[Senate Hearing 112-615]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 112-615
 
         CONTRACTORS: HOW MUCH ARE THEY COSTING THE GOVERNMENT? 

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

                                HEARING

                               before the

              AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 29, 2012

                               __________

                   Available via http://www.fdsys.gov

       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          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 and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk
            Joyce Ward, Publications Clerk and GPO Detailee


              AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT

                       CLAIRE McCASKILL, Chairman
THOMAS R. CARPER, Delaware           ROB PORTMAN, Ohio
MARK L. PRYOR, Arkansas              SUSAN M. COLLINS, Maine
JON TESTER, Montana                  JOHN McCAIN, Arizona
MARK BEGICH, Alaska                  JERRY MORAN, Kansas
                     Margaret Daum, Staff Director
                Brian Callanan, Minority Staff Director
                       Kelsey Stroud, Chief Clerk



                            C O N T E N T S

                                 ------                                
Opening statement:
                                                                   Page
    Senator McCaskill............................................     1
    Senator Portman..............................................     3
    Senator Tester...............................................     5
Prepared statement:
    Senator McCaskill............................................    23

                               WITNESSES
                        Thursday, March 29, 2012

Jay D. Aronowitz, Deputy Assistant Secretary, Force Management, 
  Manpower and Resources, U.S. Army..............................     7
Debra M. Tomchek, Executive Director, Balanced Workforce Program 
  Management Office, U.S. Department of Homeland Security........     9
Charels D. Grimes, III, Chief Operating Officer, U.S. Office of 
  Personnel Management...........................................    10

                     Alphabetical List of Witnesses

Aronowitz, Jay D.:
    Testimony....................................................     7
    Prepared statement...........................................    27
Grimes, Charles D.:
    Testimony....................................................    10
    Prepared statement...........................................    48
Tomchek, Debra M.:
    Testimony....................................................     9
    Prepared statement...........................................    44

                                APPENDIX

Chart referenced by Senator McCaskill............................    51
Chart referenced by Mr. Aronowitz................................    52
Statements submitted for the Record:
    American Enterprise Institute (AEI) and Heritage Foundation..    53
    American Federation of Government Employees (AFGE)...........    60
    The Coalition for Government Procurement (CGP)...............    81
    National Treasury Employees Union (NTEU).....................    88
    Project on Government Oversight (POGO) with attachment.......    93
    Professional Services Council (PSC)..........................   158
Questions and Responses for the Record from:
    Mr. Aronowitz................................................   167
    Ms. Tomchek..................................................   176
    Mr. Grimes...................................................   183
Letter submitted by OMB..........................................   185


         CONTRACTORS: HOW MUCH ARE THEY COSTING THE GOVERNMENT?

