward to hearing from the small businesses that 
will testify today about how insourcing has affected them 
individually, and, again, I want to thank everyone for their 
participation.
    I will yield now to Ms. Chu, the ranking member, for her 
opening statement.
    Ms. Chu. Thank you, Mr. Chair.
    The federal government buys a wide range of goods and 
services annually running the gamut from office supplies and 
janitorial services to aircraft and engineering services. In 
the last decade, such procurement spending has doubled to more 
than $500 million as policy changes encouraged more and more 
services to be contracted out to the private sector. With this 
rapid growth in mind, it is appropriate that we consider the 
impact of these policies not only on the private sector but 
also on the government itself.
    Over the years, and as administrations have changed, the 
government's reliance on the private sector has ebbed and 
flowed. These changes have had a direct affect on the private 
sector and small businesses in particular with regard to their 
ability to secure federal contracts. Conversely, it has also 
affected agencies which now rely on private sector corporations 
to carry out many functions.
    Determining the proper balance of these public-private 
arrangements is critical to increasing efficiency and reducing 
costs. Across agencies this balance varies and often there can 
be disagreements over what is inherently governmental. It is 
not uncommon for the purchasing needs, management 
responsibilities, and overall spending related to certain 
similar tasks to differ across the executive branch.
    As a result, many agencies have taken steps to better 
achieve their core missions. Such rebalancing efforts have been 
used to ensure that inherently governmental functions be 
performed by federal employees.
    In other cases, the process has been used so that agencies 
can build their capacity and capabilities in certain critical 
areas. In doing so, agencies have implemented new processes to 
review their responsibilities and determine which functions 
should be retained in-house and which should be conducted by 
vendor.
    In many cases, the process has been complicated. In 
instances where cost is the primary justification for 
rebalancing, there has been some disagreement as to the method 
used to determine which functions are selected. There is a 
tension here and we must recognize agencies' desire to retain 
inherently governmental functions, but also fairly treat small 
businesses that are currently or may want to in the future 
perform these tasks.
    To make certain that small businesses are respected in 
these processes, transparency is a key. It is important that 
small firms that are provided with full and complete 
information regarding why these efforts are being undertaken 
but also made a means for them to contest any inequitable 
treatment that they may be subjected to. Doing so can ensure 
that agencies can proceed with such efforts but in a manner in 
which small firms are respected.
    The effect of these transformational practices on small 
businesses has been recognized by administration officials. 
Agencies have been advised to place a lower priority on 
reviewing work performed by small firms in certain instances. 
While this is an important first step in ensuring fair 
participation by small businesses and federal contracting, 
additional examination is needed. While we may not be able to 
always outsource contracts to small businesses, we must do what 
we can to diminish the impact on them.
    Today, this hearing will focus on the process of how 
functions are selected for federal performance, examine the 
effects that it has on small firms, and identify steps to 
improve the process so that we can determine the appropriate 
balance between functions that should be performed by federal 
agencies and the private sector. We will hear from a number of 
witnesses who will provide different perspectives on these 
practices and look at the challenges they have presented.
    I want to thank all the witnesses who have traveled here 
today for both their participation and their insights. And I 
look forward to hearing their information about this important 
topic.
    Thank you, and I yield back.

  STATEMENTS OF DAWN L. HAMILTON, PRESIDENT AND CEO, SECURITY 
     ASSISTANCE CORPORATION; BONNIE C. CARROLL, PRESIDENT, 
INFORMATION INTERNATIONAL ASSOCIATES; BRYANT S. BANES, MANAGING 
 SHAREHOLDER, NEEL, HOOPER & BANES, P.C.; JACQUE SIMON, PUBLIC 
  POLICY DIRECTOR, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES

    Chairman Mulvaney. Thank you, Ms. Chu.
    It is a great panel. I am looking forward to it. First, we 
have Dawn Hamilton. Ms. Hamilton is the president and CEO of 
Security Assistance Corporation, a Virginia-based, small, 
disadvantaged, woman-owned A business, which she formed in 
2003. And Ms. Hamilton will be telling us about her personal 
experiences with insourcing, specifically, I believe at the 
Coast Guard.
    Next, we have Bonnie Carroll, the president of Information 
International Associates, a woman-owned, small business 
headquartered in Oakridge, Tennessee. They provide information 
management systems and technology services to the government, 
academic, the private sector, and international entities. Ms. 
Carroll will be testifying regarding her personal experience 
with having three contracts insourced.
    Finally, we have Bryant S. Banes, the managing shareholder 
at Neel, Hooper, and Banes. Mr. Banes formerly practiced 
government contract law on behalf of the Department of Justice, 
and for eight years active duty as a judge advocate general. 
Thank you for your service, Mr. Banes.
    Mr. Banes has taught government contracting at George Mason 
and the U.S. Army's Judge Advocate General's School. He will be 
talking today about issues of standing and insourcing cases, 
something that only lawyers could really appreciate, Mr. Banes. 
So thank you for doing that. As well as the recent Court of 
Federal Claims, excuse me, Court of Federal Claims Case, 
Hallmark Phoenix 3 v. The United States.
    And I will yield now briefly to the ranking member for the 
introduction of the fourth witness.
    Ms. Chu. Yes. I would like to introduce Jacque Simon, 
director of Public Policy of the American Federation of 
Government Employees. Thank you for being here.
    Chairman Mulvaney. Very well. Ms. Hamilton, if you will 
begin. You have roughly five minutes but again, we are going to 
be a little slow with the gavel today. So do not feel the need 
to rush.

                 STATEMENT OF DAWN L. HAMILTON

    Ms. Hamilton. Chairman Mulvaney, Ranking Member Chu, and 
distinguished members on the Subcommittee on Contracting 
Workforce, thank you for inviting me today to discuss my 
experiences with respect to the implementation of the current 
administration's insourcing policies. I am Dawn Hamilton, 
president and CEO of Security Assistance Corporation.
    SAC was founded in 2002 and is a small disadvantaged, 
minority woman-owned SBA certified 8(a) security services 
provider.
    In September 2008, the Coast Guard awarded SAC a small 
business set-aside contract to process merchant mariner 
applications at the National Maritime Center (NMC) in 
Martinsburg, West Virginia. This work is comprised of three 
task orders.
    Shortly after receiving the contract, SAC instituted 
various process improvements at the NMC to alleviate a 
significant backlog in merchant mariner applications. As a 
result of SAC's process improvements, the credentialing process 
is significantly improved today. For this work, the Coast Guard 
has recognized SAC for its outstanding performance and 
contribution to the Coast Guard's receiving the Alexander 
Hamilton award.
    Notwithstanding SAC's exceptional performance, and without 
any warning, on December 23, 2010, I received a call from Coast 
Guard Headquarters stating that they would be insourcing two of 
the task orders. By the end of the business day, the Coast 
Guard posted the relevant position on the USA jobs website.
    Soon after being informed of this insourcing action, SAC 
requested the cost analysis and documents that allegedly 
justified the insourcing action which revealed that the 
positions at issue were not inherently governmental. The Coast 
Guard's insourcing process failed to provide SAC with an 
opportunity to provide actual cost data or respond to this 
action.
    The cost analysis was incomplete and inaccurate. It 
underestimated significant costs, including indirect costs, the 
cost of additional positions, salary, transition, short-term 
and training costs.
    The cost analysis justification and conclusions were also 
unsupported. The analysis stated without authority that the 
cost of a contractor is automatically higher than a government 
employee and that the insourcing would have no adverse impacts 
to other organizations. This obviously is incorrect since this 
insourcing action has the potential of putting SAC out of 
business.
    SAC repeatedly attempted to meet with the Coast Guard to 
present its findings. When the Coast Guard finally met with 
SAC, we apprised the Coast Guard of the faulty process and 
offered to provide actual cost information. In response, the 
Coast Guard stated they had performed a robust cost analysis, 
had spent significant time and resources on their analysis and 
had no interest in reviewing SAC's actual cost data.
    SAC then met with the Small Business Administration 
officials, for which the first time have effectively intervene 
in an insourcing action. Specifically, the SBA procurement 
center representative has requested the Coast Guard halt the 
insourcing action until it is able to conduct a true cost and 
impact analysis and discuss the results with the SBA.
    Regardless, the Coast Guard is moving forward with the 
action and has already extended offers to over 55 of SAC's 
employees. In fact, the number of SAC's employees insourced 
represents approximately 23 percent of all the Coast Guard 
insourcing for the last two years.
    There is no question that the insourcing of these task 
orders have profoundly affected the future viability of SAC. 
