[Senate Hearing 112-391]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 112-391

 INTELLIGENCE COMMUNITY CONTRACTORS: ARE WE STRIKING THE RIGHT BALANCE

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

                                HEARING

                               before the

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

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 20, 2011

                               __________

         Available via the World Wide Web: http://www.fdsys.gov

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  JERRY MORAN, Kansas

                  Michael L. Alexander, Staff Director
               Nicholas A. Rossi, Minority Staff Director
                  Trina Driessnack Tyrer, Chief Clerk
            Joyce Ward, Publications Clerk and GPO Detailee


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

                   DANIEL K. AKAKA, Hawaii, Chairman
CARL LEVIN, Michigan                 RON JOHNSON, Wisconsin
MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
MARK BEGICH, Alaska                  JERRY MORAN, Kansas

                Lisa M. Powell, Majority Staff Director
                         Eric Tamarkin, Counsel
               Rachel R. Weaver, Minority Staff Director
               Jena N. McNeill, Professional Staff Member
                      Aaron H. Woolf, Chief Clerk










                            C O N T E N T S

                                 ------                                
Opening statement:
                                                                   Page
    Senator Akaka................................................ 1, 29
Prepared statement:
    Senator Akaka................................................    39

                               WITNESSES
                      Tuesday, September 20, 2011

Hon. Daniel I. Gordon, Administrator, Federal Procurement Policy, 
  Office of Management and Budget................................     3
Hon. Charles E. Allen, Senior Intelligence Advisor, Intelligence 
  and National Security Alliance.................................     9
Mark W. Lowenthal, Ph.D., President and CEO, The Intelligence and 
  Security Academy, LLC..........................................    11
Scott H. Amey, General Counsel, Project on Government Oversight..    13
Joshua Foust, Fellow, American Security Project..................    15

                       Classified Secret Session

Edward L. Haugland, Assistant Inspector General for Inspections, 
  Officer of Inspector General, Office of the Director of 
  National Intelligence, accompanied by George D. Bremer, Jr.....    30
Paula J. Roberts, Associate Director of National Intelligence for 
  Human Capital and Intelligence Community Chief Human Capital 
  Officer, Office of the Director of National Intelligence, 
  accompanied by Alex Manganaris and Sharon Flowers..............    31

                     Alphabetical List of Witnesses

Allen, Hon. Charles E.:
    Testimony....................................................     9
    Prepared statement...........................................    47
Amey, Scott H.:
    Testimony....................................................    13
    Prepared statement...........................................    59
Foust, Joshua:
    Testimony....................................................    15
    Prepared statement...........................................    65
Gordon, Hon Daniel I.:
    Testimony....................................................     3
    Prepared statement...........................................    41
Haugland, Edward L.:
    Testimony....................................................    30
Lowenthal, Mark W., Ph.D.:
    Testimony....................................................    11
    Prepared statement...........................................    52
Roberts, Paula J.:
    Testimony....................................................    31
Questions and responses for the Record                               72

                                APPENDIX

Background.......................................................    74
Policy letter referenced by Mr. Gordon...........................    83

 
 INTELLIGENCE COMMUNITY CONTRACTORS: ARE WE STRIKING THE RIGHT BALANCE?

                              ----------                              


                       TUESDAY SEPTEMBER 20, 2011

                                 U.S. Senate,      
              Subcommittee on Oversight of Government      
                     Management, the Federal Workforce,    
                            and the District of Columbia,  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:32 a.m., in 
Room SD-342, Dirksen Senate Office Building, Hon. Daniel K. 
Akaka, Chairman of the Subcommittee, presiding.
    Present: Senators Akaka, Levin, Landrieu, Begich, Johnson, 
Coburn and Moran.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. I call this meeting and hearing of the 
Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia to order.
    I want to welcome our guests and our witnesses. Aloha and 
thank you so much for being here.
    Today, the Subcommittee will examine the Intelligence 
Community's (IC) reliance on contractors and whether the IC has 
rebalanced its workforce in the decade since the September 11, 
2001 attacks.
    After the attacks, intelligence agencies had to rapidly 
surge their workforces and turned to private contractors to 
fill gaps. While I understand the initial need to rely on the 
contractors, I am concerned that 10 years later the IC remains 
too heavily dependent on contractors. According to an 
investigation by the Washington Post, close to 30 percent of 
the current IC workforce are contractors.
    Although contractors undoubtedly have contributed greatly 
to keeping this country safe over the last decade, our 
overreliance on contractors raises a number of concerns. 
Federal workforce challenges contribute to the heavy reliance 
on contractors. The IC has gaps in language, technical and 
certain other skills. IC contracting firms often pay more, 
increasing the challenge of recruiting and retaining Federal 
employees instead of contracting for the work.
    Despite these challenges, the Office of the Director of 
National Intelligence (DNI), which oversees the 16 elements of 
the IC, last published an IC Strategic Human Capital Plan in 
2006. The IC must invest in the strategic planning and training 
needed to address its long-term workforce needs, and Congress 
must make sure the IC has the tools required to recruit and 
retain the best.
    Additionally, I am concerned that contractors are 
improperly performing inherently governmental functions that 
are reserved for Federal employees. The IC must exercise 
sufficient oversight to make sure those tasks are completed by 
a Federal worker.
    The acquisition workforce is critical for proper contractor 
oversight and management, but there are significant shortfalls 
governmentwide, including within the IC. We must ensure that 
the IC acquisition workforce has the staff and training needed 
to promote the efficient, effective, and appropriate use of 
contractors.
    Given the current budget pressures, I am also concerned 
about the high cost of IC contractors. Several estimates show 
that contract employees cost significantly more than Federal 
employees in the IC. A recent study by the Project on 
Government Oversight (POGO) on governmentwide contracting found 
that Federal employees were less expensive than contractors in 
33 out of 35 occupational categories. In the decade since 
September 11, 2001, intelligence contracting firms have reaped 
huge profits paid for by the American taxpayer.
    Finally, the movement between government and contracting 
firms raises a risk that decisions made within the IC could be 
influenced by conflicts of interest. Former Central 
Intelligence Agency (CIA) Director Michael Hayden instituted a 
cooling off period at the CIA, but there is no IC-wide 
approach. I would like to hear from our witnesses on how 
conflicts can be prevented.
    As part of its effort to rebalance the workforce, the 
Administration announced plans to insource core governmental 
functions that should be reserved for Federal employees. I hope 
to learn today whether these efforts have been effective and 
what additional steps are needed.
    I look forward to the testimony and to a productive 
discussion with our witnesses.
    I want to welcome our witness for the first panel, Daniel 
I. Gordon, who is the Administrator of the Office of Federal 
Procurement Policy (OFPP) at the Office of Management and 
Budget (OMB).
    As you know, it is the custom of the Subcommittee to swear 
in all witnesses, and I would ask you to stand and raise your 
right hand.
    Do you solemnly swear that the testimony you are about to 
give the Subcommittee is the truth, the whole truth, nothing 
but the truth, so help you, God?
    Mr. Gordon. I do, sir.
    Senator Akaka. Thank you very much.
    Let it be noted for the record that the witness answered in 
the affirmative.
    Before we start, I want you to know that your full written 
statement will be made a part of the record, and I would also 
like to remind you to please limit your oral remarks to 5 
minutes.
    Administrator Gordon, please proceed with your statement.