                              ----------                              


                        THURSDAY, MARCH 29, 2012

                                   U.S. Senate,    
          Ad Hoc Subcommittee on Contracting Oversight,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:06 a.m., in 
Room SD-342, Dirksen Senate Office Building, Hon. Claire 
McCaskill, Chairwoman of the Subcommittee, presiding.
    Present: Senators McCaskill, Tester, and Portman.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. This hearing will come to order. The 
Subcommittee on Contracting Oversight (SCO) is having a hearing 
today about contractors, and the question of the hearing is, 
how much are contractors costing the government?
    As we have discussed many times in this Subcommittee, and 
also in the Armed Services Committee where I chair the 
Readiness Subcommittee, government agencies are increasingly 
reliant on contractors to perform services, and today we are 
talking about service contracts, not buying things, contracts 
to actually ask people to work at a service on behalf of the 
government.
    Contractors now perform many of the duties which most 
Americans would assume are done by government employees, from 
managing and overseeing contracts and programs to developing 
policies and writing regulations. Contractors sit side-by-side 
with Federal employees and perform many of the same tasks.
    Spending on service contractors has outpaced spending on 
Federal employees. The cost of service contracts has increased 
by 79 percent over the last 10 years from $181 billion to $324 
billion, while in the same time period, spending on Federal 
employees has only increased by 34 percent, $170 billion to 
$229 billion.
    As with any expense of taxpayer dollars, we have to ask 
whether the government is getting the most effective use out of 
these dollars. It would seem intuitive that when deciding 
whether to contract out a function, the government would figure 
out how much it will cost, and whether it would be cheaper for 
Federal employees to do it instead.
    For too many years now, the Federal Government has relied 
on assumptions and flawed studies to support those assumptions. 
Without good data about the cost of using contractors instead 
of Federal employees, the government simply does not have the 
information it needs to make smart choices.
    For those of us who track these issues closely, we have 
seen many studies over the years that compare the costs of 
Federal employees to the private sector and conclude that the 
private sector is more efficient. However, contractors are not 
quite comparable to the private sector. Contractors do work for 
the government, and some of that work does not exist in the 
private sector.
    The overhead cost for contractors may not be the same as in 
the private sector, and this includes situations where 
contractor employees work alongside Federal employees using 
government provided equipment and infrastructure. If we are 
going to honestly assess whether contractors are more or less 
expensive for the Federal Government than using Federal 
employees, then we need to look at the cost of contractors, not 
just the cost within the private sector.
    A report issued by the Project on Government Oversight 
(POGO) in September 2011 was the first study I am aware of to 
actually attempt to compare the cost of Federal employees 
versus Federal contractors. It found that in some instances, 
contractors may be paid, on average, more than 1.83 times what 
Federal employees are paid to perform the same work. I think 
this report was a worthwhile and needed effort, but as the 
authors of the report concede, it is hampered by inadequate and 
inaccurate data.
    For the government to make smart contracting decisions, it 
needs more than assumptions. If the government is going to have 
the best and most efficient mix of Federal employees and 
contractors to perform its work, it needs to be able to assess 
the true cost of both outsourcing and insourcing. This analysis 
should include overhead costs, how contractor compensation 
should be reimbursed, and when some government functions are 
inherently governmental or critically impact an agency's core 
mission.
    I am concerned that one agency charged with management in 
the Federal Government does not seem to be providing enough 
guidance on this issue. The Subcommittee did extend an 
invitation to the Office of Management and Budget (OMB) to be 
here today, but unfortunately, OMB declined to attend.
    They did not have Senate-confirmed personnel to testify 
today since Jeffrey Zients has been elevated to Acting Director 
of OMB, and the Director of OMB, as my Ranking Member is well-
aware, had a long-standing policy that they do not testify in 
front of subcommittees. And it is a long-standing policy that 
agencies only send Senate-confirmed personnel to testify at 
these hearings.
    It would seem that OMB is in the best position to provide 
governmentwide guidance on how agencies should look at cost 
and, most importantly, how agencies can gather the data to do 
that analysis. I understand that OMB is planning to issue some 
cost guidance within the next 60 days. If this is the case, I 
look forward to seeing it and hope it will take into account 
the issues we discuss today. We will be directing a number of 
questions to OMB for the record and those will be available to 
the public in connection with this hearing.
    I want to say that two of the agencies represented here 
today, the Army and the Department of Homeland Security (DHS), 
are making strides on cost and data issues. The work that the 
Army has done on contractor inventory is setting a standard for 
the rest of the Department of Defense (DOD), and the Department 
of Homeland Security's Balanced Workforce Strategy tool is a 
promising approach to making contracting decisions. I think 
both of these efforts deserve further discussion by both 
Congress and the Administration.
    Today's hearing is an opportunity to discuss these efforts 
and to consider other possible tools that the government can 
use to make smart, cost-effective contracting decisions. We 
need to develop a best practices model to help determine when 
contracting will save taxpayer dollars. We also need to start 
collecting data that will help us make those determinations. 
Assuming that contractors cost less and that the Federal 
employees cost more does not help this discussion because, 
frankly, we do not have any idea whether that assumption is 
true or false. Assumptions are especially costly in our current 
budget climate and could undermine efforts to save taxpayer 
dollars.
    I thank the witnesses for being here today and look forward 
to their testimony. I would just add as a note to my opening 
remarks that as we have spent a lot of time in Congress talking 
about freezing the number of Federal employees and freezing the 
pay of Federal employees, there has not been enough talk about 
freezing the size of the contracting force and freezing the pay 
of contractors.
    And, frankly, if people understand that we are spending 
more money on service-related contractors in many agencies than 
we are spending on Federal employees, that is why I have been 
frustrated with these efforts, because it is like saying, you 
have a problem, but we are going to shut one eye and only look 
at part of it.
    This is an attempt today, this hearing, to make sure that 
the efforts to freeze the size of Federal employees does not go 
on without us taking a hard look at this contracting workforce, 
its efficiencies, and whether or not the taxpayers are getting 
a bang for their buck in this regard. I will now turn to my 
colleague, Senator Portman, for his opening remarks.