This action has directly resulted in the loss of 75 percent of 
SAC's jobs and revenue.
    SAC respectfully submits the following recommendations. (1) 
That a moratorium be placed on all cost-based insourcing 
actions until further government-wide procedures are in place. 
(2) That the Federal government adopt government-wide 
procedures through a public rulemaking process.
    At a minimum, such procedures should include: (a) 
Requirements that affected companies and organizations be 
provided with all government cost data and analyses used in 
making an adverse insourcing action; (b) an impact analysis for 
insourcing actions that affect small businesses; and (c) an 
appeal process for affected companies and organizations.
    And finally, (3) that the SBA be given a defined role in 
the review of agency insourcing actions.
    In summary, the positions at issue in the insourcing action 
taken against SAC are not inherently governmental functions. 
Rather, the Coast Guard claims it was done to save money. The 
cost analysis provided by the Coast Guard is riddled with 
problems and is ultimately inconclusive of whether the Federal 
government will realize any cost savings. What is certain is 
that the Coast Guard's actions have inflicted real and actual 
harm to my small business--cutting jobs and revenue (during 
this economic downturn) by up to 75 percent.
    Going forward, it is imperative that the impact on small 
businesses, the driver of our economy, must be a required 
consideration in any future, excuse me, insourcing action.
    I appreciate your time and attention today and look forward 
to answering any questions that you may have. Thank you.
    [The statement of Ms. Hamilton follows on page 30.]
    Chairman Mulvaney. Thank you, Ms. Hamilton. And by the 
way--thank you, Ms. Hamilton. By the way, just an explanation 
of the lights in front of you. Again, we are going to be a 
little looser with the time but I do not know if you actually 
see the amount of time or if you just see red, yellow, and 
green. Green, obviously, means that there is more than a minute 
left; yellow means there is a minute; red means that we have 
ended the five minutes. If we go much over five you will hear a 
light tapping. A light tapping sound just to bring to your 
attention the fact it is time to wrap up. But, again, we will 
be fairly loose with the time.
    So thank you, Ms. Hamilton. Ms. Carroll, would you please 
begin with your testimony?

                 STATEMENT OF BONNIE C. CARROLL

    Ms. Carroll. Chairman Mulvaney, Ranking Member Chu, and 
members of the Subcommittee, I appreciate the invitation and 
opportunity to provide testimony on this very important issue. 
In addition to being president of Information International 
Associates, I am also a member of the Professional Services 
Council and serve on their board. So I am pleased to testify on 
behalf of many other small businesses at PSC.
    The insourcing actions that we have had that were the most 
significant impact on us has been for the Department of 
Defense, and particularly the Air Force. So I will focus a 
little bit on our experiences from the Air Force today. But 
similar activities are taking place across the government.
    We are proud of the quality and level of service we provide 
the nation's military men and women. We have done work on over 
15 Air Force bases. Our contract performance has been 
outstanding. Our contract prices have saved as much as 33 
percent over previous government in-house costs. Our work has 
never been identified as inherently governmental. In fact, we 
continue to do that work, as do other contractors across the 
whole Air Force.
    Yet, despite these performances metrics, we have lost 16 
percent of our employees to insourcing by the Air Force over 
the last eight months and we hear rumblings about the potential 
for another 15 percent. Amen when I say we do agree with the 
strategic need of the Federal government to strengthen 
performance of inherently governmental functions, particularly 
the Federal acquisition workforce and also in areas where the 
government must have internal expertise to manage agency 
mission. Coming from Oakridge, I hope the government has 
internal nuclear expertise.
    Where insourcing fulfills a validated strategic need, we 
support its proper use. As a taxpayer, of course I 
wholeheartedly support saving the taxpayers money. However, the 
tactical methods of implementing the insourcing requirement and 
the impacts on the Air Force mission raise grave concerns for 
us. What we have observed is that decisions to insource are 
driven more by arbitrary budget and manpower boogies than by 
the objectives of enhancing the government's workforce 
capabilities or by true cost savings.
    Furthermore, the reprehensible tactics of directly 
recruiting our staff before official notice is given about the 
government's even decision to insource is highly inappropriate.
    Finally, where insourcing decisions were based on cost 
savings, the cost analysis of how the deliberations were made 
have not been transparent and there really is no effective 
mechanism for a contractor to gain enough information in 
appropriate time.
    In addition to the faults and the decision and transition 
process, once the insourcing occurs we do not believe that 
there is any meaningful internal or external oversight to 
ensure that the claimed savings and desired programs' 
objectives have been achieved. In fact, quite the contrary. 
What we see is evidence that insourced positions have not been 
fulfilled and services to our war fighters have, in fact, been 
diminished.
    In my written testimony, I have provided three case studies 
where outsourcing has occurred to the detriment of my company. 
Rather than going into the details here, I would like to 
address some recommendations that can be done to perhaps fix 
some of the problems created by inappropriate insourcing.
    First, in the issue of transparency, and I think we are 
saying many of the same things, Congress should insist on more 
transparency for any contract which is considered for 
insourcing. From the moment the consideration begins, some kind 
of an ombudsman or ombuds process should be appointed to work 
with industry to assure an appropriate and fair process is 
followed. Another recommendation in transparency as part of 
that process, actions taken to fulfill the requirements should 
be documented and made available to the contractor before 
contracts are terminated. Going through the FOIA route is not 
giving people information when they need it to have any kind of 
reasonable ability to take action.
    Next in the issue of competition, when the government is 
pricing contracted function, a contractor also should be 
allowed to put in a price to ensure that the taxpayer is, 
indeed, getting the best price. Five years after a contract 
begins, the contractor might, in fact, have lower prices to 
offer. Unless there is significant and special justification in 
insourcing, small businesses should be allowed to complete the 
contract with all of the options exercised and not stopped in 
the middle. Special justification should be required.
    Transition planning and consequences. And I emphasize the 
word ``consequences.'' The government should demonstrate that 
it can transition the contract just as a contractor would be 
required to meet a transition plan. There should be 
consequences to the government's failure, just like there are 
to a contractor when commitments are not met.
    Ongoing reviews of process during performance should be 
required. This is like the letter of obligation that is 
applicable under A-76 and some form of it should be used and 
enforced.
    And finally, and probably most problematic, is 
inappropriate recruitment. Poaching, and I hope you have heard 
that word before, and other questionable recruitment practices 
aimed at contractor employees on contracts targeted for 
conversion should be dealt with. It is against regulations and 
it has a significant financial impact on the contractor. We 
recommend where the workforce is converted from private to 
public sector positions, the government should actually 
compensate contractors for the cost of hiring and training 
those personnel. If the government did not take them over, they 
would have to incur these costs. At a minimum, these costs 
should be considered in the cost analysis.
    So we are proud to do the work we do and are proud to 
support the important missions of our government. What we ask 
for is fair opportunity to compete and a government that makes 
the right decisions for the right reasons.
    Thank you for the opportunity to testify. And I am pleased 
to answer questions.
    [The statement of Ms. Carroll follows on page 41.]
    Chairman Mulvaney. Thank you, Ms. Carroll. We will hold off 
the questions until the very end.
    So, Mr. Banes.

                  STATEMENT OF BRYANT S. BANES

    Mr. Banes. Mr. Chairman, Ranking Member Chu, distinguished 
members of this Subcommittee, it is an honor and a privilege to 
talk to you today about the legal developments on insourcing, 
their adverse impacts on small business, and job creation and 
the lack of transparency in the process. More specifically, I 
have been asked to talk to you today about the recent decision 
by the U.S. Court of Federal Claims and Hallmark-Phoenix 3, LLC 
v. United States. In this case, I want everybody to understand 
that the Court of Federal Claims--one judge on the Court of 
Federal Claims issued a decision ruling that the Court lacks 
jurisdiction to review insourcing decisions by the Federal 
government because private contractors are not within the zone 
of interest of the applicable statutes. This was a Defense 
Department insourcing action by the Air Force, specifically the 
United States Air Force Space Command. And it concerned a 
contract that was far from inherently governmental or anything 
close to that.
    I would like to talk to you about this today because it is 
a very, very bad thing once we understand that we can no longer 
question our government and we do not have the right to go into 
court and say stop, take a look at this, and is it the right 
thing to do.
    In this case, that is exactly what the Court said. It 
looked at the statutes at issue, namely 10 U.S.C. 
Sec. Sec. 129a and 2463, the Defense Department's insourcing 
statutes, and decided that private contractors have no right to 
question the government's insourcing in court, saying that that 
is for the halls of Congress.