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

    Mr. Gordon. Thank you, Chairman Akaka. Good morning.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Gordon appears in the appendix on 
page 41.
---------------------------------------------------------------------------
    Senator Akaka. Good morning.
    Mr. Gordon. I very much appreciate the opportunity to 
appear before you this morning to discuss the rebalancing of 
the mix of work performed by Federal employees and contractors.
    As you know, last week, our office issued the final version 
of the policy letter\2\ on the Performance of Inherently 
Governmental and Critical Functions. That policy letter, and 
its issuance, is an important milestone. It clarifies for the 
Federal agencies and for the public how we are going to balance 
the capabilities and capacity of Federal employees and the 
contractors who support us in our work.
---------------------------------------------------------------------------
    \2\ The policy letter referenced by Mr. Gordon appears in the 
appendix on page 83.
---------------------------------------------------------------------------
    This has been a long process, a very public and transparent 
process, in which we received many comments, and the final 
issuance of this policy letter fulfills the commitment by the 
President in March 2009, in his Memorandum on Government 
contracting that we need to clarify the line that has become 
blurred over the years between work that can be contracted out 
and work, as you say, Mr. Chairman, that needs to be reserved 
for performance by Federal employees.
    I cannot say that the new guidance dramatically changes the 
current policy landscape, and in fact, the final version of our 
policy letter largely tracks the draft, but there are several 
improvements and changes that I would like to briefly highlight 
this morning because we think that those improvements should 
help the agencies understand the proper role for Federal 
employees and for contractors in today's world, which I should 
say is notably more complex than when we last issued a policy 
letter almost 20 years.
    I appreciate that this morning you are particularly 
interested in the application of these policies to the 
Intelligence Community. As I explained in my written statement, 
our work in the Office of Federal Procurement Policy is 
governmentwide procurement policy, and consistent with that the 
policy letter takes a governmentwide approach. That said, I 
will point out in my statement, now and in response to 
questions, particular issues related to the Intelligence 
Community. And, of course, we talked with agencies in the 
Intelligence Community throughout the development of the policy 
letter.
    We do think that the policy letter will serve the 
Intelligence Community well as they work to strike the right 
balance between the use of Federal employees and contractors.
    That said, three points in brief:
    First, the policy letter establishes a single standard 
definition of what inherently governmental functions are. It 
adopts the statutory definition from the Federal Activities 
Inventory Reform Act (FAIR Act). We appreciate having that 
single definition will require changes to the Federal 
Acquisition Regulation (FAR) and other documents, and we plan 
to proceed to do that expeditiously.
    The policy letter goes beyond the definition though. It 
provides criteria and tests and examples for agencies, not 
exhaustive lists because we appreciate that when we identify 
something as an inherently governmental activity it does not 
mean that things not on the list can be performed by 
contractors. That is why we provide the criteria and the tests.
    We preserve in the policy letter what has been long 
established, and that is that the direction and control of 
intelligence and counterintelligence operations continues to be 
viewed as an inherently governmental function.
    The final version does address some other areas of 
particular importance overseas, such as the use of contractors 
in security operations connected with combat, or potential 
combat.
    Second, and perhaps most important, in the area of 
definitions, the policy letter calls on agencies to identify 
their critical functions and to assess whether they are unduly 
dependent on contractors in those critical functions. We 
emphasize that agencies need to maintain control by Federal 
employees, of their mission and operations, of particular 
relevance in the intelligence area.
    And third, the policy letter lays out management 
responsibility that agencies have to follow to ensure that the 
rebalancing is happening and that they are not unduly dependent 
on contractors. That is important in the area of closely 
associated functions; that is, functions closely associated 
with inherently governmental ones, an important area in the 
Intelligence Community.
    It is also important in the area of insourcing. We are very 
concerned that insourcing not be taken, done, in a way that 
unduly harms small businesses, and we provide guidance in that 
area.
    I should say, Mr. Chairman, that we have worked with 
agencies, including in the Intelligence Community, in my almost 
2 years in this position, and I think it is fair to say that 
the agencies, particularly in the Intelligence Community, are 
already following the core elements of the policy letter. We do 
not expect to see a widespread shift away from contractors 
because of the issuance of the policy letter. We do think that 
the policy letter will help agencies do a better job in 
identifying if, and when, rebalancing is needed and to take 
action if action is needed.
    As I said, we will be working to implement areas of the 
policy letter in the Federal Acquisition Regulation, and other 
documents as we assess what training is needed and we help the 
agencies establish training, to be sure that the message gets 
out that we need to be careful that we respect the line between 
work that can be contracted out and work that needs to be 
reserved for performance by Federal employees.
    I very much appreciate your interest and the Subcommittee's 
interest, Mr. Chairman, in this important topic. We look 
forward to working with the Subcommittee and with other Members 
of Congress as we move forward.
    This concludes my brief opening remarks. I would be honored 
to answer any questions the Chairman may have.
    Senator Akaka. Thank you very much.
    Administrator Gordon, as you know, part of the President's 
plan for economic growth and deficit reduction seeks to end the 
overpayment of Federal contract executives. Of course, that is 
the latest word.
    In justifying this proposal, he indicates that it is 
inappropriate for taxpayers to fund Federal contractor salaries 
that are--and he uses the word--multiples of what Federal 
employees are paid. The proposal is expected to save $300 
million annually.
    Would you elaborate on this proposal and why the 
Administration supports it?
    Mr. Gordon. With pleasure, Mr. Chairman.
    As you know, in most cases, when the Federal Government 
buys the way Americans buy in general; that is to say we pay 
fixed prices.
    However, in the government contractor arena, in a minority 
of our purchases, we have a different arrangement and one that 
is somewhat riskier for the government. In that minority of 
cases, we reimburse contractors for their costs and then on top 
of reimbursement we pay them a fee for their profit. In those 
cases, there is concern about how much we are paying those 
contractors because, obviously, if we reimburse someone their 
costs, just like if I were to tell a plumber in my home, I will 
reimburse whatever your costs are, they have no incentive to 
limit their costs.
    And as a result, we have a number of statutory and 
regulatory limits on how much we will reimburse. The general 
rule of thumb, if you will, is reimbursement should not go 
beyond what is reasonable. That is a general limit.
    In the area of reimbursement for executives' compensation, 
we are usually talking about indirect costs pools. And without 
getting into too many details, the bottom line is that 
Congress, a number of years ago, established a cap on how much 
the government should reimburse contractors for their executive 
compensation for their five most highly paid executives.
    Those caps used to be on the order of $200,000 or $300,000 
a year in terms of the compensation that we would be willing to 
compensate, that we would be willing to pay the contractors 
for. Over the years, the statutory formula that Congress 
crafted in the 1990s has worked in a way that I do not think 
anybody anticipated so that the cap has gone up dramatically by 
hundreds of thousands of dollars and is now well over $600,000 
a year.
    It is that payment that strikes us as excessive. I do not 
think anybody anticipated that the cap would go up so fast. And 
what we are saying is in a time when we are limiting Federal 
employees' salaries, and in fact, freezing Federal employees' 
salaries, it seems unreasonable to continue to dramatically 
increase the amount that we compensate through the 
reimbursement process to contractors.
    If the contractors want to pay their executives millions of 
dollars, they are free to do that. We are saying we will only 
reimburse up to this cap.
    Senator Akaka. Thank you, Administrator Gordon.
    OFPP invited public comment on its draft policy guidance in 
March 2010. A number of respondents, including 30,000 who 
signed a form letter, argued that the list of examples of 
inherently governmental functions was too narrow and should 
include more functions, particularly involving intelligence. 
The final guidance contains only one intelligence example, 
which is unchanged from the draft.
    How did OFPP determine which functions to include and why 
did you not expand examples related to intelligence?
    Mr. Gordon. Thank you, Mr. Chairman.
    As you say, we received a good number of comment letters. 
Many of them were form letters, but we received 110 comment 
letters that were not form letters. They addressed various 
issues from different aspects because, of course, this was a 
very public process.
    In the area of intelligence, we actually received fairly 
few comments. It is true that a few called for an expansion of 
the list of inherently governmental functions. One area that 
they noted in particular was interrogations, and we considered 
adding something to the list of inherently governmental 
functions. Let me explain why we decided not to add 
interrogation as an inherently governmental function.
    The fact is that Congress enacted legislation that 
generally bars, in particular the Department of Defense (DOD), 
from using contractors in certain interrogation functions. So 
to a certain extent, the problem did not need to be addressed. 
But in addition, in that prohibition Congress allowed the 
Secretary of Defense to waive the restriction.
    In our view, the very fact that the Secretary is allowed by 
statute to waive the restriction suggests that Congress did not 
view the function as inherently governmental per se because, of 
course, you do not want to have a member of the Cabinet 
allowing inherently governmental functions to be contracted 
out. As a result, we thought it was wiser to leave the 
statutory scheme in place and not change the list.
    I will tell you, as I mentioned in my opening statement, we 
worked very carefully and closely with both the intelligence 
agencies and with the Department of Defense more generally, and 
I think it is fair to say that they were very comfortable with 
the guidance that we developed. I think that the management 
guidance and the guidance in the area with respect to critical 
functions is going to be particularly helpful in the 
Intelligence Community.
    Senator Akaka. Thank you.
    Administrator Gordon, I am pleased that the Administration 
issued the final policy guidance last week. How will you go 
about educating both Federal employees and contractors about 
its contents? And I am particularly interested about your 
outreach and education efforts for the IC workforce.
    Mr. Gordon. In everything that we do in the Office of 
Federal Procurement Policy, Mr. Chairman, we work very closely 
with the agencies across the Executive Branch, both in the 
Intelligence Community and outside.
    We have explicitly stated in the policy letter that every 
agency, except for the very small ones, needs to identify one 
or more senior officials who are going to be accountable for 
the implementation of the policy letter, to us in the Office of 
Management and Budget.
    We direct the agencies that they need to develop and 
maintain internal procedures to be sure that the policy letter 
is implemented.
    We require them to review the guidance that they have at 
least once every 2 years to be sure that they are acting 
appropriately.
    We tell the agencies that they need to ensure that their 
employees understand their responsibilities under the policy 
letter.
    We require training no less than every 2 years to improve 
agency employee's awareness of their responsibilities.
    And, we require management controls.
    I should say that we will be working with the Defense 
Acquisition University and the Federal Acquisition Institute to 
be sure that appropriate materials for training are developed 
governmentwide.
    I would add, Mr. Chairman, that I think that the 
Intelligence Community has been really ahead of the curve in 
these past several years in being focused on the need to 
address rebalancing and concern about excessive reliance on 
contractors so that in many ways I think the Intelligence 
Community has been a role model in terms of its sensitivity to 
the need to address overreliance on contractors.
    There is a limit to what I can say here in this open 
session, but I know that you will have the opportunity later 
this morning to hear from the leadership in the Intelligence 
Community, and you will hear much more by way of specifics than 
I can disclose here, about the progress that they are making.
    Senator Akaka. Thank you very much.
    Administrator Gordon, as you know, the final policy 
guidance defines critical functions as those functions 
necessary to an agency being able to effectively perform and 
maintain control of its mission and operations. What process 
should the IC use to determine whether specific functions are 
critical as defined in the policy letter?
    Mr. Gordon. Mr. Chairman, again, I think in this area the 
Intelligence Community has actually shown leadership that other 
agencies can learn from. In particular, the Intelligence 
Community has focused on the need to have an inventory of 
contractors, what the contractors do, and the many other 
agencies across the Department of Defense and in the civilian 
agencies actually are struggling to put together an inventory 
of their service contractors that is as comprehensive and as 
thoughtful as what has been created within the Intelligence 
Community.
    The term, ``critical function'', may be a relatively new 
term for the Intelligence Community, but I think that what they 
have been looking at, when they look at core contract 
personnel, very much overlaps the idea of critical functions 
and the idea of functions that are closely associated with 
inherently governmental ones.
    So I think that the agencies in the Intelligence Community 
and elsewhere need to focus on what are their critical 
functions, and in those critical functions they need to do an 
assessment, as I think the Intelligence Community has been 
doing now for several years, about whether Federal employees 
are present in sufficient numbers, with sufficient 
capabilities, to maintain control of the agencies' mission and 
operations.
    Senator Akaka. I see. Well, I want to thank you very much, 
Administrator Gordon, and commend you for what you have been 
doing and the progress that has been made. But we needed to 
highlight some of these things so that we can see what actually 
is happening.
    So do you have further comments?
    Mr. Gordon. If I could, Mr. Chairman, I would say that I 
think that your commitment to this issue and the Subcommittee's 
interest in the issue are particularly timely today.
    I think that your commitment will be tested in the months 
to come because there are those who, I think in a myopic way, 
focus on reducing the size of the Federal Government and what 
they really mean is reducing the size of the Federal workforce.
    The fact is in the Intelligence Community, as in other 
agencies, the Federal Government has important tasks that need 
to be done. And if arbitrary reductions in the size of the 
Federal workforce are put in place, we could have a situation, 
as we have unfortunately seen in the past, where agencies turn 
in an unjustified and unthoughtful way to contractors to do 
work that, on reflection, the agencies recognize should be done 
by Federal employees, so that your vigilance in thinking about 
and preserving the appropriate balance between work done by 
Federal employees and by contractors, I think, will be tested 
in the months to come. And I very much appreciate your 
commitment to ensuring that the right balance is struck.
    Thank you, Mr. Chairman.
    Senator Akaka. Thank you very much, Administrator Gordon. 
You are correct when you say that it is timely. And with the 
situation our country is in economically, we need to do this 
throughout the system really, not only with the IC, and see 
what we can do in helping our country.
    Mr. Gordon. Thank you, Mr. Chairman.
    Senator Akaka. So I want to thank you so much for your 
testimony and your responses. It will be helpful because I know 
you understand that we are doing this to try to work together 
to improve the systems that we have in place. And, of course, 
intelligence is one of the areas that is so important to our 
Nation, and we need to have it work well, as well as sustain it 
the best that we can, and we need to work together to do this.
    So I thank you so much for your work.
    Mr. Gordon. Thank you sir.
    Senator Akaka. Thank you.
    So let me ask the second panel to please come forward.
    I want to welcome Charles E. Allen who is the Senior 
Intelligence Advisor, Intelligence and National Security 
Alliance, Dr. Mark M. Lowenthal who is President and CEO of the 
Intelligence and Security Academy, Scott H. Amey, General 
Counsel of the Project on Government Oversight, and Joshua 
Foust, a Fellow at the American Security Project.
    As you know, it is the custom of this Subcommittee to swear 
in all witnesses. So I would ask you to stand and raise your 
right hands.
    Do you swear that the testimony you are about to give the 
Subcommittee is the truth and nothing but the truth, so help 
you, God?
    Mr. Allen. I do.
    Dr. Lowenthal. I do.
    Mr. Amey. I do.
    Mr. Foust. I do.
    Senator Akaka. Thank you.
    Let it be noted for the record that the witnesses answered 
in the affirmative.
    Before we start, I want to again remind you that your full 
written statements will be included in the record, and we ask 
you to please limit your oral remarks to 5 minutes.
    So, Mr. Allen, will you please proceed with your statement.

  TESTIMONY OF HON. CHARLES E. ALLEN,\1\ SENIOR INTELLIGENCE 
     ADVISOR, INTELLIGENCE AND NATIONAL SECURITY ALLIANCE.