              OPENING STATEMENT BY SENATOR PORTMAN

    Senator Portman. I thank you, Madam Chairman, and it is 
good to have the witnesses here with some expertise from some 
agencies and departments that actually are making some progress 
in this area. It is also good to have your grandsons watching 
over us here. After all, they are the ones who are going to 
have to solve these problems in the future, so it is good they 
are hearing it now.
    And it is an important hearing. It is about an important 
challenge I think the Chair has laid out well. And, frankly, I 
think we need a lot of work right now on how to be sure that we 
do have the ability to evaluate the cost effectiveness of using 
private contractors. I appreciate, again, the fact we are going 
to have some folks here who can give us some examples of how 
that can be done better than it is being done governmentwide.
    We spend about $320 billion a year now on service contracts 
and about $200 billion to compensate Federal employees. Both of 
those are major expenditures and both have to be looked at in 
this ongoing effort to strike the right balance between the 
Federal workforce and government contractors.
    Evaluating the cost effectiveness of insourcing versus 
contracting sounds like a very technical discussion and it is, 
as we will hear from these witnesses, but is an extremely 
important process to go through because it has huge 
consequences, multi-billion dollar consequences. So simply put, 
I think what we are examining here today is how agencies should 
evaluate which option, public option or the privately 
contracted option, makes the most sense for taxpayers. Where 
can we get the best value for the dollar?
    Those who have followed this insourcing versus out-sourcing 
debate know that sometimes this issue has been politicized. In 
fact, during this political campaign, we will probably hear 
more about it. We have to be careful that it does not become 
political because at a time of $15 trillion debts and trillion 
dollar deficits, Federal agencies are going to be under a lot 
of pressure, as we are all spending, and we need to be sure 
that we are adhering to a neutral and an analytically sound 
cost comparison methodology.
    The decision to insource or contract out any government 
activity, existing, new, or expanded, should be data-driven. 
And, frankly, I think we do not have the methods and data 
available right now to do that. We need to be sure that we do 
not end up producing cost savings projections that need to be 
reworked.
    This all starts with a fundamental threshold question. 
Chair McCaskill just talked about it. It is the question, is 
this job suitable for contractors to perform or is it 
inherently a governmental or a critical function that should 
remain in-house? OMB and individual agencies have provided 
guidance on that question over the years, including the current 
Administration's 2009 OMB Memorandum entitled, Managing the 
Multi-Sector Workforce.
    Once it is determined whether it is public or private, the 
decision where to place the work, again, should be primarily 
cost-driven, in my view. We get a better value as taxpayers 
when commercial activities are paid for by the Federal 
Government are the subject of competition. This is an 
interesting point because just by having competition, we are 
going to see savings.
    As the Center for Strategic and International Studies 
reported last year, research demonstrates that 65 percent of 
savings achieved from public-private competition is derived 
from the competition itself, not any intrinsic advantage of 
public versus private. So competition does work and that should 
be part of the analysis.
    In-sourcing or contracting decisions based on costs depend 
on the ability, of course, to accurately project these 
comparative costs, and guesswork does not work, it will not 
suffice, and that is one of the overriding concerns for me, is 
that there is an apparent lack of uniform guidance on cost 
comparison methodologies. I will be interested to hear from our 
witnesses on that and see what they think.
    But from 1996 to 2009, of course, you had the OMB guidance 
document, Circular A-76, which every OMB employee is very 
familiar with, and that basically governed contracting out of 
commercial activities in various forms. Congress told agencies 
to stop conducting Circular A-76 competitions, and that is a 
mistake. I think whatever its strengths and weaknesses, A-76 
provided detailed guidance that is needed on cost comparison.
    Since A-76 was suspended, it appears that agencies have 
been left largely on their own with little oversight or 
guidance. The current Administration has stated that agencies 
faced with sourcing decisions should still, quote, perform a 
cost analysis that addresses the full cost of government and 
private sector performance. That is fine, but again, OMB has 
provided little if no guidance on how to perform that analysis.
    The Government Accountability Office (GAO) recently found 
that OMB's new policies have created, and I quote, confusion as 
to when a cost analysis is needed and the appropriate 
procedures to conduct one. As Chair McCaskill said, we need to 
hear from OMB on this. When I was OMB Director, I thought that 
Subcommittee rule made a lot of sense. I am now wondering. But 
seriously, we do need to hear directly from OMB, although we 
appreciate the agency input today and their view of it.
    But this lack of guidance is problematic for a lot of 
agencies because the apples-to-apples comparisons between 
contract work and in-house functions are often very complex, 
and the guidance is needed and needs to be uniform.
    On the government side, the analysis is particularly 
difficult and requires a fine grained analysis. An agency has 
to evaluate the fully burdened cost of using or adding Federal 
employees, overhead costs, equipment use, other expenses. 
Multiple reports have indicated we are not getting that right. 
The contractor side is generally easier to price out with the 
exception of cost-plus contracts, which are difficult.
    An important dimension of this problem that agencies appear 
to be overlooking is that insourcing can reduce flexibility, 
and as a result, increase long-term costs. And this is, again, 
something that ought to be considered. The point is, it is 
difficult to eliminate or downsize an agency program.
    GAO, the Center for Strategic International Studies, and 
others have looked at this problem and have noted that 
terminating a contract is far easier than adjusting the size of 
the Federal workforce. Again, agencies have no guidance on how 
to evaluate that cost of lost flexibility. Whoever is doing the 
government work, Job 1, of course, is ensuring that American 
taxpayers get the best possible value and that is what this 
hearing is all about.
    Informed sourcing decisions are key to achieving that goal. 
And again, with that, Madam Chairman, appreciate you holding 
this hearing. I look forward to hearing from our witnesses on 
this complex but important issue.
    Senator McCaskill. Thank you, Senator Portman. Would you 
like a minute, Senator Tester.
    Senator Tester. Yes, I would.