    Well, we are here today, and I would echo the concerns of 
my distinguished colleagues and the private contractor 
community. I see the same things where I am for several 
contractors. I represent several that have been subject to 
insourcing and it is interesting to see, to talk about Hallmark 
today because that is an excellent example of insourcing gone 
awry. The Hallmark contract is a transportation contract and 
vehicle maintenance contract. It does not concern weapons. It 
does not concern policymaking. It was competitively awarded. 
The contractor has no adverse performance history. In fact, did 
a very good job. And from what we can tell, they were doing the 
work in a very, very cost-effective manner.
    The statutes at issue that we are talking about require the 
least cost form of manpower, either military, civilian, or 
private contractor when you are looking at whether or not to do 
insourcing. The Court, when it was looking at it, said that, 
well, no, you cannot look at, you cannot question the analysis 
that they did because you are not within the zone of issue and 
legal parlance. In other words, this statute was not passed for 
your benefit. But when you look at 10 U.S.C. Sec. 129a, it does 
say and it mandates from Congress that the least costly form of 
manpower be used. And it specifically states military, federal, 
civilian, or private contractor.
    Now, if a private contractor is the least costly form of 
manpower, which in the Hallmark case we believe it was, then 
that would make a private contractor the beneficiary of that 
statute and one that should get the contract and it should stay 
outsourced. But for some, for a host of legal reasons that we 
do not have enough time to go into here, the Court decided that 
private contractors had no legitimate right to question that 
action.
    There was a CRS (Congressional Research Service) Report 
issued earlier this year titled Functions Performed by Federal 
Contractors: An Overview of the Legal Issues. This is an 
excellent report and it talked about an analysis that the 
current administration was doing. And this is in line with some 
of the recommendations we are going to make today.
    When we are looking at how we fix the problem of whether we 
can question insourcing in court, we have to do three things, I 
think, to make sure that no court in the future denies that 
opportunity. First of all, we need to amend the Competition in 
Contracting Act to define protest to include conversion of a 
function that is being performed by private contractors to 
federal, civilian, or military employee performance. Second, we 
need to amend the Competition Contracting Act to provide the 
prudential standing and a protest action is coextensive with 
interested party status. And three, I think it is appropriate 
to impose a legislative moratorium on insourcing, the one that 
was named in the CRS report, until the administration completes 
an evaluation of the impact of insourcing on small business and 
the general overall cost savings.
    This is key because when you look at this, in the Hallmark 
case when we talked to the people at Air Force Base Command, we 
learned that they had not asked any of these questions. They 
specifically told us that we have not considered the impact on 
small business, we have not considered the impact on the union 
workforces that will lose their jobs, and there is no direct 
higher authority. So in that context, that was another reason 
that we had to question the insourcing in court.
    Because the administration has not considered these things 
and has had no emphasis placed on considering these things, 
that is why we recommend putting the brakes on this today.
    [The statement of Mr. Banes follows on page 36.]
    Chairman Mulvaney. Thank you, Mr. Banes.
    Ms. Simon.

                   STATEMENT OF JACQUE SIMON

    Ms. Simon. Mr. Chairman, Ranking Member Chu, and members of 
the Committee, thank you for the opportunity to discuss the 
importance of insourcing and reducing the Federal government's 
expensive and risky overreliance on service contractors.
    For the uninitiated, there is no better reminder of how 
insourcing can be used to save money and improve services than 
the retirement and annuity work at the Defense Finance and 
Accounting Service (DFAS). In 2001, the work was privatized. In 
2003, the DoD inspector general determined that the decision to 
contract out had been wrong and reported that a systematic flaw 
by a CA-76 process against the in-house workforce and raised 
serious questions about the integrity of all A-76 cost 
comparisons.
    Despite growing concerns over the contractors. poor 
performance, including reports that thousands of military 
retirees with disabilities died before they received their 
benefits, DFAS did not actually decide to insource the work 
until 2010. DFAS's decision to insource 600 jobs saved money 
and improved services because according to the agency, federal 
employees were more flexible, were better able to change the 
way they worked, and to accommodate increases in demand.
    In 2011, DFAS told the House Defense Appropriations
    Subcommittee this insourcing would save $5 to $10 million 
this year and $19 million in the next fiscal year. As DoD 
reported in December 2010 regarding its overall insourcing, and 
I quote, ``Execution to date has been highly successful. More 
than half of current insourcing actions are because the 
contracted work was determined to be inherently governmental, 
closely associated with inherently governmental, or otherwise 
exempt from private sector performance to mitigate risk, ensure 
continuity of operations, build internal capacity, meet 
readiness needs, et cetera.'' Moreover, on a case by case basis 
at the organizational level, DoD components are finding that 
they can generate savings or efficiencies through insourcing 
certain types of services or functions.
    Regardless of what is said today, this hearing has provided 
a very valuable service because we now know that of the almost 
17,000 in-house positions created in DoD through insourcing in 
2010, just six percent were established where the prime 
contract holder was a small business. Although not the final 
word, DoD's six percent report is the first set of undisputed 
facts to be introduced in a debate rife with disinformation and 
misinformation.
    Here is a bit of historical context. During 2010, when DoD 
actually insourced, it has been a record $248 billion on 
service contracts, a huge increase from the $104 billion spent 
in 2001. Civilian personnel costs during that same period 
increased from $41 to $69 billion.
    And a little bit about proportions. I think defense service 
contractors would have a very difficult time convincing 
taxpayers they have been victimized by insourcing when there 
has been such a large net increase in service contracting--a $5 
billion net increase in 2010 despite insourcing. Insourcing 
affected less than one percent of contracted outwork at DoD in 
2010.
    As we have seen, insourcing can be used to improve service, 
save money, and reassert public control over public functions. 
Federal employees are often far more flexible than contractors 
because they do not insist on lengthy negotiations and costly 
surcharges every time something unanticipated occurs. Yet, 
despite significant savings from reducing overreliance on 
contractors, DoD insourcing has all but stopped.
    DoD is no longer managing its workforce based on the usual 
criteria of cost, policy, risk, and the law. Instead, it is not 
assigning work to federal employees; indeed, it is taking away 
work from federal employees merely because they are federal 
employees, which inevitably undermines the interests of 
taxpayers and war fighters.
    It is also important to understand that the insourcing laws 
do not cover conversions to performance by military or reserve 
personnel. This has not stopped lawmakers from offering 
draconian amendments to stop insourcing even when the so-called 
horror stories that inspired them actually involve insourcing 
to military or reserve personnel, not to federal employees. The 
insourcing laws also have nothing to do with contracts that are 
terminated simply because the agency no longer needs the work 
to be performed.
    I realize that both of those points are obvious, but the 
vast majority of alleged horror stories we have been presented 
with are actually contracts that are not continued or have been 
converted to performance by military and reserve personnel. At 
a time of large budget deficits, it is important that 
contractors, both big and small, be required to make the same 
sacrifices that rank and fire federal employees are already 
making.
    Proposals to prevent managers from using federal employees 
instead of contractors even when money would be saved for 
taxpayers are indefensible. Contractors consume enormous 
amounts of discretionary spending. No effort to reduce the 
burden of contractors on the taxpayer can be taken seriously if 
it does not allow managers to substitute federal employees for 
contractors when savings are possible.
    This concludes my statement. I would be happy to answer any 
questions members of the Committee may have.
    [The statement of Ms. Simon follows on page 47.]
    Chairman Mulvaney. Thank you, Ms. Simon. And thank you to 
everybody.
    As is my practice, I will defer first to Ms. Chu and then 
allow the members who are participating to ask their questions 
and I will hold my questions till the end. So Ms. Chu, you have 
as much time as you need.
    Ms. Chu. Thank you, Mr. Chair.
    Ms. Simon, last year the Department of Defense instituted 
the efficiency initiative to reduce taxpayer costs by 
increasing efficiencies and eliminating redundant functions. 
And you have talked in detail about that. What was the impact 
on insourcing and why is it important that agencies comply with 
the laws that require them to inventory their service 
contracts?
    Ms. Simon. I will answer the second part of your question 
first if that is okay. One of the reasons bipartisan majorities 
of the Congress have endorsed a moratorium on outsourcing is 
because the outsourcing policy based on A-76 competitions was 
conducted in a way that was not consistent with the public 
interest. There has never been systems in place that have 
allowed agencies to actually track the costs and savings, if 
any, of A-76. The A-76 process itself has been found by 
independent third parties, such as the DoD, IG, and the 
Government Accountability Office, to be systematically biased 
against in-house performance because of the vast overstatement 
of overhead costs that are put onto the in-house cost estimate. 
And I can talk about that further.