    Mr. Allen. Thank you, Mr. Chairman. It is a pleasure to be 
here and to have the opportunity to speak on this very vital 
subject.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Allen appears in the appendix on 
page 47.
---------------------------------------------------------------------------
    As you indicated, I am representing the Intelligence and 
National Security Alliance (INSA). INSA is a small nonprofit 
organization that serves as a forum where individuals from the 
public, private, and academic sectors associated with 
intelligence and national security communities can come 
together to discuss issues of common concern and offer 
suggestions to policymakers.
    Most recently, INSA has published papers on cyber 
intelligence, homeland security intelligence, organizational 
conflict of interest and recommendations for smart reductions 
for the Intelligence Community in the current challenging 
fiscal environment. We will soon publish a paper on improving 
the security clearance process for contractors.
    INSA tries to represent the best interests and concerns of 
both public and private sectors, and I believe we can provide 
you a unique perspective on the topic of Intelligence Community 
contractors.
    I have been associated with the Intelligence Community for 
over 50 years. I joined the CIA in 1958 and served there 47 
years. I was the Under Secretary for Homeland Security for 
Intelligence and Analysis from 2005 to 2008.
    In many of these assignments, particularly when we were 
trying to develop new organizations and capabilities to 
confront new threats, we would inevitably be faced with a 
dilemma, that we needed an individual with a certain skill or 
talent that was not readily available within the organization, 
for example, unique foreign language skills or unconventional 
information technology skills. Often, the best solution in 
those circumstances was enter into a contract with a trusted 
private company which could provide such a skill set in short 
term.
    In earlier days, the numbers were small. In recent years, 
because of the complex asymmetric threat of terrorism, these 
numbers have grown substantially, and finding the right balance 
of government workers supported by qualified contractors with 
unique skill sets has become increasingly complex.
    It was a good thing and very timely that the Office of 
Federal Procurement Policy finalized the policy letter on 
``Performance of Inherently Governmental and Critical 
Functions'' last week. While the Intelligence Community has 
been carefully following interim guidance issued in March 2010, 
publication of this definitive policy sends a clear message 
regarding the importance of the topic.
    The policy letter does a good job of outlining what 
constitutes ``inherently governmental'' and what constitutes 
``critical functions'', and provides the guidance the 
Intelligence Community needs to ensure that functions that are 
intimately related to the public interest are performed only by 
Federal employees.
    Requiring Intelligence Community agencies to carefully 
prioritize critical functions and judiciously maintain 
management, oversight, and control of those functions ensures 
that the agencies operate effectively and maintains control of 
their missions and operations, but it gives them the 
flexibility to find the right Federal employee/contractor 
balance when very unique skills may be required to perform the 
critical function.
    I do believe that Intelligence Community agencies have 
dramatically improved management of the contractor workforce as 
part of the strategic workforce planning efforts that the 
Director of National Intelligence requires.
    When I was the Under Secretary for Intelligence and 
Analysis at the Department of Homeland Security (DHS), I did 
not ask if the intelligence products or inputs were developed 
by a contractor or by government employees, but I knew I had 
put in proper safeguards to ensure that priorities and final 
analytic judgments--inherently governmental functions in my 
estimation--were the ultimate responsibility of Federal 
employees. That said, from my perspective, contractors were 
part of the team and they were held to the same standard as 
other government employees on my staff.
    The Intelligence Community has a lot of experience in 
lessons learned, managing the contractor workforce, 
particularly over the last 10 years when the need for manpower 
and expertise increased exponentially, then the Intelligence 
Community had little choice initially, than to seek immediate 
support from qualified, trusted companies in the private 
sector.
    In your letter of invitation, you asked me to comment on 
how the Intelligence Community addresses organizational 
conflict of interest (OCI). The potential for OCI is always 
there and there must be management procedures to safeguard 
against any such conflict.
    We did a study at INSA earlier this year and could not come 
across a single instance of an IC contractor intentionally 
playing the role of a bad actor in any Intelligence Community 
activity.
    The study also found that each Intelligence Community 
agency had its own policy with regard to OCI and that these 
policies were not always consistent. We recommended that the 
Director of National Intelligence should provide policy 
guidance to create some level of consistency on the issue of 
OCI.
    With regard to hiring, training and retention challenges in 
balancing the Intelligence Community, they differ little from 
the challenges facing the Federal Government writ large. The IC 
has a large portion of its workforce nearing retirement, and 
replacing such expertise will be a challenge because of a gap 
in the mid-career population created by the hiring freezes in 
the 1990s, pre-September 11. Conversely, well over 50 percent 
of the workforce has been hired since September 11, 2001. These 
demographics would suggest that the Intelligence Community 
continue to rely on contractors for certain skills, at least 
until these challenging demographics moderate themselves over 
time.
    I will stop there and look forward to your questions, Mr. 
Chairman.
    Senator Akaka. Thank you very much, Mr. Allen.
    Mr. Lowenthal, will you please proceed with your testimony?

 TESTIMONY OF MARK M. LOWENTHAL,\1\ PH.D., PRESIDENT AND CEO, 
           THE INTELLIGENCE AND SECURITY ACADEMY, LLC

    Dr. Lowenthal. Thank you, Mr. Chairman. Thank you for the 
opportunity to appear today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Dr. Lowenthal appears in the appendix 
on page 52.
---------------------------------------------------------------------------
    I spent 25 years in Federal service. During my last tour in 
2002 to 2005, I was the Assistant Director of Central 
Intelligence for Analysis and Production, which was the third 
highest ranking position in the Intelligence Community. And I 
would note that half of my staff were made up of contractors, 
and their services were vital to me and vital to the mission 
that Director George Tenet had given to me. Since then, I have 
been a contractor. I was also a contractor from 1997 to 2002. 
So I have seen this from both sides. I was also the Staff 
Director of the House Intelligence Committee. So I have also 
seen this from the congressional perspective.
    The question that is posed in the title of the hearing is 
one of balance. Let me suggest another way of looking at this. 
Instead of balance and ratios, I think we should be asking 
ourselves what is the most efficient, most cost effective way 
of getting the necessary jobs done. And it is not necessarily a 
balance and ratio answer.
    Your letter asked me to comment on four questions, and I 
will do that briefly. Regarding the OFPP letter, I think that 
the letter has done a very good job, as Mr. Allen just said, in 
defining inherently governmental functions. I think their lists 
in the letter and in Appendix A make sense and are fairly easy 
to follow and should be implemented. And the Intelligence 
Community is pretty much doing that as far as I can tell.
    I have some issues with Appendix B, which is functions 
closely associated with the performance of inherently 
governmental functions because several items on that list 
strike me as being areas where you could have a contractor do 
good work.
    I come to this conclusion based on my own experience as the 
Assistant Director because two of our major initiatives that we 
undertook--the National Intelligence Priorities Framework 
(NIPF) and the Analytic Resources Catalog (ARC), both of which 
we built to manage the Intelligence Community under President 
George Bush and which President Barack Obama continues to use 
to manage the community--were built with major inputs from 
contractors, and their work was the highest quality. It was 
highly objective, and it was absolutely necessary. And we could 
not have put in place these major programs without contractor 
support.
    Second was the question of how we assess the value of 
contractors. I think we have to recognize why contractors get 
hired. It is the budget you get. If the budget says you can 
hire so many full-time employees and so much money for 
contracting, there is your answer. Agencies will spend the 
money they get in the lanes in which they get it, but they do 
not have a lot of say about the allocations once Congress 
produces a budget and the President signs it.
    We seem to be going through a series of fashions regarding 
contractors. In the 1990s, it was generally assumed that 
contractors were cheaper than Federal employees because you 
could terminate a contract at will and you were not committed 
to their health care and to their pension costs, and therefore, 
contractors were cheaper. Now everybody knows that contractors 
load their rates because they are paying for health care and 
pensions costs. So it was probably a null set, but we tended to 
hire more contractors.
    At the same time, the intelligence budget in the 1990s was 
flat, and so the shortfall in personnel was made up for by 
hiring contractors. Then, after we were attacked in 2001 and it 
was necessary to ramp up our skill set quickly, we turned back 
to contractors again because that is where the relevant talent 
was. So we sort of have this up and down, back and forth 
fashion.
    The third issue is the question of how we manage and 
oversee Intelligence Community contractors. The vital issue 
here, the major difference in intelligence contractors and the 
Department of Defense contractors is the issue of getting 
security clearances. You have to have a clearance to be a 
contractor in those areas.
    The letter inviting me to testify, in your opening 
statement, made reference to the Washington Post series on the 
use of contractors. I would tell you, sir, that most of my 
professional colleagues found that series to be hyperbolic in 
tone and highly subjective and not terribly informative.
    Yes, there are a lot of contractors with clearances, but 
the reason you get clearance is because the government tells 
you in order to work on this contract you need cleared 
employees. It is not our idea. I assure you it would be easier 
to run my firm if I did not have to have clearance 
requirements.
    This leads to two interesting side effects. One you have 
already noted is rating Federal employees to hire as 
contractors. You made reference to General Hayden's one year 
cooling off period. I think his rule is a very sensible rule, 
and I think that would be a good rule to put across the 
Intelligence Community.
    Second, it creates competition among contractors to acquire 
other firms not so much for the work they have but to pick up a 
lot of people who are cleared.
    And so, the requirement for cleared employees has an 
interesting side effect.
    Finally, there is the issue of the balance of the 
workforce. The demographics of our analytic workforce are very 
disturbing in my view, as somebody who used to manage the 
workforce. The budget was flat in the 1990s, and as Director 
Tenet pointed out several times, we lost the equivalent of 
23,000 positions across the Intelligence Community, either 
people who were never hired or people who were not backfilled 
when they left. And so, the net result is a huge loss in 
manpower.
    Then, after we were attacked in 2001, we started hiring a 
lot of new people. So if you look across the 16 agencies, 50 
percent of the analytic workforce has less than 5 years of 
experience. So we probably have the least experienced analytic 
workforce that we have had since 1947 when we first created the 
community.
    And so, the way that we have made up for this is to hire 
contractors because the contractors, the people who left the 
community, were the people who had the residual expertise.
    And this demographic is going to play out for several years 
to come, and so the demographics on the analytic side are a 
little bit scary, if you will.
    I have in my prepared statement some other ideas I think 
the Subcommittee should look at. In the interest of time, I 
will skip over those.
    I will just close with what I said at the beginning. I do 
not think it is so much a question of balance and ratio. I 
think it is a question of what is the best way to get the job 
done, and I think there are lots of alternatives. And it has to 
be, I think, a case-by-case kind of issue.
    Thank you, Mr. Chairman.
    Senator Akaka. Thank you very much, Dr. Lowenthal.
    Mr. Amey, will you please proceed with your testimony?

  TESTIMONY OF SCOTT H. AMEY,\1\ GENERAL COUNSEL, PROJECT ON 
                     GOVERNMENT OVERSIGHT.