              OPENING STATEMENT BY SENATOR TESTER

    Senator Tester. Thank you, Madam Chairman. Thank you, 
Ranking Member Portman, and thank you to the witnesses who are 
here today. I look forward to your testimony. I think we can 
all say there is probably a lot of contractors out there that 
are doing a job and doing it well. I think we can also 
acknowledge that I think there are a number of contractors who 
are out there that are overeating at the taxpayer trough.
    I think that I appreciate this hearing, it has been one of 
many that Chairman McCaskill has done, because there are 
certain things that, since I have been in the U.S. Senate, have 
been brought to my attention that is somewhat disturbing. The 
concept of no-bid contracts is an amazing concept to me.
    The concepts of the Federal Government using somebody else 
as basically their contractor to contract is something that is 
pretty amazing to me. And with the wars in Iraq and Afghanistan 
and the number of contractors we are utilizing in those, and I 
have been over there. I have been protected by some of those 
contractors and I will tell you that they did a good job 
because I made it back here in one piece.
    But the amount of money that we are paying for those 
contractors versus what we are paying our active military and 
if we are actually getting, as Senator Portman said, the 
taxpayers' best value really brings a lot of what is going on 
here into question.
    I do not want to take a lot more time, but I just want to 
state that I do not know if there was a move some time ago to 
say we are going to downsize government and we are going to 
replace those with contractors so we can try to dupe the 
American taxpayer, or if there was a real effort that somebody 
thought this was really going to save money.
    But I can tell you that when we talk about $60 billion 
being gone up in air--and $60 billion is a lot of change, I 
mean, that is a lot of Montana budgets for a lot of years--we 
are doing something wrong and it is unacceptable. I look 
forward to your statements. I look forward to hearing what you 
have seen.
    In the meantime, in my notes here for my opening statement, 
it says, Tell them you are confident that the Federal 
Government can bring accountability to the process. I cannot 
say that. I have not seen that. And when we are talking about 
deficits--by the way, this is inappropriate at any time, but 
especially when we are talking about deficits like we have 
now--we have to get our arms around this situation. I want to 
thank the Chairman once again.
    Senator McCaskill. Thank you, Senator Tester. Let me 
introduce our witnesses. Jay Aronowitz--am I saying it 
correctly?
    Mr. Aronowitz. Yes, ma'am.
    Senator McCaskill [continuing]. Is Deputy Assistant 
Secretary of Force Management, Manpower and Resources for the 
U.S. Army. In this position, he advises the Army's Assistant 
Secretary of Manpower and Reserve Affairs on all matters 
pertaining to total force structure and associated military, 
civilian, and contractor manpower in the active and reserve 
components, program objective memorandum resources for programs 
under Manpower and Reserve Affairs oversight, and all manpower 
and personnel issues associated with force structure 
requirements of new weapons systems. Mr. Aronowitz also 
provides direct oversight for the U.S.A. Manpower Analysis 
Agency.
    Debra Tomchek is the Executive Director of the Balanced 
Workforce Program Management Office in the Office of Chief 
Human Capital Officer at the Department of Homeland Security. 
Ms. Tomchek began her government career as a civilian Army 
intern. Since then, she has held several executive positions 
including Director for Human Resources at the Department of 
Commerce and the Department of Justice (DOJ), Deputy Director 
for Program Support at the Department of Defense, and as 
Associate Director for Workforce Solutions at the United States 
Mint.
    Chuck Grimes is the Chief Operating Officer at the Office 
of Personnel Management (OPM), where he is responsible for 
managing OPM's human, financial, and other resources. He is 
also responsible for improving the agency's performance and 
achieving the agency's goals through strategic planning, 
measurement, analysis, and progress assessment. Prior to 
joining OPM, Mr. Grimes served as the Assistant Director of 
Compensation Policy in the Strategic Human Resources Division 
at the Internal Revenue Service (IRS) and as Director of the 
Wage and Salary Division for the Department of Defense's 
Civilian Personnel Management Service.
    Thank you all for being here. It is the custom of this 
Subcommittee to swear all witnesses, so if you do not mind, I 
would ask you to stand.
    Do you swear that the testimony that you will give before 
this Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Aronowitz. I do.
    Ms. Tomchek. I do.
    Mr. Grimes. I do.
    Senator McCaskill. Thank you all very much. We will begin 
your testimony, Mr. Aronowitz.