    And then there is the fact, and it is very interesting to 
hear my fellow panelists talk about the importance of 
transparency. You know, one of the reasons that federal 
employees have been the exclusive targets of the efficiency 
initiative is because we are so transparent in the budget 
process. Anybody looking at an agency's budget, DoD or any 
other agency, can see exactly how may federal employees there 
are, what they do, and how much they cost. But the same has 
never been true for the contractor workforce that is in many 
cases many, many times larger than the federal workforce, you 
know, the civilian in-house workforce and any given agency.
    Consequently, the moratorium on A-76 was imposed to exist 
unless and until agencies could compile inventories of their 
service contracts, that it would allow them to bear the same 
kind of scrutiny that the federal employee workforce bears on a 
continual basis. We want to know, and the public deserves to 
know given the hundreds of billions of dollars spent on service 
contracts, exactly how many there are, what they do, and how 
much they cost.
    And in that context, because, and you can see in my written 
statement there is an exchange between Senate Armed Services 
Chairman Levin with the person from DoD in charge of the 
efficiency initiative where he admits that in the efficiency 
initiative contractors have been spared any kind of scrutiny or 
any kind of proportional request for sacrifice because they are 
invisible in the budget. Nobody can tell exactly how much they 
cost, what they are doing, and how many of them there are.
    And so because of the fact that we are easy targets because 
we are visible because of the transparency, and I am not 
complaining about the transparency about federal employees, it 
is as it ought to be, there just ought to be equivalent and 
comparable transparency to the even larger service contract 
workforce.
    Ms. Chu. Now, it seems to me that there are certain 
inherently governmental functions. For instance, oversight on 
spending. What type of positions do you think should be 
performed by federal employees?
    Ms. Simon. Well, our position is that obviously inherently 
governmental functions should be performed by federal 
employees. I mean, that is not just our position as, you know, 
I think there does not even seem to be any disagreement about 
that. There is always going to be disagreement about the 
definition of what is inherently governmental. It is a 
controversial concept but we do have one both in statute and 
regulation that if we only enforced that we would be in a much 
better place than we are today according--the Army, the 
Department of the Army is the one agency in the government that 
has actually done a good job in creating a contractor inventory 
and its initial findings are that there are about 45,000 
inherently governmental jobs being performed by contractors 
right now.
    But there is also the concept of work that is closely 
associated with inherently governmental work and critical 
functions. In fact, the OMB's Office of Federal Procurement 
Policy is in the process right now of putting together a new 
definition of inherently governmental that will include the 
concept of critical function. And the FAR includes a long list 
of examples of work that--specific examples of work that fall 
into the category of closely associated with inherently 
governmental. And it involves things like preparing budgets, 
writing regulations, evaluating contract bids. I mean, a lot of 
work that is currently performed by contractors that even on 
the face of it raises people's eyebrows because it is work that 
is so closely identified with the public interest and work 
where there is almost inevitably a conflict of interest when it 
is performed by a private business that we would want it 
performed by employees of a federal agency.
    Then there is also work that has been contracted out 
without any competition. The vast majority of federal employees 
who lose their jobs to outsourcing do so when there is what is 
called a direct conversion. There is no cost comparison, there 
is no competition, there is often no private-private 
competition. Just the work is handed over to one particular 
contractor. And we have suspicions. Since everyone in this room 
is a great believer in the benefits of competition, that 
competition lowers prices. And when work is handed over without 
benefit of any kind of competition--public-private or private-
private--I think that there is certainly a good public policy 
argument to be made that at a minimum it should be subjected to 
some form of competition.
    And then, of course, there is the category of work that is 
poorly performed by contractors, either far more expensively 
than originally promised or quality problems. And God knows we 
have a long, long list of headlines in the newspaper of 
contracts that are, you know, poorly performed for one reason 
or another or very, very, very expensive, more expensive than 
they ought to be.
    Ms. Chu. Let me ask a question about the controversies with 
regard to the costing methodology for analyzing whether a 
particular function should have been in-house or outsourced. 
Has the costing methodology for DoD where there was 
predominantly more reviews than efficiency been reviewed by 
other congressional committees?
    Ms. Simon. Oh, yes, they have. I have a few different 
things I would like to say, if I may, about the DoD's costing 
methodology and the insourcing context. But in answer to your 
question, the Armed Services Committees, which are the 
committees that probably have spent the most amount of time 
actually studying and analyzing questions of cost comparison 
methodology have codified now twice. And the National Defense 
Authorization Act for fiscal year 2011 and then again when the 
Democrats were in charge and now again when the Republicans 
have been in charge, in the fiscal year 2012 National Defense 
Authorization Act, two times that Committee had codified and 
endorsed the DoD costing method that has been used in the 
context of insourcing.
    We are aware, of course, of the critique that has been put 
forward by CSIS of the costing methodology and we have actually 
asked the Department of Defense to respond to that critique. It 
is interesting to us, however, you know, our critique of A-76 
costing methodology has been validated by independent third 
parties, Government Accountability Office, and the Department 
of Defense Inspector General. So far at least the contractors 
have only been able to find one of their own to criticize DoD's 
costing methodology.
    I think the fact that, you know, two separate House Armed 
Services Committees have endorsed this costing methodology and 
that to date we have no independent third party that has 
validated in any way the CSIS arguments gives us reason to at 
least have some faith in it but we are absolutely--if there are 
flaws in that methodology, we would want them to be corrected.
    Ms. Chu. And, in fact, the non-DoD agencies do not have a 
public costing methodology. And, of course, you have mentioned 
that the Professional Services Council has recommended OMB 
circular A-76. Would that alleviate the costing methodology 
concerns raised by contractors?
    Ms. Simon. I doubt it. I think that, you know, they are 
looking for some kind of issue to hang their objections to, and 
costing methodology is sort of the argument of the day. A-76 is 
systematically biased and we know that. Bipartisan majorities 
in both houses of Congress have also recognized that. The GAO 
has recognized it. The DoD IG has recognized it. I mean, during 
the heyday of A-76 outsourcing during the Bush administration, 
it is true that in-house bids won most of the time in spite of 
this rather enormous bias against in-house performance. I mean, 
the overhead costs, it is not just double counting. You know, 
overhead costs should only be charged to the in-house bid when 
it is a cost that would only--that would go away when the work 
is outsourced. And, of course, what the DoD IG found was these 
costs continued even after outsourcing. So they were 
inappropriately charged to every in-house bid.
    And so A-76 is just--it is a deeply flawed costing 
methodology. It is possible that the OFPP will issue a new and 
improved A-76 and we expect any time that OFPP will issue a 
costing methodology for non-DoD agencies to use in the 
insourcing context because I think there is obviously, in DoD, 
if half of the work that is considered for insourcing is 
because it is inappropriate for outsourcing and half is due to 
cost reasons, well, then there is a lot of money to be saved 
once these non-DoD agencies have an opportunity to perform 
these kinds of rational cost-based comparisons.
    Ms. Chu. Okay. Thank you. I yield back.
    Chairman Mulvaney. Thank you. I am going to recognize now 
the gentleman from Louisiana, Mr. Landry, for five minutes.
    Mr. Landry. Thank you, Mr. Chairman.
    Ms. Simon, when you say that contracts that have been 
insourced to private contractors are performed poorly, are they 
poorly performed because they may be poorly managed? I mean, is 
it possible that the management of the Federal government in 
some of those contracts may not be adequately supervised and 
managed improperly? Is that possible?
    Ms. Simon. Well, I would not say that it is a logical 
impossibility but it seems really doubly unfair to federal 
employees to blame them when they are performing the government 
work if it does not go well and also blame them when it has 
been contracted out and it does not go well. I mean, federal--
--
    Mr. Landry. Would you say there is a bias when you manage 
those kind of projects?
    Ms. Simon. No. I think that, unfortunately, there were in 
the course of hollowing out agencies that occurred in the great 
downsizing of the `90s, we did find ourselves with so much work 
contracted out that contract management itself was contracted 
out. And agencies lacked adequate in-house personnel to 
effectively oversee their contractor workforce. When the 
contractor workforce was five, six, seven times bigger than the 
in-house workforce, things were completely out of control. And 
that is exactly what gave rise to the idea of insourcing work 
that is inherently governmental.