    Mr. Amey. Good morning. I want to thank Chairman Akaka and 
the Subcommittee for asking the Project on Government Oversight 
to testify today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Amey appears in the appendix on 
page 59.
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    In light of today's hearing, the Members of this 
Subcommittee should be asking what intelligence services are we 
buying and whether we have the appropriate balance of Federal 
and contractor employees supporting the IC.
    I am typically able to provide a general assessment of an 
agency's contracting portfolio because the public has access to 
basic information via the Web. However, in the case of the IC, 
the doors to such data are closed. For example, missions, 
contract awards, dollar amounts, and the number of contractor 
personnel are classified and therefore not publicly available.
    Data had been made available in the mid-2000s with an 
inventory of IC core contractor personnel which documented that 
the IC's budget was roughly $42 billion, approximately 70 
percent of the IC budget was spent on contracts and that the 
government workforce was approximately $100,000, and 
contractors comprised approximately 28 percent of the total IC 
workforce.
    Based on the public release of the overall intelligence 
appropriations request earlier this year for $55 billion, it 
does not look like much has changed. POGO is concerned that 
despite some additional disclosures prompted by previous calls 
by Congress and the Intelligence Community Directive 612, 
little has changed over the years.
    For example, a 2009 report by the Senate Select Committee 
on Intelligence stated that it was trying to enhance personnel 
management authority, improve IC personnel planning, account 
for the number and use of the growing number of contractors and 
replace contractors with Federal employees. The increased cost 
due to reliance on contractors was also cited in that report.
    However, last week, Senator Feinstein raised IC concerns at 
a joint hearing of the Senate and House Select Committees on 
Intelligence. The Senator raised concerns about the continued 
high use of contractors, the use of IC contractors for 
inherently governmental functions that should be performed by 
government employees and the high cost of using contractors.
    Those are separated by approximately 2 years but sound very 
similar.
    Earlier this month, DOD released a report about its fiscal 
year 2010 insourcing actions. Intelligence work involved about 
1 percent of the jobs insourced by DOD. Not surprising, the 
rational for insourcing those 170 intelligence jobs was cost 64 
percent of the time, inherently governmental functions 16 
percent of the time and closely associated functions about 9 
percent of the time.
    The cost of hiring contractors has been raised before by 
the government, and in POGO's most recent report called ``Bad 
Business: Billions of Taxpayer Dollars Wasted on Hiring 
Contractors,'' many of the job classifications POGO analyzed 
are typically characterized as commercial services that can be 
found in the Yellow Pages.
    However, with respect to the subject of today's hearing, it 
is worth pointing out that in 2008 the government outsourced 
approximately 28 percent of its intelligence workforce and paid 
contractors 1.6 times what it cost to have that work performed 
by government employees. The ratio was $207,000 annually for a 
contractor employee versus $125,000 for a Federal employee.
    POGO's analysis supported those findings. POGO analyzed the 
costs associated with outsourcing language specialists, which 
are frequently used to perform intelligence functions, and 
found that contractors may be billing the government on average 
$211,000 per year, more than 1.9 times the $110,000 per year 
the government compensates a Federal employee.
    Outsourcing work to Federal contractors is premised on the 
theory that it provides flexibility to the government to meet 
its needs. That may be true in certain circumstances, but 
outsourcing work, especially in certain sensitive program 
areas, may actually cost the government because you have to 
remember government employees, unlike contractors, can perform 
both inherently governmental functions as well as noninherently 
governmental functions.
    The government might be more flexible to adapt to changing 
policies, missions, and intelligence operations if we did not 
have to worry about its contractors staying in inherently 
governmental work. We do not want contractors and contracting 
officers bickering in the field over what is or is not an 
inherently governmental function, and taxpayers should not have 
to pay for the additional expense to supplement the contractor 
workforce every time work treads close to the inherently 
governmental function line.
    POGO recommends that IC agencies and Congress conduct 
assessments of IC service contracts in order to gain a better 
understanding of the type of services procured, the total 
dollars awarded, and to compare the cost of using Federal 
employees as compared to contractors. To the extent possible, 
these assessments should be made publicly available.
    I would also urge all IC agencies to review the Office of 
Federal Procurement's new guidance on work reserved for 
government employees to ensure that contractors are not 
performing inherently governmental functions.
    Finally, I would urge the Senate to consider not imposing 
IC full-time equivalent (FTE) ceilings. Such restrictions 
prevent the government from operating at optimal efficiency and 
flexibility, and in the long run might result in increased 
costs for agencies and taxpayers.
    Thank you for inviting me to testify today. I look forward 
to answering any questions and working with the Subcommittee to 
further explore how intelligence contracting can be improved.
    Senator Akaka. Thank you very much, Mr. Amey, for your 
testimony.
    Mr. Foust, will you please continue with your testimony?