 TESTIMONY OF JAY D. ARONOWITZ,\1\ DEPUTY ASSISTANT SECRETARY, 
      FORCE MANAGEMENT, MANPOWER AND RESOURCES, U.S. ARMY

    Mr. Aronowitz. Chairman McCaskill, Ranking Member Portman, 
distinguished Members of this Subcommittee, thank you for the 
opportunity to appear before you today. I am honored to have 
the opportunity to discuss the Army's contractor inventory and 
how we use this information for the strategic human capital 
planning for our total force, military, civilian, and 
contractors.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Aronowitz appears in the appendix 
on page 27.
---------------------------------------------------------------------------
    To serve as effective stewards of public funds, the Army 
must ensure that we are managing our workforce in the most 
effective and cost-efficient manner possible. To that end, we 
developed our Contractor Manpower Reporting Application tool 
(CMRA), in January 2005 to increase the visibility of the 
Army's contract workforce, both in terms of labor, hours, and 
costs.
    As part of the development process and in order to gain 
approval under the Paperwork Reduction Act (PRA), we met with 
over 50 corporations and worked with them in designing a system 
that would minimize the reporting burden on them and the cost 
to the government.
    The reporting process is so streamlined that most 
contractors do not even separately bill the government for 
reporting this data. Today we have over 20,000 contractors 
entering data into CMRA. CMRA was developed at a cost of 
approximately $1 million using commercial off-the-shelf 
software and it is government owned.
    A staff of five individuals manage the program for the 
entire Army, providing help desk capability, interpreting 
policies, running reports, and coordinating actions across our 
acquisition, manpower, and financial management staffs. The 
Army uses CMRA to collect the direct labor hours and labor 
dollars associated with each service contract, as well as the 
function, location of performance, requiring activity, funding 
source, and type of contract vehicle.
    In fiscal year (FY) 2001, we began collecting data on other 
direct non-labor costs which includes supply cost and travel 
expenses, as well as a variety of other expenses charged 
directly to the government. By collecting this data, the Army 
can now see direct labor and direct non-labor costs, and thus, 
infer overhead costs, though we have just begun to analyze 
these overhead costs.
    The inventory compiled in the CMRA today is primarily used 
to fulfill the statutory requirement to identify inherently 
governmental functions and closely associated with inherently 
governmental functions, authorized personal service contracts, 
and functions appropriate for contract performance.
    Beginning in fiscal year 2011, the Department of Defense 
was required to submit a budget exhibit of service contract 
manpower and costs. The Department of Defense Comptroller 
recently issued guidance that the services inventory of 
contract services would be used to inform the budget process, 
and we have started to work with the Army Comptroller to ensure 
Congress will have the most accurate data on contract services 
in the future, and that our program and budget for fiscal year 
2014 for contract services is built on data from CMRA.
    CMRA, our inventory of contract services, has helped us to 
improve management of our total force by identifying 
inappropriately contracted functions and by collecting cost 
information to help us make informed decisions on the most 
appropriate workforce mix.
    In addition to service contract data, CMRA allows us the 
ability to ensure adequate oversight of service contacts by our 
organic workforce, a statutory requirement, and ensure there 
are no redundancies between the contracted functions and the 
organic government workforce.
    In December 2011, in response to the House Armed Services 
Committee concerns over lack of visibility as to what DOD 
spends on contract services, Secretary of Defense responded 
that he was, quote, committed to enable the efforts of the rest 
of the Department of Defense to quickly implement the Army's 
Contract and Manpower Reporting Application tool this fiscal 
year, while also leveraging Army processes, lessons learned, 
and best practices to comply with the law in the most cost-
efficient and effective manner.
    In closing, we believe that the Army's contractor inventory 
process has potential benefits, not only for the rest of the 
Department of Defense, but also for governmentwide application. 
Chairman McCaskill and Members of the Subcommittee, thank you 
for your support and I look forward to your questions.
    Senator McCaskill. Thank you very much, Mr. Aronowitz. Ms. 
Tomchek.