    Mr. Landry. But the private industry has a record of being 
able to manage, you know, they have management teams that 
easily manage seven, eight, nine times their size and perform 
well in the private sector. And when they perform well, of 
course, you can see that they perform well because their 
profits go up. And so I just wonder, you know, the problem I 
have is that, you know, it is easier, and especially in times 
when this country is broke and American families are having to 
tighten their belt and cut certain things, you know, whether it 
be going to the movies or not taking that summer trip to 
Disneyland and just going to the park instead, it is--it 
becomes, I guess, easier for us to be able to look into, 
especially when we are insourcing, to be able to eliminate 
programs that are not useful. But when you load them up with 
federal employees, they seem to become difficult and become 
this animal that you are not able to properly cut when you 
should be cutting.
    And so those are my two concerns, is that one, are we 
properly managing our private contractors? I have yet to be 
able to, even before I came to Congress, find a government 
agency that really is as proficient as the private sector. Now, 
I will admit my bias. I come from the private sector so I just 
mention that. I did want to just ask Ms. Hamilton a question 
before I run out of time. Why do you think your contract was 
canceled?
    Ms. Hamilton. Excuse me. Well, I only have what was given 
to me by the Coast Guard and the FOIA request which is it is 
based on cost. And that is all I can really say.
    Mr. Landry. And what is your feeling on it though?
    Ms. Hamilton. Well, the numbers. There are a lot of people 
on the contract. It did make up over 23 percent of all the 
contracts that they have insourced over the last couple of 
years. So I guess it is numbers. They are under pressure to cut 
contractor positions by the agency that oversees them.
    Mr. Landry. But you believe that you are creating a cost 
savings to the Coast Guard?
    Ms. Hamilton. Oh, there is no--I am creating a cost 
savings, yes.
    Mr. Landry. Right.
    Ms. Hamilton. But insourcing--I do not believe.
    Mr. Landry. So why would there be pressure for them--there 
should be pressure for them to save in the budget rather than 
to spend more money. So what is the pressure?
    Ms. Hamilton. I think it is just the appearance of numbers 
being cut. They are being asked to cut by these jobs and save 
this money and then they are producing a document that is 
saying it is saving $5 million and it is coming out of their 
pocket. And then I guess it goes over to the Federal 
government's pocket instead of the Coast Guard's pocket. So it 
creates that appearance or illusion of saving some money from 
that agency when, in fact, it is not; it is just coming from a 
different purse.
    Mr. Landry. I see. Mr. Chairman, I yield.
    Chairman Mulvaney. Thank you, Mr. Landry.
    We are going to recognize now Mr. Critz from Pennsylvania 
for five minutes. Mr. Critz.
    Mr. Critz. Thank you, Mr. Chairman.
    I was actually going to ask a couple of questions other 
than to Ms. Simon, too, to give other people a chance to talk 
and give you a chance to rest a little bit. Now I am going to--
let me get my papers in front of me.
    Ms. Hamilton, you had mentioned that--well, in your 
testimony you had 75 percent of your workforce you lost with a 
Coast Guard contract. Is that correct?
    Ms. Hamilton. That is correct.
    Mr. Critz. How much notice did you get that this contract 
was going to be eliminated or you were not going to get a 
follow on or anything?
    Ms. Hamilton. Well, they called me on Christmas Eve, as I 
stated, and said--then jobs were posted that evening. Through 
the FOIA request we did see that they had sent out a notice. 
However, it was sent to the wrong address. So if it was sent to 
the right address that would have been maybe six months. But 
that did not happen.
    Mr. Critz. Oh, so they sent a notice out but because it 
went to the wrong address you did not get that six months 
notice. Is that what you----
    Ms. Hamilton. That is correct. And we brought that to their 
attention when we met with them.
    Mr. Critz. Okay. All right. The contract you had with the 
Coast Guard, what was our margin, would you say on it?
    Ms. Hamilton. You mean our profit?
    Mr. Critz. Yes.
    Ms. Hamilton. Probably around six percent.
    Mr. Critz. Six percent. But you were still saving the Coast 
Guard money and making six percent?
    Ms. Hamilton. Yes.
    Mr. Critz. Okay. All right.
    Ms. Carroll, you lost work and it looked like from your 
testimony about 25 percent of your workforce?
    Ms. Carroll. It was 16 percent in the last 18 months with 
another 15 potential.
    Mr. Critz. Okay. How much notice did you get that this 
contract was going to be eliminated?
    Ms. Carroll. Well, you know, notice is a funny thing 
because we get lots of rumblings. Okay? We get, oh, this is 
going to be insourced. We hear from our people this is going to 
be insourced and things like that. So we did get some notice, 
maybe four to six months notice on some of these contracts.
    Mr. Critz. Okay.
    Ms. Carroll. One of which was canceled before the last 
option year.
    Mr. Critz. Yeah.
    Ms. Carroll. And so, you know, the official notice versus 
the rumblings that go on and when people are approached and 
told to apply for jobs when we have not even been told that an 
official decision is made is a real problem.
    Mr. Critz. Okay. Thank you. Mr. Banes, you cited a CRS 
report and I missed what report--what the title of the report 
was.
    Mr. Banes. Yes, sir. It was Functions Performed by Federal 
Contractors: An Overview of the Legal Issues. Excuse me. It was 
Functions Performed by Federal Contractors: An Overview of the 
Legal Issues. The cite to it is in my testimony.
    Mr. Critz. Is it? Okay. I went through rather quickly and I 
did not see it. Thank you very much.
    Now, for the three of you, I have some data here in front 
of me and I was curious if you were aware of it. There is a 
report by the Office of the Director of National Intelligence 
in `08 that concluded that in the intelligence community, 
contractors make up around 29 percent of the workforce yet they 
account for nearly half of the personnel budgets. So obviously 
there is an issue. And I think what you see from the Federal 
government is that we have a way of making a one-size-fits-all 
solution and I think you can cite personally that one-size-
fits-all did not fit you because you were doing good work. But 
when the Federal government moves, it is a huge mass of people 
that move and trying to save money.
    And I am on the Armed Services Committee. I used to work 
for a member that was Defense Appropriations. And what I can 
tell you is when you go into country in Iraq or you go into 
country in Afghanistan, there are way more contractors than 
there are military personnel and it is a huge problem because 
the management, as Mr. Landry cited, is tough because there are 
so many moving parts. And I think things like this, what I just 
cited with intelligence, is that it is not working as it was 
set to be. But it works in some instances. You can cite that. 
But it does not work in all instances because there are some 
functions that are inherently governmental. There are some 
functions that are better done within the government. And it is 
not a perfect system. And I think it is great that we all can 
sit down here and talk about this.
    The one thing that Ms. Simon brought up that I think is 
very interesting is that of all the insourcing, 17,000 in-house 
positions created in DoD, six percent of them were displaced 
small businesses. So it is not perfect but it is close.
    Go ahead.
    Ms. Carroll. That number is a very interesting number but, 
you know, numbers can be used to tell many stories. The reality 
is maybe there is a big company that has 800 positions. Okay, 
so are we talking percentages by contract? You have to look at 
how many small business contracts there are and what percentage 
of small businesses being insourced versus large contractors 
and what percentage. That six percent does not really mean very 
much to me.
    Mr. Critz. Well, it says where the prime contract holder 
was a small business, six percent.
    Ms. Carroll. Of the money? Of what? I do not really 
understand that money.
    Mr. Critz. Ms. Simon, can you address that?
    Ms. Simon. I would have to get back to you with the details 
but I believe it is of contracts.
    Mr. Critz. Of contracts. Okay. My time has expired. Thank 
you, Mr. Chairman.
    Chairman Mulvaney. Thank you, Mr. Critz. I am now going to 
yield five minutes to Mr. Schrader from Oregon for his 
questions.
    Mr. Schrader. Thank you, Mr. Chairman. I am just trying to 
get a handle on the fairness of the contracting issue area and 
reference is made to--each agency I guess gets to pick how it 
wants to define what cost should be allocated to a contract. I 
guess I ask Ms. Simon and Mr. Banes that question.
    Ms. Simon. I am sorry. I am not sure I understand the 
question.
    Mr. Schrader. In other words, there does not appear to be a 
standard methodology for the Federal government to include, you 
know, a set number of costs, whether it is in your variable 
costs, you know, direct costs, overhead. I mean, all these----
    Ms. Simon. As we----
    Mr. Schrader. It is up to each agency. Is that correct?
    Ms. Simon. Well, no. Not exactly.
    Mr. Schrader. Okay.
    Ms. Simon. As we speak, only the Department of Defense has 
issued and had codified into law a costing methodology for use 
when making insourcing decisions that are not based on--that 
are based on cost as opposed to based on whether the work is 
inherently governmental, closely associated to inherently 
governmental poorly performed----
    Mr. Schrader. It seems like cost, providing it is not 
national security interests it would be.