TESTIMONY OF JOSHUA FOUST,\1\ FELLOW, AMERICAN SECURITY PROJECT

    Mr. Foust. Chairman Akaka, thank you very much for inviting 
me here this morning.
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    \1\ The prepared statement of Mr. Foust appears in the appendix on 
page 65.
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    So there is very broad public agreement that the government 
must take measures to respond to the explosive growth of 
contracting in the IC. Now the government tends to contract out 
services when it does not have employees with the skill set to 
perform a given function, like building a drone, understanding 
a certain piece of information that has come in, or so on.
    But this public consensus that contracting needs to be 
curtailed is based on some, I think, faulty assumptions. One of 
them is that the industry of contracting has grown beyond 
anyone's ability to control it, that it results in widespread 
fraud, waste, and abuse, and that the fundamental nature of 
contracting itself presents analysts, agents, and officers of 
the Intelligence Community with irreconcilable conflicts of 
interest.
    I think these are actually the wrong issues to be focusing 
on because they do not address the real problems that plague 
the IC's reliance on contractors. The biggest problem facing 
the IC contracting industry is not that some contractors might 
abuse the system but rather that the government has designed a 
system that can encourage abuse.
    Missing in the public examination of the IC contracting 
industry is the role that the government itself plays. 
Ultimately, the government is responsible for the conduct of 
the companies that it hires to perform functions. While any 
violations of rules that are already in place merit 
investigation and prosecution, contractor behavior commonly 
labeled as misconduct is really perfectly legal and within the 
bounds of the contract agreements that companies sign with 
their government clients.
    The current state of contracting within the IC is 
incoherent. There is broad confusion about the nature of what 
are appropriate government roles and contractor roles, along 
with inconsistent accountability and poor resourcing for 
accountability mechanisms. Contracts are often worded vaguely 
or incompletely, and with ever-changing requirements, 
deliverables, and performance metrics, all of which are 
supposed to catalogue and record how a company fulfills a 
contract. They create an environment rife for exploitation by 
companies seeking to extract revenue from the process.
    Every contract that the government issues for a company to 
perform work is defined by a Statement of Work (SOW). This is a 
document that defines the parameters of the work the contractor 
will perform, including a description of the project, expected 
duties the contractor must fulfill, and the outputs and metrics 
by which performance will be measured. These are often poorly 
written, kept intentionally vague and wind up not actually 
addressing the stated intent of the contracts.
    As one example, every statement of work I've had to either 
administer, edit, review, or write has stated as a basic metric 
of performance the number of employees the contractor should 
hire. That is the basic means by which the government measures 
the contractor's performance is based first and foremost on the 
number of people hired to work on the contract. This has two 
serious consequences that affect the contracting environment. 
It removes the distinction between the employees that would 
make work products better, and it confuses the number of 
employees with contract performance.
    This bizarre system of hiring intelligence contractors is 
born from several interdependent processes that I go into more 
detail in my written testimony.
    But there is a very real distinction between the 
qualifications and credentials that are put in place to hire 
contractors to perform work. Often, a high level clearance is 
mistaken as qualification to perform a given type of work, 
which leads to questionable product outcomes and questionable 
program outcomes.
    Furthermore, poorly worded SOWs can place contractors in 
positions that introduce potential conflicts of interest. This 
can include hiring contractors to work in a government facility 
security office which puts them in charge of reading on 
competitor contracts, which is also a situation I have 
encountered while working in the Intelligence Community.
    The SOW system is also unclear on what constitutes 
deliverable and contractor outcomes. This makes it difficult 
for the government to control costs, measure outputs, and 
measure if the contractors are performing the terms of their 
contracts in a reasonable way.
    It also misidentifies what outcomes really are. Simply 
sitting in a chair and turning out reports might be an outcome 
the government desires, but absent measuring the context of 
those reports and the value that the contractors provide the 
government, it is difficult to say for certain that the 
contracted tasks actually help the government function.
    The broader question of what constitutes an inherently 
governmental function is slightly beyond my perspective and 
authori    tativeness. I do not have direct experience that 
would give me an authoritative stance on functions that should 
never be performed by a civilian contractor, but I have 
encountered situations in which contractors are put in charge 
of life and death decisions, either in targeting analysis 
shops, running drones programs, and similar situations. This 
makes me deeply uncomfortable, and I would be more comfortable 
seeing employees that have taken an oath on the Constitution 
making life and death decisions in the Intelligence Community.
    However, many of the problems that exist within the IC 
contracting industry begin with the government lacking the 
knowledge and means to design and manage its contracts. Rather 
than focusing on the numbers and balance of the contracted 
workforce, it would be better to examine the broader systemic 
issues that require the use of contractors in the first place. 
By fixing the need for contractors and by making the process of 
contracting both more transparent and more accountable, many, 
if not most, issues of balancing contractor and government 
employees will resolve themselves.
    Thank you, Senator, and I look forward to your questions.
    Senator Akaka. Thank you very much, Mr. Foust, for your 
testimony.
    Dr. Lowenthal, Mr. Foust's testimony indicated that he 
believes there is broad confusion about which roles should and 
should not be filled by contractors within the IC. During your 
time at CIA, was there a clear understanding of what roles 
should be reserved for Federal employees?
    Dr. Lowenthal. Mr. Chairman, as I said, when I was the 
Assistant Director, half of my staff were made up of 
contractors predominantly from one federally funded research 
development center (FFRDC) and from two private sector firms, 
and I do not think anybody in my office had any confusion about 
what they could and could not do, or I do not think any of my 
government employees had any confusion about what they could 
ask contractors to do.
    They could not monitor other contracts. They could not be 
involved in solicitations. They could not be involved in 
acquisitions.
    Beyond those sorts of common-sense rules though, I used 
them as an integral part of my staff. I had them manage 
planning projects for me. As I said, I had them help create the 
priorities framework that is used by the President. I had them 
run investigations for me. I had them help set up meetings and 
represent me at meetings, all of which seemed to be within 
bounds.
    So I think it is generally understood, at least within the 
Intelligence Community as I saw it, what contractors could and 
could not do. And I never saw any confusion on the part of my 
contractors, and I never had a situation where I felt a 
contractor had gotten out of his or her lane either.
    They pretty much understood why they were there and what 
they had been hired to do in support of my office, and so I 
just did not see it as a problem, sir.
    Senator Akaka. Mr. Allen.
    Mr. Allen. Yes, Mr. Chairman, we are talking here about 
what we call core contractors, not those that build satellites 
or do high end, exquisite, exotic engineering, and scientific 
work for the Intelligence Community, or the ones that do the 
support services because we do contract for heating and air 
conditioning and for mowing the lawn. But we are talking here 
about those who are working in a more integrated fashion, as 
Dr. Lowenthal just described, with the government employees.
    From my perspective, when I was the Assistant Director of 
Central Intelligence for Collection where I had a social and 
environmental impact assessment (SEIA) of contractor support, 
and when I was the Under Secretary at Homeland Security it was 
very clear that the government was in charge and the government 
made the final decisions.
    The government makes decisions relating to achievable 
intelligence. Life and death decisions are not made by 
contractors. That, I can assure you. I know that from personal 
experience, having worked at the Central Intelligence Agency 
most of my life.
    I believe that we are getting much better. I believe that 
the guidance that has come from the Director of National 
Intelligence, looking hard at the core contractors, this middle 
band that we are talking about. I think we are looking at what 
is inherently governmental and what is not.
    And where we need the expertise--unique expertise, surge 
expertise, short-term expertise of core contractors, I think it 
is spelled out more clearly. Admiral Dennis Blair, when he was 
Director of National Intelligence, signed Intelligence 
Community Directive 612 which spells out very clearly the 
responsibilities of core contractors.
    Senator Akaka. Mr. Foust.
    Mr. Foust. Thank you, Senator.
    So I should probably clarify that my experience in the 
Intelligence Community has not been as a part of the Central 
Intelligence Agency. I have worked for the Defense Intelligence 
Agency, other military intelligence agencies and organizations. 
So it is possible that there is a difference of experience 
between civilian and military intelligence agencies.
    However, I can say that within the military Intelligence 
Community there are contractors who are in charge of selecting 
targets for assassination in Iraq and Afghanistan. There are 
also contractors who are put in charge of functions that we 
would ordinarily consider sensitive. So I do not have any 
knowledge as to whether or not this happens in a civilian 
agency, but within the military community it has happened in 
the recent past.
    At the same time, I think when we are looking at this 
question of whether or not the government has a good handle on 
it, this comes back to what I write in my written testimony 
about how good program design and good management will 
naturally resolve the question of whether or not contractors 
are being used properly.
    I have worked on projects where there was a good government 
manager, and that government manager kept contractors in their 
lane. There was no confusion about roles, duties, and people 
did not step out of their line.
    I have also worked at projects where that has not been the 
case. And if government management is either not properly 
trained or if the contracting officer representative (COR) who 
is in charge of administering the contract and interacting with 
the contractor program manager is not properly trained, 
resourced, or given the mandate to their job, there can be 
serious problems of either contractor overstep or contractor 
misconduct.
    And I want to make clear that when I call these things 
misconduct or overstep I do not mean to imply that there is any 
maliciousness on the intent of the contractor. Like everyone 
else on this panel, I have never encountered a contractor or a 
contractor manager or executive who behaves mendaciously or I 
think has anyone's worst interests at heart. Rather, the system 
itself encourages conduct that we would consider to be 
unacceptable. I think this is unintentional and a consequence 
of design rather than malice.
    Senator Akaka. Thank you Mr. Foust.
    Mr. Allen, there are governmentwide problems with having 
enough acquisition professionals with the right training----
    Mr. Allen. Yes.
    Senator Akaka [continuing]. To clearly define contracting 
requirements and performance metrics from the outset and to 
effectively oversee them. This can lead to, of course, cost 
overruns and poor outcomes. The need to rapidly expand 
intelligence activities after the September 11, 2001 terrorist 
attacks, of course, worsened this problem within the IC.
    What should be done to enhance government contract 
management to improve outcomes?
    Mr. Allen. I think, Mr. Chairman, you put your finger on a 
problem.
    I think in the cold war we had wonderfully experienced 
acquisition experts, contracting officers who were deeply 
experienced, contracting officers, technical representatives 
that helped manage and control that. We had the drawdown. We 
grew exponentially after September 11, 2001. We really have yet 
to develop, I think, the richness of experienced contracting 
officer's technical representatives (COTRs).
    In acquisition, my view is that there needs to be a lot 
more emphasis on this. I see it at the National Reconnaissance 
Office where General Bruce Carlson, I think, is improving the 
whole acquisition process. He has had six highly successful 
launches with great, exquisite payloads and space that are 
operating absolutely and completely effectively.
    My view is that it is going to take time. We have 
management schools that can build this. We are building it now. 
The Director of National Intelligence, General James Clapper, 
understands that this is a deficiency, but we are working to 
get it better.
    My view is that we are not quite there yet. We need to 
continue to improve that area.
    Senator Akaka. Thank you very much.
    Mr. Foust, your written testimony discussed flawed IC 
contracting practices such as shortfalls in contract statements 
of work and performance metrics. Would you elaborate on what 
the IC must do to address these problems, including whether the 
ODNI should be responsible for setting better contracting 
standards across all IC elements?
    Mr. Foust Yes, Senator. So there is a need to keep 
statements of work for contracts, to a certain degree, flexible 
so that contractors can respond to what their government 
clients want them to do in the future.
    The shortfalls that I highlight in my written testimony 
come down to situations where that flexibility, I think, ended 
up being taken a couple of steps too far. The most obvious one 
that we have already mentioned earlier today has been the use 
of contractors in interrogation, in particular, contractors 
running interrogation at Abu Ghraib. They were originally hired 
on an information technology (IT) support contract for the U.S. 
Army and wound up doing detainee interrogations in Iraq. I 
think that is a very obvious example of taking vaguely worded 
statements of work and just abusing the process.
    A more common use involves what could be more charitably 
called mission creep, at least within the analytic community. 
So that involves hiring a contractor to perform work on a given 
topic and then along the way the government realizing that they 
want to have expertise or analysis performed on another topic 
and using a phrase like ``other functions as assigned'' to then 
require the contractor to hire new people to perform another 
job function that was not contained in either the original 
request for proposals or the statement of work as written.
    As far as fixing this, from the government's perspective, I 
think there is a lot of room to tighten up contract language. 
One of the processes that I discuss in my written testimony 
comes down to measuring what actual project outcomes are, what 
you intend this project to do.
    This is not a problem that I think would be limited simply 
to contractors. I think it gets at a broader systemic issue of 
poor project design and a lack of strategic thinking in terms 
of what specific agencies and then branches within agencies 
want to perform.
    There are some job functions like simply maintaining 
awareness, or understanding message traffic or information 
coming out of an area, that you cannot really put metrics on. 
There is no way to measure whether what you are doing is really 
going to meet some objective or not because you may not know 
what that objective is.
    But I think that is when it starts to clarify the question 
of whether it is appropriate to be having contractors 
performing indefinable tasks with uncertain outcomes. I think 
that is a situation that implies a certain permanence to the 
function, in which case it would make sense to be assigning 
permanent Federal employees to be performing it rather than 
temporary contractors.
    Beyond that, I mean there have been a couple of mentions 
here that there is a lot of case-by-case examples that need to 
be taken, and I think maintaining that flexibility is important 
because every intelligence function is not the same. And 
instituting community-wide guidelines for how to tighten up 
statements of work could be really difficult without getting 
into an expansive bible of regulations about how to make it 
work.
    Senator Akaka. Thank you. Mr Amey.
    Mr. Amey. If I may, I think your last two questions to the 
panel are related. You are going to make mistakes in the 
process if you do not have the adequate number of acquisition 
personnel that are able to oversee the large amount of 
contracts. This is not just in the IC community. This is in the 
government overall. We have seen a dramatic increase in 
contract spending. Especially service contract spending now 
makes up the bulk of the contract dollars that we award each 
year. And therefore, if we are operating under a quantity 
rather than a quality policy directive, then at that point we 
are prone to make mistakes. And so, that is where enhancing the 
acquisition workforce, getting them better trained will also 
help in better requirements definition, better programs, better 
market research. Unfortunately, I think we have been just in a 
position where we have to award contracts as quickly as 
possible, that we have made mistakes which will lead to waste, 
fraud, or abuse.
    Dr. Lowenthal. Mr. Chairman, may I?
    Senator Akaka. Dr. Lowenthal.
    Dr. Lowenthal. If I just can comment on something Mr. Foust 
said, certainly, when you are hiring contractors to support 
your analysis, which is something I know fairly well, you need 
a certain amount of flexibility because you really do not know 
what you are going to be analyzing next beyond a couple of easy 
guesses. I managed the President's intelligence priorities for 
3 years, and one of the hardest things about that is trying to 
forecast 6 months out, where do I need my next set of analysts.
    To give you an easy example, if I was still managing the 
system in December 2010, I would not have assigned an awful lot 