TESTIMONY OF DEBRA M. TOMCHEK,\1\ EXECUTIVE DIRECTOR, BALANCED 
    WORKFORCE PROGRAM MANAGEMENT OFFICE, U.S. DEPARTMENT OF 
                       HOMELAND SECURITY

    Ms. Tomchek. Chairman McCaskill, Ranking Member Portman, 
and distinguished Members of the Subcommittee. I appreciate the 
opportunity to speak to you today about the Department of 
Homeland Security's efforts to balance our Federal and 
contractor workforce.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Tomchek appears in the appendix 
on page 44.
---------------------------------------------------------------------------
    During the Department's stand-up in 2003, contractors 
played a significant role as leadership worked quickly to 
obtain the capabilities necessary to accomplish our mission. By 
2007, concerns surfaced about possible over-reliance on 
contractors at DHS. At the request of Congress, the Government 
Accountability Office recommended that DHS take action to 
improve its ability to manage risk and to ensure governmental 
control and accountability.
    To comply with GAO's recommendations, statutory 
requirements, guidance from the President and the Office of 
Management and Budget Policy, DHS established our balanced 
workforce strategy in mid-2010. The strategy has three aims.
    First, to ensure compliance with applicable statutes, 
regulations, and policies through a repeatable, documented, 
decisionmaking process. Second, to determine the proper balance 
of Federal and contractor employees for programs and functions. 
And third, reduce mission risk and, as practicable, reduce or 
control cost.
    The Balanced Workforce Program Management Office was 
established within the Office of the Chief Human Capital 
Officer with an understanding that rebalancing the workforce 
would have to rely on sound workforce planning. Given the 
complexity of decisions related to properly sourcing programs 
and functions, we simultaneously created a departmental working 
group with senior representatives from the Office of the Chief 
Financial Officer, the Office of the Chief Procurement Officer, 
and the Office of the General Counsel.
    The departmental working group uses its multidisciplinary 
expertise to oversee the execution of the balanced workforce 
strategy by components. We also created the Balanced Workforce 
Executive Steering Group comprised of representatives from 
components to provide input and direction concerning the 
strategy.
    In 2010, DHS components began reviewing current service 
contracts using the three-step balanced workforce strategy 
process. The first step, identify the work, involves looking at 
a service contract's statement of work (SOW) to isolate and 
accurately describe each discrete function that should be 
analyzed.
    The second step, analyze the work, relies on an electronic 
questionnaire entitled, The Balanced Workforce Strategy Tool. 
The tool leads components through a series of questions about a 
function to ensure compliance with law, regulations, and 
relevant policy.
    The tool also includes a method for assessing sufficient 
internal or Federal capability and uses questions such as, What 
is the relationship of a function to the Department's core 
mission? What is the risk to a function if all contractors were 
to leave suddenly? And what is the likelihood that a function 
might evolve into one that is inherently governmental?
    The Balanced Workforce Strategy Tool produces a suggested 
ratio of Federal to contractor employees for components to use 
in considering mission control and the sourcing of a function. 
If concerns about mission control are identified, components 
may seek to rebalance the workforce for a function. However, 
components may alternatively provide a risk mitigation strategy 
such as enhancing contract oversight or increasing reporting 
requirements.
    If a component's responses to the questionnaire indicate 
that a function can be performed by either the public or 
private sector, the component must then consider the cost to 
DHS. The DHS Balanced Workforce Strategy guidance mandates that 
components perform cost comparison analysis to determine the 
most efficient sourcing solution.
    First, components calculate the cost of Federal workers 
using the OMB-approved, DHS Modular Cost Model. This model 
incorporates a variety of factors to describe the fully loaded 
cost for Federal employee to DHS. On the contract side, the 
cost of the current contract is used, including the cost of 
contract oversight. If a new requirement is being reviewed, an 
independent government cost estimate serves as the basis for 
comparison.
    The third step in the Balanced Workforce Strategy process 
is to implement the sourcing decision. If the workforce for a 
function requires rebalancing, numerous stakeholders must 
collaborate to make the change. The Department's workforce is 
responsible for executing our complex and important Homeland 
Security mission to protect the American public and the 
American homeland.
    To meet our mission objectives, we need the expertise of 
both Federal workers and contractor employees. The Balanced 
Workforce Strategy contributes to DHS mission readiness through 
its focus on mission control, accountability, and oversight for 
business decisions and cost containment.
    I look forward to answering any questions you might have.
    Senator McCaskill. Thank you so much, Ms. Tomchek. Mr. 
Grimes.