    Ms. Simon [continuing]. Competition. Non-DoD agencies right 
now are not insourcing for cost as far as we know because they 
are waiting for OMB to issue a costing methodology that they 
can use when their insourcing decisions are going to be based 
on which is the lowest cost.
    Mr. Schrader. When is that due? Or do we know?
    Ms. Simon. I have no idea. They are on their own schedule.
    Mr. Schrader. You indicated at one point, well, sorry, Mr. 
Banes, a comment on that also?
    Mr. Banes. Yes, sir. When you are looking at what the 
costing methodology is for the Department of Defense, I mean, 
Ms. Simon is right in her exposition of what the field of play 
is. But the directive-type memorandum 09-007 is the Department 
of Defense costing methodology. That one was talked about in 
the Ike Skelton Act and it basically was reviewed at that 
point. The interesting thing about it, and from a fairness 
perspective, is that there were two sets of numbers that are 
made in this directive-type memorandum or that are used.
    One is the set of numbers that is used to justify 
insourcing and then the other set of numbers is used to report 
to Congress how much money you need or how much money the 
agency needs. The number that the agency needs in reports to 
Congress is up here. The number that is used to justify 
insourcing is down here. It is less. So, you know, I did not, 
you know, I did not think the government was supposed to make a 
profit in its appropriations but that is one way.
    Mr. Schrader. So there is a mix and match? In other words, 
a report of two different numbers using different variables?
    Mr. Banes. Yes, Your Honor. Or yes, sir. I am thinking I am 
in court.
    Mr. Schrader. That is okay.
    Mr. Banes. Sorry. But, you know, it is an interesting 
memorandum. When you look at it there are just two sets of 
numbers in there. There is one in the front that talks about 
reports to Congress.
    Mr. Schrader. I see. So the reporting is different than the 
costing actually to some degree.
    Mr. Banes. Yes, sir. And that is the, you know, that is our 
concern, is the full costing methodology. I would echo the 
chairman's concerns that, you know, I do not think the DTM 
actually has a full costing in it on the insourcing side. I 
think it does on the report to Congress side. But we do not, 
you know, no one ever sees the insourcing side. That is secret. 
You know, I cannot--it is under a protective order. I cannot 
tell you what it was for the Hallmark contract here today.
    Mr. Schrader. Okay.
    Mr. Banes. But I can--but Ms. Simon is right. You can go to 
Congress and you can see what the agency asked for. But you 
cannot see what the justification was.
    Ms. Simon. Well, and I would also like to add, of course, 
what Mr. Banes says may be true but it is also true that the 
true costs of service contracts are truly invisible in the 
budget process. And the cost of hiring federal employees and 
the full lifetime costs of hiring federal employees are 
extremely transparent and known to all of us in great detail.
    Mr. Schrader. I appreciate that. You mentioned the CSIS 
critique and stuff. Could you elaborate a little bit on that?
    Ms. Simon. Well, I only raised it because it is certainly--
the contractor lobbying organizations and pressure groups have 
tried to make great fanfare out of this report that we are not 
sure if they commission it or not. We do not really know, you 
know, what moved CSIS to suddenly jump into this arena. But 
they produced a report. And like I said earlier, we have 
formally requested that the Department of Defense respond to 
the criticisms that CSIS has made. From our own cursory review 
we did not find them persuasive. And what we find least 
persuasive is the recommendation in the report that the 
government revert to A-76 as a costing methodology because we 
know that that is a fatally flawed methodology.
    Mr. Schrader. Thank you very much. I yield back.
    Chairman Mulvaney. Thank you very much. And again, thanks 
to all the panelists for coming in today and thank you for the 
questions.
    I will take a few minutes now and go down with each of the 
witnesses and ask a couple of questions.
    Ms. Hamilton, tell me a little bit more about your 
contract. What--you spoke briefly about the services that you 
were providing. Could you go down that list again of what you 
were actually doing under your contract?
    Ms. Hamilton. Sure. Absolutely. What we do is we perform 
professional qualification evaluation of merchant mariner 
credential applications and safety and suitability screening of 
these applications as well. So basically the criteria is 
established by the Coast Guard and we simply administer its 
routine and administrative function in nature. SAC does not--it 
is not involved in any exercise of government discretion. So it 
is just administrative.
    Chairman Mulvaney. So it was personnel-based?
    Ms. Hamilton. It is personnel services. Yes.
    Chairman Mulvaney. And I guess my question to Ms. Simon, 
Ms. Simon, you talked about the horror stories. The horror 
stories of either contracts that had been canceled or contracts 
that were non--that were performing inherently or near 
inherently governmental functions. I guess my question to you 
is what she just described, does that raise your eyebrows as to 
whether or not it is inherently governmental?
    Ms. Simon. If Ms. Hamilton says that she learned from the 
agency that the work had never been categorized under a Fair 
Act inventory or otherwise as inherently governmental, I have 
no reason to doubt the truthfulness of her statement. Whether 
or not it is closely associated with inherently governmental 
work is really a judgment that is inherently governmental. I 
think that is for the agency to decide. You know, it is not 
really--I am absolutely a layperson when it comes to these 
kinds of distinctions but there are people in the agencies who 
are much more knowledgeable about the integration of the work 
of the agency and are in a much better position to judge when 
work is a critical function for an agency or whether it is 
closely associated with inherently governmental.
    Chairman Mulvaney. Ms. Simon, give me a few examples of 
what would not raise your eyebrows, of something that to you is 
absolutely noninherently governmental?
    Ms. Simon. Well, I would be happy to answer that question 
but I just want to put my answer in a little bit of context. I 
am sorry that Mr. Landry left because one of the arguments that 
contractors--the most compelling arguments that contractors 
have, I believe, made in their own favor is that they are 
essentially disposable. You can hire contractors for temporary 
needs, for surge situations, but not necessarily for ongoing 
functions that are core to the mission of an agency. And I 
think this concept that once a contract is let to a contractor, 
the contractor has some kind of a fundamental right to a 
continuation of that work and perpetuity. It just seems to be 
certainly counter to everything I know about the free 
enterprise system and what people can expect from their 
government.
    There are jobs that are, you know, commercial in nature and 
that, you know----
    Chairman Mulvaney. What would some of those be in your 
mind?
    Ms. Simon. I think that, you know, I guess the rule that I 
personally use when I analyze this kind of issue, I look at a 
business and if a business has 100 percent of its work is 
government work, that makes me think that business might be 
inherently governmental. If it has----
    Chairman Mulvaney. If I was the food service----
    Ms. Simon [continuing]. Absolutely no customers outside of 
the government and there is not that good or service is never 
exchanged solely in the private sector----
    Chairman Mulvaney. If I was the food service provider in 
this building and that was 100 percent of my business or 100 
percent of my business was providing services to the 
government, would you consider that to be inherently 
governmental or commercial?
    Ms. Simon. I will tell you a food service function that I 
do think is inherently governmental, and that is the food 
service in a VA hospital. And that has been inappropriately 
contracted out in far too many cases.
    Chairman Mulvaney. Why is the food service in a VA hospital 
inherently governmental?
    Ms. Simon. The veterans--an overwhelming majority of the 
employees of the VA who do provide food service are veterans 
themselves and providing, you know, veterans who are in a VA 
hospital are acutely ill, of course, and they often have very 
special dietary needs. And the integration of--food service is 
actually very highly integrated with patient care in a VA 
hospital and it is part of the internal functioning of the 
holistic care of a veteran who is in the hospital. And often 
what has happened when food service has been contracted out 
solely for cost reasons is people get inappropriate meals that 
might have food or additives in their meals that are actually--
counteract the effectiveness of the drug regime they might be 
on or that they are only available certain hours and so people 
are forced to have frozen meals that are, you know, that also 
vary from either their taste or the regime that they have been 
placed on by their health care provider.
    Chairman Mulvaney. Is not food service provided 
commercially?
    Ms. Simon. I think food service is a great example.
    Is food service provided commercially at every hospital?
    Chairman Mulvaney. At every hospital other than VA 
hospitals in this country?
    Ms. Simon. At every hospital. Of course it is. But I think 
that other hospitals, private hospitals, do not outsource their 
food service.
    Chairman Mulvaney. I am sorry. What?
    Ms. Simon. Private hospitals do not outsource their food 
service to patients. Selling a hamburger to visitors, sure, 
that is commercial.
    Chairman Mulvaney. Okay. All right. You mentioned before, 
Ms. Simon, that to your knowledge it was only the DoD that was 
doing this on a cost basis. I think you said they were the only 
ones that had come up with the actual rules and to our 
knowledge there were other----
    Ms. Simon. To my knowledge, yes.