of analysts to Tunisia. I think I might have assigned an 
analyst to watch Tunisia while watching Algeria and Libya. In 
January, I would have had a whole bunch of analysts watching 
Tunisia.
    Certainly, when you are managing the analytical system or 
the collection system that Mr. Allen used to manage, you need a 
certain amount of inherent flexibility. The world is nonlinear 
because of the crises that we all deal with. But in the 
Intelligence Community, you are supposed to anticipate those. 
So if you have a workforce that is stuck in certain lanes in 
analysis and collection, you are not going to have the 
flexibility to respond to the needs of policymakers in the time 
that you need them.
    Senator Akaka. Thank you.
    Dr. Lowenthal, your written testimony discuss how the IC 
Federal workforce is fairly young and inexperienced relative to 
the contractors that they oversee. How does that dynamic impact 
the ability of the Federal IC workforce to appropriately 
oversee the contractor workforce?
    Dr. Lowenthal. I think we actually have three different 
populations operating simultaneously.
    The workforce, the young workforce that I mentioned and 
that you just referenced, tend to be younger analysts who are 
not doing contract supervision. They are working as analysts. 
The problem is that across the community--CIA, the Defense 
Intelligence Agency (DIA), the National Security Agency (NSA), 
DHS--there are too many of them, not that we want to get rid of 
them, but we hired so many of them after the shortfalls in 
personnel in the 1990s that the demographic is skewed.
    So we have former IC employees coming in as contractors, 
but they tend to be supervised by middle level people who are 
more experienced than the young analysts.
    I do not think there is a problem in supervising the 
contractors. That tends not to be done by the young analysts. 
The problem with the young analysts is simply the fact that 
they just do not have a lot of experience and they are there in 
much larger numbers than anything we have seen in the preceding 
50 years.
    But I think in terms of managing the contractors, that is 
happening at a level above those new analysts, and so I do not 
perceive that as a problem, sir.
    Mr. Allen. Mr. Chairman, I would just like to comment on 
that as well.
    Senator Akaka. Mr. Allen.
    Mr. Allen. I agree totally with Dr. Lowenthal on the issue. 
When I came to the Department of Homeland Security, I had a 
contractor population analytically of about 60 percent, 
government about 40 percent.
    We started changing that ratio. I talked to Congressman 
Thompson and Congressman King on this issue, and I said we are 
going to correct this. We changed it over 3 years. Today, my 
successor now has it at about 60 percent government, 40 percent 
contractor, and she is well on her way to becoming 70-30.
    So it was a matter of we brought in a lot of experience, 
former agency, CIA and other officers who mentored those young 
analysts, but the decisions were always in the hands of the 
Federal Government. They were always my decisions or my 
deputy's decisions, on any product that we produced.
    Senator Akaka. Thank you very much.
    Mr. Amey, your statement recommends that Congress remove 
ceilings limiting on how many Federal employees an agency can 
hire. In this budget environment, some might view this as a 
green light to grow the size and cost of government. Would you 
discuss how removing these ceilings could actually lead to 
reduced costs and more efficient government?
    Mr. Amey. Certainly, Mr. Chairman. I think, as Dr. 
Lowenthal had mentioned, this is not about ratios. It really is 
about efficiencies and providing an effective government.
    So with that point, if we have a workforce that is in the 
IC and we have an office that is 10 percent government 
employees but we have to supplement them with 40 percent 
contractor employees, we have a total workforce of 50 percent. 
We need to reconsider that number and see if there are cost 
efficiencies, that we do not need potentially 40 percent IC 
contractor employees supplementing that office.
    We are spending the money somewhere. It is not like we 
removed it from the Human Resources (H.R.) budget of an agency. 
All we have done is supplement it with a contractor award--a 
contract award--and we have just supplemented it with a new 
contractor employee workforce.
    So that is what I think we need to make sure that we go 
back and really look at the efficiencies and the effectiveness 
of agencies, to make sure that we have the right balance and 
there are going to be savings there, if we take a look at that, 
whether that work is insourced and we hire more Federal 
employees or if that work is outsourced.
    If we find that contractors provide the work more cheaply, 
then maybe we do not need Federal employees to perform those 
functions unless they are inherently government or closely 
associated or critical. And that is where you are just going to 
have to operate under a weigh test on whether government 
employees should, not whether it is legal for a contractor 
employee to perform a function, but should a government 
employee perform that function, and that is a different 
scenario.
    And I think that is what we need to really do, and that is 
what the Department of Defense has done with their insourcing 
study. We have 43 jobs that they found that were inherently 
governmental or closely associated. So at that point, they have 
taken a look at those jobs.
    And when you asked the question to Mr. Gordon earlier on 
the first panel, on how do you plan to see this kind of washed 
down through the system, I think the OFPP policy letter is a 
great step forward.
    But I like to see something from ODNI that comes out and 
takes it a step further: Here are missions, here are functions, 
that we think should be performed by government employees. And 
take a look at those and also ask for a cost efficiency study 
to be done and performed to make sure that we are saving as 
much money as possible.
    Senator Akaka. Mr. Amey, as you know, the Intelligence 
Community keeps much of its facts and figures regarding the use 
of contractors secret. To a large degree, this is necessary to 
protect the national security, but it also makes it extremely 
difficult for the public and groups like POGO to hold 
intelligence agencies accountable.
    How could we better balance the need to protect national 
security secrets with transparency and accountability?
    Mr. Amey. Well, obviously, this Administration has taken a 
big step forward in revealing what the budget request was 
earlier this year, and I think that is where we can start, with 
total figures. I do not necessarily need to know what the 
breakdown of every operating personnel is for the IC community, 
whether as a Federal employee or as a contractor employee, but 
if we just start with kind of the low-hanging fruit dollar 
amounts.
    If you have read Dr. Ronald Sanders conference call, it is 
very difficult. He gets grilled. This was a few years ago, but 
he was getting grilled by reporters on what the size of the 
workforce was. It was very circular because he was giving a 
total number for the number of Federal employees but the 
percentage was not a percentage of the total.
    I mean I had difficulty in following it, and I think so did 
every reporter that was on that conference call.
    There are places where I think we can add transparency. We 
just have to make sure that it is done with kid gloves to make 
sure we do not reveal something that really does place the 
Nation in harm or national security at risk.
    Mr. Allen. Mr. Chairman, I would just like to add that, as 
you know, you are going to be hearing later in a classified 
session. I believe that the Senate Select Committee on 
Intelligence has been especially active in this area of looking 
at contracts, looking at the number of contractors and the 
ratios and the balance involved.
    As you know, in the past, the DNI has published the numbers 
of core contractor personnel. There is an enormous transparency 
in a classified environment. So there is nothing held back.
    And Director Clapper, who is a good friend, has spoken very 
bluntly about this, that he is going to get it right and he is 
going to work on what is inherently government and adhere to 
that.
    Senator Akaka. I would like to ask this next question to 
the entire panel.
    In your written statements, several of you raised the issue 
of how competition for employees with security clearances 
impacts IC contracting. Of course, security clearances are 
important to protecting classified information within the IC.
    This Subcommittee has focused extensively on improving the 
speed and quality of the security clearance process, but I 
believe there is room for improvement. What changes to the 
security clearance process could improve IC contracting and the 
quality of contractors hired? Mr. Allen.
    Mr. Allen. Mr. Chairman, I am currently head of a task 
force sponsored by the Intelligence and National Security 
Alliance which is looking at the security clearance process and 
suitability, and the emphasis is on contractors because we know 
that the system today is arcane in many ways. It is not 
efficient. We know there is waste.
    And in moving clearances among contractors, the 
transportability, if a contractor has Top Secret Sensitive 
Compartmented Information (SCI) clearance at DIA, is working on 
a contract and his unique skills are needed at CIA, there 
should be just simply electronic transfer of his clearances. 
Today, we have a fairly painful process.
    And we could cite almost any agency of the 16 agencies and 
the antiquated way in which we operate.
    This study will be out in the December timeframe. We will 
make it available to you and to your Subcommittee staff to 
review. It is a white paper directed at the Director of 
National Intelligence focused on just small, incremental steps 
that could be made to improve this.
    And we will save, I think, a substantial amount of money. 
We will more effectively use contractors than we do today. 
Sometimes they have to wait weeks or months in order to get 
those clearances transported from one agency to the other even 
though the individual involved have--they are fully cleared, 
been vetted by all the security organizations.
    I look forward to finishing this study and presenting it to 
you, sir.
    Senator Akaka. Thank you. Dr. Lowenthal.
    Dr. Lowenthal. Mr. Chairman, I would just echo what Mr. 
Allen said. We have an arcane process that does not even 
reflect the technology that is available to us.
    I was hiring a government employee on my staff. He was a 
DIA officer, and it took me 10 months to transfer his 
clearances to CIA. I was astounded. It was a breathtaking 
moment. We deal with an arcane process that really does not 
catch up with the rules.
    But one of the ironies of this is that Mr. Allen and I have 
probably done, between us, hundreds of interviews with people 
as references for people who are getting clearances. All those 
people who interviewed us were contractors. So we hired 
contractors to conduct the security clearance process, which is 
an interesting irony.
    But we could clearly make the process quicker. We know that 
there is a problem when you hire a government employee as we 
lose some of them because of how long it takes to hire them.
    Mike McConnell, when he was the DNI, tried to get the 
security community, the people who are in charge of this, to 
move from risk avoidance to risk management. I think that was a 
good idea that the Director had. It would be a very difficult 
cultural shift because if you are a security officer your main 
goal in life is to make sure that nothing bad happens on your 
watch and you are not going to be liable to say well, let's cut 
corners here, let's make the process faster.
    So one of the issues you have to deal with is what are the 
incentives for the people who actually manage this system, who 
are totally separate from the contractor workforce or the 
people setting out contractors. It is a whole different 
community of people.
    But I think there is room for improvement that would make 
the system better and less expensive.
    Senator Akaka. Thank you so much.
    Mr. Amey. I will leave this question for the other 
panelists. I do not have any information that would be as 
insightful as what they have already had to offer.
    Senator Akaka. Thank you. Mr. Foust.
    Mr. Foust. Thank you, Senator.
    So I think this question about the clearance process comes 
back to the point I made in my written testimony about the 
difference between qualifications and credentials. Contractors 
tend to be used for two primary functions--either to bring 
expertise into the IC that it does not already have or to 
simply fill seats on a requirement that they need. I think 
Tunisia is a good example where the two coincide, but that does 
not always happen.
    Right now, the security clearance process tends to exclude 
the most highly qualified area experts because having 
substantial family, social, or other personal contacts in areas 
of interest, say the Middle East, North Korea, or other areas 
that pose substantial security risks, can actually get in the 
way of their getting a clearance to then participate in the 
intelligence process. This is a substantial barrier for both 
Federal and contracted employees.
    I think from the contractor's perspective the real 
advantage that contractors bring to the intelligence process is 
their flexibility, their ability to be rapidly hired and 
rapidly fired.
    The problem this introduces in a cleared environment is 
that firing a contractor immediately cancels or suspends their 
clearance if they cannot be immediately transferred onto 
another contract.
    I am not sure exactly how the specifics of this could be 
worked out, but decoupling one's clearability or one's cleared 
status from having to be attached to an active contract 
currently drawing money from the Federal Government would go a 
long way toward increasing the flexibility that cleared 
contractors can provide to the community. There is probably a 
lot more research to be done on that, but that is one idea that 
could be brought in front of more knowledgeable people than I.
    Senator Akaka. Thank you very much.
    And finally, I have another question for the entire panel.
    As you know, contractors often recruit IC employees because 
they have the needed clearance and expertise. We have heard 
stories of government employees quitting one day and returning 
to the same job as a contractor the next day, often for more 
pay.
    As you are aware, former CIA Director Hayden instituted a 
cooling off period so that CIA employees who left before 
retirement could not return immediately as a CIA contractor.
    Do you think this policy has been effective and should it 
be implemented across the IC? Mr. Allen.
    Mr. Allen. Yes, Mr. Chairman, I think it has been very 
effective.
    General Hayden saw what was happening at the Agency where 
people were coming in, working for 2 or 3 years, getting a lot 
of expertise working in operations, or in science and 
technology, or analysis, and then seeing opportunities to make 
more money by immediately going out and keeping their 
clearances, coming back as an contractor employee. He 
instituted that change. That was a wise decision. I think it 
has not affected the efficiency of the Central Intelligence 
Agency.
    My view is if you are retiring and getting your annuity, 
that is fine to go work for a contractor. I have no problem 
with that.
    But we need a more stable workforce, and occasionally, we 
had contractors quite actively recruiting some of our best 
personnel. And what General Hayden did at CIA should be 
emulated by the rest of the community.
    Senator Akaka. Dr. Lowenthal.
    Dr. Lowenthal. I mentioned this in my summary remarks, Mr. 
Chairman. I agree with Charlie. I think what Mike did in the 
Agency was a very good idea.
    I spent a lot of my time, when I was the Assistant 
Director, counseling younger people who said I have just been 
offered this amount of money to go work in another firm. And 
they get a bonus for having a clearance. It is like a signing 
bonus in baseball. It is not just that they are being offered a 
higher salary, but they will get a bonus because they are 
coming in cleared.
    So I think what General Hayden instituted at the agency was 
a very sensible, nonpunitive policy. I think it probably helped 
safeguard his workforce. And like Mr. Allen, I would see that 
as a rule that could be easily implemented across the community 
to the benefit of the government.
    Senator Akaka. Thank you. Mr. Amey.
    Mr. Amey. I would agree. There is a lot of emphasis on 
hiring government employees, but you do not have as much 
emphasis on retention of government employees, and so whatever 
we can do to improve the retention policy.
    A cooling off period, I have seen it manipulated with 
defense agencies where the cooling off period actually states 
that you cannot receive compensation. So somebody will go there 
and not accept compensation for a year, but then come out and 
get a bonus 366 days later.
    So it always can be manipulated, but anything that we can 
do to try to retain qualified government employees that are 
highly trained.
    And that is where part of the overhead that the government 
invests. When people talk about the cost to the government for 
a government employee is so high. Well, we do spend a lot of 
money on training and on educating, and at that point we do not 
want to see all that just kind of spill over and poached by the 
contracting industry.
    Senator Akaka. Thank you. Mr. Foust.
    Mr. Foust. Yes, I would agree with everyone else here, that 
was a very good rule.
    I have seen where that rule is not in place, in the defense 
community, be abused, where government employees go work for 
contractors in the same role and in the same office for more 
pay, and I think a cooling off period would be very useful to 
implement community-wide.
    Senator Akaka. Thank you very much. I thank our witnesses 
very much, our first two panels as well.
    The Intelligence Community has played a critical role in 
keeping us safe in the decade since the September 11, 2001 
attacks. Our oversight is intended to help make sure that the 
IC is as effective as possible. Given the difficult budget 
environment, we must also understand the cost implications of 
contracting versus insourcing different functions in the IC.
    I look forward to working with the Administration and my 
colleagues in the Senate to ensure that the IC's total 
workforce is properly balanced to further its important 
mission.
    We are now going to take a short recess and reconvene the 
hearing to receive testimony in closed session. While the third 
panel will be closed to the public, we will work with the 
Administration to release an unclassified transcript of as much 
of the proceedings as possible.
    The hearing record will be open for 2 weeks for additional 
statements or questions from other Members of the Subcommittee.
    So this hearing is now in recess until 11:15 a.m. Thank 
you.
    [Whereupon, at 11:02 a.m., the Subcommittee proceeded to 
closed session.]