TESTIMONY OF CHARLES D. GRIMES III,\1\ CHIEF OPERATING OFFICER, 
              U.S. OFFICE OF PERSONNEL MANAGEMENT

    Mr. Grimes. Madam Chairman, Ranking Member Portman, and 
Members of the Subcommittee, thank you for the opportunity to 
testify before you today on contracting and the multi-sector 
workforce. The U.S. Office of Personnel Management is the 
central human resources agency for the Federal Government, 
providing leadership and guidance to Federal agencies on 
governmentwide policies for strategic management of the Federal 
workforce.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Grimes appears in the appendix on 
page 48.
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    The American people expect and deserve a high-performing 
government that can efficiently and effectively carry out its 
missions, such as defending our homeland, providing care to our 
veterans, and ensuring the safety of our air and water. 
Performing this highly challenging and complex work depends on 
an engaged and well-prepared workforce with the right mix of 
knowledge, skills, and abilities.
    One of OPM's roles is to set standards for effective 
management of human capital and to assist agencies in meeting 
those standards. OPM evaluates agency performance in meeting 
those standards through an annual reporting, evaluation, and 
feedback process. One of these standards is strategic 
management alignment, that is, having a human capital strategy 
aligned with mission goals and organizational objectives.
    Effective workforce planning is critical to meeting the 
strategic alignment standard. Workforce planning is the 
systematic process to identify and document mission-critical 
occupations and associated current or anticipated competency 
gaps, then to address those gaps using strategies and 
techniques such as restructuring, recruitment, redeployment, 
retraining, retention, or technology solutions.
    OPM, however, does not get involved in specific agency 
workforce planning decisions, nor does it get involved in 
agency-specific decisions such as whether or not to 
competitively source or contract particular functions. OPM does 
analyze non-Federal and Federal pay for the purposes of 
comparisons required for setting Federal employee pay under the 
General Schedule pay system, but it does not determine whether 
Federal employees or private contractors are more cost-
effective in the performance of government operations.
    Agencies have that responsibility in their specific areas 
of operation. For instance, as agencies consider the 
appropriate size and composition of the workforce necessary to 
carry out their missions, the determination on whether to use 
private sector contractors is best informed by application of 
sound planning principles, such as the level of specialization 
needed for a specific task, the duration of need for that 
specialization, and cost comparisons. Other considerations 
include the availability of expertise, the time needed to train 
new employees thoroughly, the urgency of the need, the 
resultant opportunity costs, and the need for institutional 
memory.
    It is worth emphasizing that a simple comparison of labor 
costs alone is not likely to answer the question of which 
sector would be more cost-effective and efficient in performing 
a given task in a specific circumstance. For example, a cost 
comparison to consider in-house performance as an alternative 
to continued contract performance might be beneficial if 
requirements tend to be managed best through an employer-
employee relationship, the agency has experience in performing 
the work in-house, the ability to recruit for the skill is 
high, and the government has historically had challenges with 
contractor performance.
    By contrast, the benefit of a cost comparison may be lower 
if the agency is looking to meet a short-term surge that would 
be costly to address through long-term hiring, the agency 
currently lacks an in-house capability to do the work, and the 
agency has had considerable success in getting good performance 
at a reasonable cost from its contractors.
    All of these factors have a role in determining when a cost 
comparison is likely to be most effective in achieving best 
value for the taxpayer. OPM provides guidance and training to 
assist agencies in identifying workforce requirements and 
conducting training sessions on multi-sector workforce 
planning. OPM has focused on the way our human capital 