    Chairman Mulvaney. Who as your contract with, Ms. Hamilton?
    Ms. Hamilton. The Coast Guard.
    Chairman Mulvaney. And the Coast Guard falls under what 
agency?
    Ms. Hamilton. Department of Homeland Security.
    Chairman Mulvaney. Ms. Carroll, your contract was with 
whom?
    Ms. Carroll. Air Force One with the Department of Labor.
    Chairman Mulvaney. Department of Labor. Is that under the 
Department of Defense?
    Ms. Carroll. No.
    Chairman Mulvaney. Is it fair to say then that in the real 
world what is actually happening is there are other agencies 
other than the Department of Defense that are doing this 
supposedly based on cost?
    Ms. Carroll, tell me a little bit more about the Department 
of Labor contract that you had. You did not get a chance to 
talk about the specific examples. And I do think the specific 
examples are real. In fact, the reason we are having this 
hearing is because I was approached by somebody who went 
through something that was very similar to what you folks have 
gone through. He was a mapmaker, a cartographer who showed up 
at work one day to find out that he had been insourced and that 
all of his employees had been hired by the Federal government. 
And when he inquired as to whether or not the employees were 
willing to do that he was informed that they were actually 
getting paid 20 percent premium to go to work for the 
government over what he was paying for them. And it was in 
large part that experience that drove this hearing today. So I 
think the individual experiences are real. And Ms. Carroll, I 
will be curious to know yours.
    Ms. Carroll. In the Department of Labor, as I said in my 
testimony, we were not the prime. We were a sub. We were 
working with a minority business. We had been in that library a 
number of years before so we knew the library. And they just 
said--a lot of the things we are hearing today come down to the 
way contracts are managed. I totally agree. That is what 
someone said. The problem is that the government has to step up 
and manage these contracts right. When you say in the food 
service that, you know, the right thing is not served, if there 
are standards of performance and they are well written, then 
the right things will, in fact, be done. And I know many 
contractors will do the right things even though it is not 
written in there.
    So in the case of the Department of Labor, they--eight 
weeks before the end of the contract we were notified that the 
contract would not be renewed nor recompeted. We had no 
indication why that would happen except we knew that the Cos, 
the management of that contract, the COTR changed all the time. 
So they really did not understand what was going on at all. And 
they somehow had the idea to pull that work in.
    We had two librarians that worked there and two of the 
people were insourced. The rest were just laid off. They gave 
us no time to really prepare for that kind of an action. And 
since we were not the prime, we could not motivate the prime to 
go ahead and do FOIAs and do various things. They just said you 
know what? At some point it is worth just going on. And they 
did.
    Chairman Mulvaney. Ms. Carroll, you also mentioned 
something that I am not familiar with which is poaching. To me 
that is shooting an animal that does not belong to you. What 
does it mean in your world?
    Ms. Carroll. Not necessarily shooting but taking an animal 
that does not belong to you. How about that?
    Chairman Mulvaney. Is that the term for hiring away the 
employees and so forth?
    Ms. Carroll. Right. Yeah. You do a very extensive 
recruitment process. You hire people. You train them. They 
work. And the government comes in and suggests that this person 
apply for a government job.
    Now, there are two kinds of poaching. Okay? There are some 
contracts we have we know this is going to occur. We know we 
are going to hire people and eventually they are going to 
become government. And yeah, they post the jobs but everybody 
knows that that person is wired for that kind of a job. That is 
kind of voluntary. The individual has the right to choose to 
apply for a government job that is posted. Okay? But it is the 
involuntary poaching that really is very distressing.
    Our project manager at an Air Force base in California was 
told before we were told that the contract was officially going 
to be outsourced--of course there were rumblings--she was told 
your job is being posted. Go and apply for it.
    Chairman Mulvaney. Do you have any idea what it paid in 
that particular circumstance?
    Ms. Carroll. No, I do not know that.
    Chairman Mulvaney. Whether it was more or less?
    Ms. Carroll. I could get you data on that. I do not know 
what GS level it was. I never did that cost comparison but I 
could get it if you would like it.
    Chairman Mulvaney. We talk about cost comparisons and I am 
going to ask Ms. Simon a question in a few minutes about some 
of this supposed systematic bias in the A-76 process I think 
you mentioned specifically about overhead. Are you convinced, 
Ms. Carroll, that when you do or when the departments do the 
cost comparisons that they are taking into consideration all of 
the costs that they should when they cost the government side 
of things? When they cost the government option?
    Ms. Carroll. No, I am not convinced that they do cover it. 
The problem is that government lifecycle costs for employees 
for benefits are in many different pots, sometimes not even in 
the same organizational pot. And so I do not think it is that 
transparent a process. I think you would have to go through all 
kinds of roots in order to really know what the full lifecycle 
cost to these people are. On the other hand, with a contractor 
it is very clear exactly what the costs are.
    Chairman Mulvaney. You and I were talking before the 
hearing about a circumstance with a posting overseas. Do you 
want to share that with the panel?
    Ms. Carroll. Yeah. We had a contract, U.S. Air Force Europe 
(USAFE). And we were doing, you know, we were performing very 
well. Before the end of the contract they decided they would 
not exercise the last option year. And they said they were 
insourcing. Unfortunately, the German labor laws and the U.S. 
agreement requires those people to come back to the United 
States so they could not be directly insourced. So some of the 
people just were out of jobs.
    But what happened was very interesting. The government 
never filled some of--still has not--months later still has not 
filled those positions. We are hearing through our previous 
project manager who still is in Europe that the positions are 
not filled. And what they are doing now is they are paying 
people to go on duty to Germany. Now, was this figured in the 
cost? I mean, what is the accountability and what is the 
metrics and the measurements after the fact on whether this 
really works?
    We know a couple of the positions are still vacant, which 
means there is not good data for promotions, for career paths, 
and other things. So the servicemen and women are suffering.
    Chairman Mulvaney. You raise a good question, something I 
heard from all three of the panelists. Regarding finding out 
about the process, Mr. Banes, given the decision in the 
Hallmark case, what methods, what avenues are available to Ms. 
Carroll if she wants to find out how the government costed that 
project?
    Mr. Banes. Mr. Chairman, I do not think there are any 
avenues at that point because if you cannot file--if you cannot 
file in the Court of Federal Claims, if there is no 
jurisdiction there, then you cannot get a protective order to 
look at this data. So, because, and the government takes the 
position when you ask for it under the Freedom of Information 
Act that it is source election information. And that is secret. 
So I cannot tell you what the numbers were in the Hallmark case 
sitting here today because they are still under a protective 
order.
    But I can tell you that when you scrutinize them there are 
two aspects that are totally out of whack. One is how many 
people it would take to do the job internally in the 
government; and then two, how much--what are the full costs of 
performance of those individuals? And when you look at them and 
scrutinize exactly what is going on and exactly what the Air 
Force is going to do in the future, it does not make any sense 
at all. And now under this decision there may not be an 
opportunity to even find out ever.
    Chairman Mulvaney. Ms. Simon, I will ask you. What is wrong 
with making the process public? What is wrong with sharing the 
information with the contractors with the public? What is wrong 
with granting standing to the businesses that have had their 
contracts terminated?
    Ms. Simon. Well, I am listening to the three panelists. All 
I could think of is welcome to our world. This is the exact 
same situation that federal employees, only I would say we are 
in an even weaker position. This is the same kind of situation 
that federal employees face in the outsourcing context. We do 
not have--we still do not have standing ever to go to the Court 
of Federal Claims. We are allowed to be an interested party and 
intervene but we can only do so when we get the information on 
the in-house bid, the bid that was made on our behalf, and the 
contractor bid after it is too late to file a protest. We are 
in a complete veil of ignorance.
    Chairman Mulvaney. Well, certainly somebody in the 
government has that information. Right?
    Ms. Simon. But not us.
    Chairman Mulvaney. Who are you in that circumstance?
    Ms. Simon. The employees that are losing their jobs. The 
employees that have----
    Chairman Mulvaney. But you are a counterpart to what Ms. 
Carroll and Ms. Hamilton do. I mean, the bosses, I guess, have 
access to the information. Do they not?
    Ms. Simon. There are designated individuals within the 
agency that have that information but certainly not the people 
who are affected by the decision to outsource the government 
work.
    And there is effectively no appeal right because by the 
time we get the information, again, through FOIA requests or 
the intervention of members of Congress, it is too late for us 
to file any kind of protest or do anything about it.