 INTELLIGENCE COMMUNITY CONTRACTORS: ARE WE STRIKING THE RIGHT BALANCE?



                      (CLASSIFIED SECRET SESSION)

                              ----------                              


                       TUESDAY SEPTEMBER 20, 2011

                                 U.S. Senate,      
              Subcommittee on Oversight of Government      
                     Management, the Federal Workforce,    
                            and the District of Columbia,  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, in classified 
SECRET session, at 11:38 a.m., in Conference Room 1, Senate 
Visitors Center, Hon. Daniel K. Akaka, Chairman of the 
Subcommittee, presiding.
    (This transcript reflects unclassified excerpts of that 
session).
    Present: Senator Akaka (presiding).
    Also Present: Christian Beckner, Ray Ciarcia, Troy Cribb, 
Counsel of the full Committee, Lisa Powell, Staff Director, and 
Eric Tamarkin, Counsel, Subcommittee staff; Peggy Evans, Hayden 
Milberg, Jared Rieckewald, and Renee Simpson, Senate Select 
Committee on Intelligence staff; David Beaupre, George Bremer, 
Sharon Flowers, Edward Haugland, Mary Keller, Alexander 
Manganaris, Jeanette McMillian, Eric Pohlmann, and Paula 
Roberts, Office of the Director of National Intelligence; and 
Anne McDonough-Hughes, Government Accountability Office.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. I call this hearing of the Subcommittee on 
Oversight of Government Management, the Federal Workforce, and 
the District of Columbia back to order. I want to welcome our 
witnesses on our third panel. Aloha and thank you for being 
here.
    The witnesses on our third panel are: Edward Haugland, 
Assistant Inspector General for Inspections, Office of Director 
of National Intelligence; and Paula J. Roberts, Associate 
Director of National Intelligence for Human Capital and 
Intelligence Community Chief Human Capital Officer, in the 
Office of the Director of National Intelligence.
    It is the custom of the Subcommittee to swear in all 
witnesses, so would you stand and raise your right hand.
    (Witnesses Haugland and Roberts sworn.)
    Let it be noted for the record that the witnesses answered 
in the affirmative. If you would please try and limit your oral 
remarks to 5 minutes, although your full written statements 
will be made a part of the record.
    Mr. Haugland, please proceed with your statement. Before we 
continue, I just want to remind you we don't have mikes, so if 
you cannot hear me or I can't hear you I'll let you know. Thank 
you. Will you please proceed, Mr. Haugland.

 TESTIMONY OF EDWARD L. HAUGLAND, ASSISTANT INSPECTOR GENERAL 
  FOR INSPECTIONS, OFFICE OF INSPECTOR GENERAL, OFFICE OF THE 
  DIRECTOR OF NATIONAL INTELLIGENCE, ACCOMPANIED BY GEORGE D. 
                          BREMER, JR.

    Mr. Haugland. Thank you, Mr. Chairman. Thank you for the 
invitation to the Inspector General of the Office of the 
Director of National Intelligence to testify on the topic of 
the use of contractors in the Intelligence Community. I'm 
honored to represent Roslyn Mazer, the ODNI Inspector General, 
and serve as her designee at today's proceedings. As you know, 
the ODNI Inspector General recently completed an inspection 
that evaluated the ODNI's use of core contractors. The findings 
and recommendations from this report, which have been presented 
to the Subcommittee as the statement for the record, will be 
the basis for my testimony here today.
    To begin, I will respond to the four items that you asked 
our testimony to address.
    First, the findings and recommendations of our report. We 
developed three findings and several recommendations. The 
findings are: First, the ODNI has not fully performed the 
strategic and human capital planning activities required of all 
Federal agencies. As a result, there is not a road map upon 
which to plan for the effective application and management of 
core contractor workforce.
    The second finding: Since its standup, the ODNI has 
leveraged CIA to provide contracting services through an 
interagency acquisition agreement. However, the ODNI has not 
implemented internal controls necessary to ensure the 
acquisition process is meeting its needs.
    The third finding is that the ODNI is not managing 
contracting officer's technical representatives (COTRs), as an 
essential element or component of the ODNI's acquisition 
workforce.
    Each finding resulted in several recommendations that, in 
summary, are designed to: One, ensure the ODNI complies with 
the Government Performance Results Act (GPRA), including 
development of a strategic plan and strategic human capital 
plan; ensure that internal controls are in place to improve the 
oversight of core contracts; and, further, empower the 
contracting officer technical representatives and improve the 
ODNI's management of them.
    The DNI has endorsed our recommendations fully, which are 
intended to mitigate the findings in our report.
    The Subcommittee also requested that we discuss whether the 
ODNI is properly managing and overseeing its core contractor 
workforce, to include whether the contractors are performing 
core governmental functions, and whether the ODNI is 
implementing a strategy to balance the Federal employee-to-
contractor mix.
    In both of these areas, we found the ODNI was not 
performing optimally and we made recommendations designed to 
remedy those shortfalls.
    Finally, the fourth item the Subcommittee asked us to 
address dealt with the ODNI Inspector General suggestions on 
issues involving the use of contractors that should be 
investigated across the Intelligence Community.
    During the course of our evaluation, we did review a 
variety of other assessments that suggest issues identified in 
our report are not unique to the ODNI. However, as our office 
has not specifically assessed or evaluated other Intelligence 
Community elements, we are not in a position at this time to 
recommend an investigation of systemic issues. Our evaluation 
was focused solely on assessing the risks associated with the 
administration and management of core contractors in the ODNI.
    This concludes my opening remarks, Mr. Chairman. I look 
forward to answering any questions the Subcommittee may have.
    Senator Akaka. Thank you very much, Mr. Haugland.
    Ms. Roberts, will you please proceed with your testimony.

 TESTIMONY OF PAULA J. ROBERTS, ASSOCIATE DIRECTOR OF NATIONAL 
INTELLIGENCE FOR HUMAN CAPITAL AND INTELLIGENCE COMMUNITY CHIEF 
   HUMAN CAPITAL OFFICER, OFFICE OF THE DIRECTOR OF NATIONAL 
INTELLIGENCE, ACCOMPANIED BY ALEX MANGANARIS AND SHARON FLOWERS