    We are for transparency. On the other hand, I think that be 
careful what you wish for. If contractors are granted the right 
to engage in endless litigation whenever there is any 
possibility of having their contract terminated, I think 
agencies will certainly think twice before they sign these 
contracts because it certainly raises the stakes and raises the 
long-term costs of engaging in a contract with a private 
company because you do not have the flexibility that 
contractors, you know, use as their best argument for 
themselves. If you can never terminate a contract because you 
no longer want to perform that function or you would like to 
compete it in another way or bring it back in-house and the 
prospect is endless litigation, why would you ever want to 
subject yourself to that?
    Chairman Mulvaney. I think there is a distinction. We might 
be using legal terms here that mean different things to 
different people. To me the termination of a contract is one 
thing. The expiration of a contract is another. The expiration 
of a contract would be the ending of a contract by its own 
terms and it is completely contemplated in the document itself. 
The termination of a contract is the breaking of a contract.
    Ms. Simon. Yeah. I think that what Ms. Hamilton referenced 
was that the government did not exercise all of its options. Is 
that correct?
    Ms. Hamilton. No, that is not correct. I am sorry.
    Ms. Simon. Ended prematurely? I am sorry.
    Chairman Mulvaney. I think there has been testimony that 
some of the contracts discussed today were that but other ones 
were actual terminations. So I guess my question to you is to 
get--to try and focus here, it is fairly simple which is what 
is wrong with giving the managers of private businesses the 
same information that the managers of the government projects 
have?
    Ms. Simon. I think that we have no problem with the concept 
of notice. Notice is one thing. And the provision of all the 
internal costing information prior to the decision is another. 
And we have some misgivings about that. Notice, no problem at 
all.
    Chairman Mulvaney. All right. Then lastly, I do want to 
touch on this issue of overhead because in my world, Ms. Simon, 
by the way, you are the first person I have heard in Washington 
and I mean this slightly tongue in cheek, that has said that 
this place is inherently transparent and everybody understands 
what is going on. You may be the only person in town who 
believes that.
    Ms. Simon. No, I said that with respect to federal 
employees, not the government as a whole.
    Chairman Mulvaney. That is right.
    Ms. Simon. Certainly, there is a contractor workforce----
    Chairman Mulvaney. But regardless of transparency, as a 
lawmaker, as someone who is ultimately called upon to sot of 
choose between these two things, obviously we set policy and it 
gets implemented at a different level, if you present me with a 
private contract for Ms. Hamilton to provide the services to 
the United States Coast Guard that she described, I know 
exactly what that is going to cost. I know how long it is going 
to cost and what it is going to cost on a year-to-year basis. I 
have what in the legal world we call a liquidated sum. I know 
it is going to be $100,000, whatever the number is. If you come 
in and tell me, well, I also want to hire the same number of 
government employees to do that exact amount of work, I would 
suggest to you I have no idea how much that is going to cost 
because what I am doing now is I have got permanent workers. I 
am not--I do not have a short-term contract. I have not hired 
contract workers to do this work. I am actually taking federal 
workers and putting them to work on this particular job. You 
mentioned that overhead should not be counted. It strikes me 
that that is bizarre. No one in the private sector would ever 
say those words, that you cannot cost overhead into what you 
are doing. And it just strikes me as odd that you have taken 
the position today that you actually know what the government 
is paying for these services because I think the exact opposite 
tends to be the case.
    I am going to yield back to Ms. Chu. And I will give you a 
chance to propose----
    Ms. Simon. May I respond?
    Chairman Mulvaney. Very briefly. Let me get Ms. Chu and she 
may give you the opportunity to do that. I have spoken for way 
too long and I apologize for doing that. So Ms. Chu, if you 
have any follow-up questions I will yield to you as much time 
as you need.
    Ms. Chu. Well, I will just thank all the witnesses for 
coming and give you a chance to respond to that question.
    Ms. Simon. Okay. I would not agree that when you sign a 
contract that specifies a certain amount of work to be done for 
a certain price that that is the end of it. One of the problems 
with service contracting is that that is often not the end of 
it. When new requirements arise, unanticipated events occur, it 
requires renegotiation, new task orders. You know, there is 
often--contracts often grow far beyond their initial terms and 
costs. In contrast, when you hire a federal employee, you agree 
to pay a certain salary or an hourly rate for when they are 
working. But each time you give the federal employee a new 
assignment or a new task, you do not suddenly raise their pay. 
You do not have to engage in a whole new negotiation over the 
terms of employment. There is a very useful term in every 
federal employee's job description--other duties as assigned.
    You can move federal employees around, you can tell them to 
do whatever you want them to do and they have to do it. And 
there is no increase in cost.
    And I would also object to the assumption that once a 
federal employee is hired they are forever. The efficiency 
initiative in the Department of Defense, for example, the 600 
employees that I talked about that DFAS hired when it insourced 
that work, because of the sort of zero--it is not a zero sum. 
Because of the fact that the efficiency initiative has a cap on 
federal FTE, any new employees hired have to be offset with 
positions eliminated. So many federal employees are going to 
lose their jobs and many federal positions are going to be 
eliminated in the context of the efficiency initiative.
    Ms. Chu. Thank you. I yield back.
    Chairman Mulvaney. Ms. Chu, I am finished. Would you like 
to give your closing statement?
    Ms. Chu. I would just like to thank all the witnesses for 
coming. It was a very informative hearing today.
    Chairman Mulvaney. Thanks very much. I will close with 
this. I do appreciate everyone's participation. I think it has 
been a healthy debate and it has been helpful to me to help 
frame the issues.
    Ms. Simon, I especially appreciate your testimony.
    Ms. Simon. Thank you.
    Chairman Mulvaney. It is obvious counter to what positions 
I would take. And I would, before we close, point out that 
actually it was Robert Gates who said that in his opinion this 
system within the DoD, the insourcing system, has completely 
failed to meet its goal to save costs. As is so often the case, 
one part of the government is saying one thing and one is 
saying the other. In fact, I see some heads nodding negatively 
in the body so I will read the quote. ``We were not seeing the 
savings we had hoped for from insourcing as the Defense 
Department brought work from the private sector in-house,'' 
Secretary Gates said on August 9th of last year. And thank you 
to everybody.
    Having the stories, not only from the private sector but on 
behalf of the federal employees is extraordinarily helpful to 
us. And as this Subcommittee continues to focus on creating 
opportunities for small businesses to compete for federal 
contracts, we will continue to investigate instances where 
agency actions harmed small business and cost the taxpayer more 
money.
    Ms. Simon mentioned earlier today that most of the horror 
stories were probably contracts that were expired over their 
own terms or that were inherently governmental. I would suggest 
to everyone here in the room that that is not the purpose of 
this hearing. The purpose of this hearing and the purpose of 
the additional hearings that we will do will be to focus on the 
exceptions to those two things. I cannot sit here and defend 
somebody who is upset because their contract that was a three-
year contract with the government expired and they have not 
decided not to hire them again. That is the government's right 
and it is the contract terms that set forth that. Similarly 
speaking, if you were doing something like trying to shoot 
people, I would think that that would be one of those 
inherently government functions that should be insourced.
    I want to focus, however, as we go forward on the other 
things, the other exceptions to those two rules where the 
government actually reaches out and takes things from the 
private sector that are not inherently governmental functions 
and that do not save costs. We are here on the Small Business 
Committee and both party members I know agree with this, to 
protect the interest of small business. And to the extent that 
the Federal government is trampling on the opportunities that 
are afforded to our small businesses, I know that both parties 
where will do everything we can to prevent that from happening.
    After today's hearing we are going to take four actions. I 
am going to ask the full Committee to follow up with the 
agencies mentioned by Ms. Hamilton and Ms. Carroll. Secondly, I 
am going to send a copy of the transcript to the Office of 
Federal Procurement Policy so they can suggest, excuse me, they 
can look at the suggestions offered by our witnesses as they 
finalize their policy guidance. Third, I will send a letter to 
OMB requesting that each agency publish their insourcing 
guidance pursuant to notice and comment rulemaking and that OMB 
and each agency ask them to impose a moratorium on cost based 
insourcing until those rules are, in fact, published. Fourth, 
as we consider contracting legislation, excuse me, contracting 
legislation for this Congress, we will look at ways we can 
address standing for small businesses, facing insourcing 
difficulties, and ways that we can strength the SBA's roles in 
this process.
    At this time I would also ask unanimous consent that 
members have five legislative days to submit statements and 
supporting materials for the record. Hearing you objection, it 
is so ordered.
    Thank you all again. Thank you for participating. This 
meeting is adjourned.
    [Whereupon, at 11:28 a.m., the Subcommittee was adjourned.]

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