    Ms. Roberts. Good morning, Mr. Chairman. It is my pleasure 
to update you on the Director of National Intelligence's 
ongoing efforts to oversee our core contractor personnel by 
assessing their functions, quantities, and costs. It is worth 
noting, as part of our overall efficiencies work that we are 
doing across the IC, that the Director of National Intelligence 
has directed the agencies to reduce their reliance on core 
contractor personnel.
    Before I address our efforts, let me give you some overall 
context. The IC workforce is composed of three distinct 
elements: Civilian personnel, military personnel, and core 
contractor personnel. Together they comprise the IC's ``total 
force.'' Together they address intelligence mission needs and 
requirements. For the Intelligence Community to perform 
strategic workforce planning of all three elements, all of the 
intelligence needs have to be considered.
    [REDACTED]
    I would like to specifically address core contractor 
personnel, who should be distinguished from other contractors. 
Commercial contractors provide services, such as landscaping or 
IT support. They are not core contractors. Commodity 
contractors are not core either--they deliver commodity 
services, such as building a satellite. Likewise, we may 
contract for a commodity service such as a specific study.
    Core contractor personnel provide direct support to 
civilian and military personnel. In 2005, we had 16 
intelligence agencies, with no single standard to count or 
distinguish contractors. When Congress established the ODNI, we 
were able for the first time to bring together the Intelligence 
Community and establish core definitions and standards for 
contractors.
    In 2006, the ODNI began to conduct an annual inventory of 
those core contractor personnel that directly support IC 
missions. In 2009, the Director of National Intelligence 
approved and signed Intelligence Community Directive (ICD) 612 
to guide the use of core contractor personnel. First, it 
affirms the prohibition on the use of core contractor personnel 
to perform inherently governmental activities. Second, it 
generally describes the circumstances in which core contractor 
personnel may be employed to support IC missions and functions. 
Third, it makes the inventory an annual requirement; and 
fourth, it provides a standard definition of core contractor 
personnel.
    In the ICD, we give examples of when to use core contractor 
personnel for immediate surges, discreet, non-reoccurring 
tasks, unique expertise, specified services, cases where we may 
have insufficient staffing, the transfer of institutional 
knowledge and cases where it is more efficient or effective.
    [REDACTED]
    You asked me to address our views on the Office of Federal 
Procurement Policy's recent policy letter, ``Performance of 
Inherently Governmental and Critical Functions.'' The policy 
letter provides a framework and reinforces much of the work 
that we have done, and we hope to continue making progress with 
this additional policy.
    Implementation of this policy will be shared responsibility 
across the Intelligence Community's acquisition, human capital, 
and financial management communities. We believe many of our 
core contractor personnel practices capture the essence of the 
policy letter, and we are reviewing the details carefully to 
consider where we may need to make additional refinements to 
our policies to best implement this policy across the 
Intelligence Community.
    In conclusion, Mr. Chairman, I believe we are striking the 
proper balance with the use of core contractor personnel in the 
Intelligence Community. Contractor personnel will remain an 
integral part of the IC's total force. At the same time we will 
continue to strengthen our oversight mechanisms and management 
controls to ensure that core contractor personnel are used 
appropriately, and we will continue our efforts to reduce our 
reliance on core contractor personnel as appropriate.
    I stand ready to answer your questions, sir.
    Senator Akaka. Thank you very much for your testimony, Ms. 
Roberts.
    Ms. Roberts, given the ODNI's charge to oversee the IC and 
provide policy and budget guidance, what is the ODNI's 
strategic vision over the next 5 to 10 years for its use of 
contractors.
    Ms. Roberts. We see core contractors as a part of the total 
force, and it is imperative that we conduct workforce planning 
looking across several years to determine the best use of 
contractors as they complement the civilian workforce.
    We will continue our efforts to do outreach and recruitment 
to try to obtain the skilled workforce we need, and the core 
contractor personnel will be complementary to what we're able 
to do with the civilian workforce.
    Senator Akaka. As a follow-up, are ODNI's current statutory 
authorities sufficient to implement its strategic vision?
    Ms. Roberts. We believe that we have many of the 
authorities that we need to facilitate strategic workforce 
planning. We do have a legislative request in to get more 
flexibility in the workforce ceiling, so that we may have the 
ability to hire the workforce that we need and to convert core 
contractor positions to government civilian positions as 
necessary.
    Senator Akaka. Ms. Roberts, as you know, OFPP recently 
released guidance on inherently governmental functions. What 
process do you use or intend to use to aid or guide IC agencies 
in determining whether specific functions must be performed by 
Federal employees?
    Ms. Roberts. As part of our workforce planning work, we 
look specifically at the skills we need and what's involved in 
terms of competencies to do the work that we need to have done 
in the intelligence mission. We are working carefully with the 
acquisition and procurement folks on what we can expect to have 
contractors do to supplement the work that we do.
    We make sure we work together to recruit government 
employees who meet our needs, and we work very carefully with 
the acquisition and procurement folks.
    Senator Akaka. Ms. Roberts, in your testimony you discuss 
how contract personnel were used to provide key language skills 
following the September 11, 2001 attacks. As you know, I 
believe foreign language skills are critical to our national 
security. Could you elaborate on the steps your office is 
taking to improve the language skills within the IC's 
government workforce and reduce reliance on contractors for 
critical language skills?
    Ms. Roberts. Yes. We have a strategic plan that we have put 
together to look specifically at language requirements. When we 
think about language skills, we think about two things: 
Linguists and foreign language skills that analysts need to 
have. So we work with the IC elements on an annual basis to 
understand what requirements they have, and we are currently 
investing in training and education to improve the proficiency 
of the people who have foreign language skills.
    We likewise have invested quite a bit in outreach to 
universities to attract young people with foreign language 
skills. In fact, we work very closely with the Department of 
Defense on a scholarship program that works directly with 
universities and colleges. In addition, we have some outreach 
to K through 12 to get the word out on the importance of 
studying foreign languages. We have a very deliberate program 
that is focused on outreach, education and training, and 
developing skills for the IC workforce in both linguists and in 
the cases where analysts need to have foreign language skills.
    Senator Akaka. Mr. Haugland, in its report on the 
administration and management of ODNI core contractors, the 
Inspector General recommends that ODNI issue instructions for 
enhanced control when contractors closely support inherently 
governmental functions. Would you elaborate on the concerns 
underlying this recommendation and what these instructions 
should contain?
    Mr. Haugland. Yes, Mr. Chairman. Through our evaluation, we 
did not identify any examples, specific examples where 
contractors were doing inherently governmental functions. 
However, through the overall evaluation the control processes 
that were used to clarify distinctions, the training, those 
aspects or areas that required from our perspective 
improvement. So in our recommendations we offer specific steps 
as relates to training, relates to enhancing internal controls, 
and also relating to the reward system for the COTRs.
    If I could turn to George Bremer, who actually conducted 
the evaluation, he may assist me in providing some clarity on 
the specifics, other specifics.
    Mr. Bremer. Yes, Senator. As it specifically relates to 
those closely supporting inherently governmental functions, and 
the FAR requires that when there are contractors performing 
functions that closely support inherently governmental 
functions there ought to be enhanced management controls to 
ensure the contractors aren't influencing the government in 
making policy decisions.
    We don't specify what the enhanced controls are. We just 
found that we couldn't find any examples of advanced controls 
or enhanced controls, with the exception of some people thought 
that award fee criteria might fall into that category. We 
disagreed. So we recommended that there be controls to make 
sure that government decisions weren't being swayed by 
contractors where those contractors were the experts in that 
field.
    Senator Akaka. Would you please identify yourself.
    Mr. Bremer. I was the project lead for the contractor 
evaluation. I work for Mr. Haugland.
    Senator Akaka. Your name, sir?
    Mr. Bremer. George Bremer, sir.
    Senator Akaka. I want to ask, Ms. Roberts, if you have any 
further comments on that question?
    Ms. Roberts. No, thank you.
    Senator Akaka. Mr. Haugland, your report concludes that 
ODNI has not fully performed the strategic capital planning 
areas required of all the Federal agencies. How does this 
finding affect ODNI's ability to manage its core contractors, 
and what are the most important elements that ODNI must include 
in a strategic human capital plan to correct this finding?
    Mr. Haugland. Well, Mr. Chairman, in terms of affecting the 
management of the ODNI's core contractors, the strategic 
planning basically would spell out the core functions, core 
mission areas, and core criteria. The strategic human capital 
planning would then expound on that to offer criteria related 
to the balance between the core contractors and the number of 
government staff.
    So without that, as we stated in the report, it's not 
really a road map to define what the balance should be or what 
that allocation is and therefore strategic planning for the 
number of government employees or the number of contractors may 
not be as sufficient or optimized as possible in terms of 
affecting the ability to oversee and manage the core 
contractors.
    There are a number of elements we identify within our 
report that are ongoing. There's continued work and training 
with the COTRs, there's a new contracting database and training 
efforts under way to further expand the knowledge and 
understanding. So within the ODNI there are measures that are 
being taken and we don't want to leave you with the 
understanding that there were no controls in place, there was 
no training in place, of the ODNI in management of the core 
contractors.
    However, through our evaluation, as Mr. Bremer indicated, 
because we did not find any specific written procedures, 
written internal controls, that was one of our findings.
    Senator Akaka. Thank you.
    Ms. Roberts, would you make any further comments on this 
question?
    Ms. Roberts. I don't have any comments on that question 
sir.
    [REDACTED]
    I'm going to invite Alex Manganaris to help address some of 
the experience we've had looking at the core contract inventory 
over the last 3 years. But as he comes forward to talk about 
that, I would mention once again the effort that we have in 
place within the IC right now to look at efficiencies based on 
constraints we have with tight budgets. The DNI has 
specifically been working with all of the agencies and asked us 
to look very carefully at efficiencies, and so each of the IC 
elements are encouraged to look at ways to reduce contractors.
    It's important for us to do the workforce planning and to 
ensure that everyone is following the proper procedures and 
policies that we've laid out. On a recurring basis, we bring 
together experts from across the IC elements to have 
discussions about these core contractors to ensure that 
everyone understands how to interpret the policies.
    But let me ask Mr. Manganaris to address some of the 
experience we've had with the inventory.
    Senator Akaka. Would you please identify yourself.
    Mr. Manganaris. Alex Manganaris. Good morning, Senator 
Akaka.
    [REDACTED]
    Over the years, though, the general direction has been a 
declining reliance on contractors. Ms. Roberts talked about the 
fact that the workforce planning process is ongoing and that 
there are times, there are exceptions, when an event happens, 
an emergency, where we have to increase the number of 
contractors.
    Senator Akaka. Thank you.
    [REDACTED]
    Ms. Roberts. Well, each of the Intelligence Community 
agencies look independently at their workforce and what they 
are contracting for. We ask them to look each year to see what 
changes they need to make in terms of that balance. Now, one of 
the things that's very important that I would like to clarify 
is, when it's time for us to look at potentially bringing a 
function ``in house,'' that we go through a competitive process 
in hiring government employees. So any contractor, just like 
anyone else, would have to go through the competitive process 
to become a government employee, it's not a direct conversion.
    But we do have some strategic goals for making conversions, 
and in those cases a lot of times the contractors are the most 
competitive. Each IC element is a little different. They make 
the decisions on what they can afford to bring in house and we 
work with them to understand what their plans are on an annual 
basis.
    The number that we have in the statement reflects what we 
were able to gather out of the recent meetings we've had with 
IC elements.
    Senator Akaka. Thank you.
    Ms. Roberts, you mentioned personnel ceilings have led to 
greater reliance on contractors rather than government workers 
to perform important IC functions. As you know, the House 
recently passed the Intelligence Authorization Act for Fiscal 
Year 2012, which would give ODNI relief from this personnel 
ceiling. Will you further explain how personnel ceilings have 
contributed to the IC's reliance on contractors and discuss 
whether the House passed provision would adequately address the 
problem?
    Ms. Roberts. We believe the House passed Intelligence 
Authorization Act will greatly help give us the flexibility 
that we feel we need in order to go out and hire and recruit 
key personnel. We have certainly looked at the strategic skills 
that we need and it often takes a while to go out and hire, 
bring in an employee, and give them the training and 
development they need in order to be fully functional.
    On an annual basis we do this workforce planning and we 
understand what our needs are. When we look at cases where we 
want to, for example, bring in some of the functions that were 
contracted out, in order for us to do this conversion work, we 
need the flexibility to be able to exceed the ceiling so that 
we can bring them in.
    Another example of where the ceiling sometimes will give us 
a constraint is when we have to surge to quickly to respond to 
something that is happening in the world, and we may need to go 
out and hire some additional key personnel. Sometimes if we're 
constrained with the ceilings it hinders our ability to go out 
and get the talent that we need.
    I would just see if anyone has anything else to add.
    Mr. Manganaris. Senator Akaka, I would like to mention the 
challenge that NGA had in trying to reduce its number of 
contractors. During the fiscal year 2011 budget process, NGA 
requested an increase in its civilian workforce which included 
contractor conversions, and they were denied that request 
because there's a lot of visibility on the civilian numbers and 
the contractor numbers, and the budget requests are much more 
general.
    [REDACTED]
    Senator Akaka. Ms. Roberts, do you have an estimate of what 
percent of current IC contracting is the result of personnel 
ceilings?
    Ms. Roberts. Mr. Manganaris or Ms. Flowers, do either of 
you know the percentage? I don't know myself.
    Senator Akaka. Mr. Haugland, the Inspector General's report 
finds that ODNI is not managing its acquisition personnel, in 
particular contracting officer's technical representatives, as 
an essential component of its workforce. How can ODNI elevate 
and empower acquisition personnel within ODNI?
    Mr. Haugland. Well, Mr. Chairman, thank you for the 
question. I think our recommendations go right to the heart of 
your question in terms of, one, is ensuring that the 
contracting officer technical representative roles and 
functions are included in the performance report; and two is 
that there's an incentive and reward system in place to 
facilitate the recognition of COTRs for their job, their 
important role within their--three, to make sure that there is 
enhanced training to ensure the COTRs fully understand their 
roles; and four, from a management oversight perspective we 
remain there is an inherently--that the government managers who 
oversee the COTRs understand their roles, understand their 
functions, and then provide proper oversight and recognition 
that it is indeed a core function.
    Those different elements that are within the 
recommendations of our report--and if I've missed anything I'll 
turn to Mr. Bremer--I think are key to ensuring that the COTR 
function is not only enhanced, but recognized, but then used to 
help drive overall accountability within management of the 
contractor and acquisition workforce.
    Senator Akaka. Ms. Roberts, what will ODNI do to make sure 
it has a robust acquisition workforce, including adequately 
trained and empowered employees?
    Ms. Roberts. Just recently my office worked very closely 
with the ADNI for Acquisition and we have teamed to put 
together a strategic workforce plan for the acquisition 
workforce. The strategic plan addresses the core skills that we 
feel we need, the types of training that the workforce 
requires, and the specific milestones for implementation of the 
plan.
    So we have already spent quite a bit of time working with 
acquisition on these, specifically what skills do the 
contracting representatives need to have, the procurement 
officials, the different types of people that all come together 
to manage the contract workforce.
    Ms. Flowers, do you want to add anything?
    Ms. Flowers. Sharon Flowers, DNI senior procurement 
executive.
    I would just add that right now, as the DNI actually 
evolves into a robust organization that actually has an 
acquisition function--in the past, we've actually depended on 
an agreement with the CIA to do our contracting for us. So with 
that, the highlights of the IG inspection, with the facts that 
we have become a very robust member of the community--we're 
actually looking at our processes again to figure out the best 
way and determine the most economical and effective and 
efficient way to do contracting internal to the DNI.
    We actually have very robust external oversight of the rest 
of the community, but the internal function of DNI is the part 
that we want to make more robust.
    Ms. Roberts. Perhaps I could clarify the reference I made 
just a moment ago on strategic workforce planning for the 
acquisition corps: It was a community-level document, and 
internal to the ODNI, as per the comments we heard from the IG, 
the ODNI staff itself has some work to do.
    Senator Akaka. Thank you.
    Mr. Haugland, your report raises concerns about ODNI's 
reliance on CIA to carry out much of its contracting functions. 
I understand that CIA manages the contracts for core contract 
employees, who make up a large percentage of ODNI's workforce. 
Would you elaborate on the line of concerns and corrective 
actions that should be implemented?
    [REDACTED]
    Mr. Haugland. In terms of how we're looking to strengthen 
that, that goes to our second set of recommendations, on the 
internal controls, is the overall relationship with CIA was 
done in concert with or in compliance with the Economy Act. So, 
given that, in terms of the overall benefit to the government, 
ensuring that, our recommendations asked the ODNI to put in 
specific controls and go to the performance of those contracts, 
the performance of the contracting, of the contractors 
themselves, and other internal controls related to the 
designation and delegation of responsibilities from the 
contracting officers to the COTRs.
    So there are several steps in there we're taking a look at 
within our recommendations to ensure a better understanding of 
the performance of the output, of the outcome of the 
contractors despite the outsourcing to CIA for the functions.
    Senator Akaka. Thank you.
    [REDACTED]
    Ms. Roberts. I think that the ODNI staff is maturing. It's 
only been in place for a few years, and I think at the standup 
of the ODNI it was important to go out and get the talent that 
it needed to oversee the IC, and in some cases, in many cases, 
core contractor personnel were brought in to help supplement 
the staff to do this job.
    As we're getting more experienced now with the functions 
and the work that we need to do, I would expect to see the ODNI 
migrate more towards civilian personnel to perform many its 
duties and to reduce the number of core contractors.
    Senator Akaka. Mr. Haugland and Ms. Roberts, I want to 
thank you very much for taking the time to testify today and 
thank you for your service to our country as well. As you know, 
the ODNI serves an essential role in integrating and overseeing 
the Intelligence Community. Our oversight is intended to help 
ODNI focus on finding an appropriate balance of contractors and 
Federal workers across the IC and investing in the Federal 
workforce where needed to accomplish that. I look forward to 
working with you on these issues.
    This hearing of three panels has helped us examine this 
issue so we can improve the system to be efficient and to 
continue to serve the country.
    This hearing record will be open for 2 weeks for any 
additional statements or questions from other Members of the 
Subcommittee.
    Again, I want to say thank you very much. This hearing is 
adjourned.
    [Whereupon, at 12:02 p.m., the hearing was adjourned.]




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