management standards apply to multi-sector planning.
    OPM has not delivered training on how agencies should 
appropriately compare the cost of a contracted versus employed 
workforce. Agencies may refer to OMB publications such as 
Memorandum M-09-26, which requires agencies to begin the 
process of developing and implementing policies, practices, and 
tools for managing the multi-sector workforce for guidance in 
making such comparisons.
    Additionally, on September 12, 2011, OMB's Office of 
Federal Procurement Policy published a policy letter, 
Performance of Inherently Governmental and Critical Functions, 
in order to provide guidance to agencies on governmental and 
critical function management.
    OPM is also co-chairing an interagency working group with 
the Department of Defense to implement the Administration's 
Cross-Agency Priority Goal to close skill gaps to more 
effectively achieve agency missions, an important workforce 
planning effort that will require agencies to look at 
recruitment, training, and business processes, as well as the 
use of technology and contractor support.
    OPM's support and coordination of effective management 
practice sharing among agencies will be essential to achieving 
this goal. Thank you again for this opportunity to testify 
before you and I look forward to any questions you may have.
    Senator McCaskill. Thank you very much, Mr. Grimes. I would 
like to start by looking at the chart,\1\ Mr. Aronowitz, the 
total force mix, military, civilian, and contractor, and I wish 
we had it large, but we do not. But you can see, looking at 
this chart, that the civilian personnel has stayed very stable 
and really has not changed; military personnel, while we have 
had a slow growth, but really the real growth has been in this 
contractor category.
---------------------------------------------------------------------------
    \1\ The chart referenced by Senator McCaskill appears in the 
appendix on page 51.
---------------------------------------------------------------------------
    Senator McCaskill. The Department has called these 
contracts increasingly unaffordable and says savings are here. 
And I fundamentally believe that, as somebody who has had 
really a 50-yard line seat on contracting for 5 years in the 
Department of Defense. Anybody, including my friends I work 
with to bring down the cost of Federal Government, anybody who 
believes we cannot find savings in the Department of Defense 
around contracting does not know the issue.
    And so, everyone who says we cannot cut one dime from the 
Department of Defense and that, in fact, we need to continue to 
grow that budget is really not taking the time to understand 
how contracting has gone wild. And I do think the Army is 
working very hard to get a handle on this, but I find it 
astonishing that agencies do not consider whether it is cheaper 
to use contractors or Federal employees before deciding whether 
to award a contract.
    Ms. Tomchek, if DHS developed a similar graph, do you think 
the results would be the same?
    Ms. Tomchek. Well, first, our active duty military is 
pretty small because it is in the----
    Senator McCaskill. I mean the comparison between civilian 
and contractors.
    Ms. Tomchek. I do not have specific information, but I tend 
to doubt that it would be as stark as this.
    Senator McCaskill. Well, I would bet that if--it may be 
coming down now, but when I got here, I will never forget 
speaking to Secretary Chertoff in one of the very first 
hearings I had in the Committee, and when I asked the question, 
How many contractors work at the Department of Homeland 
Security, it was like I was speaking a different language. No 
one had any idea.
    And I think people are envisioning contractors differently 
out there than what we know they are. If I go to the Department 
of Homeland Security, as you well know, and I go down carrels, 
everybody is doing the same function, everyone having the same 
job, it is likely to be employee, contractor, contractor, 
employee, contractor, contractor, contractor, employee, 
employee, contractor. Is that not accurate?
    Ms. Tomchek. I do believe that when GAO did its report in 
2007, that was probably very likely accurate. Since that time, 
we have been working diligently to address issues of mission 
risk that were raised by GAO, along those same lines, as to why 
we had so many contractors in place to accomplish the mission 
of the Department.
    The primary purpose of the Balanced Workforce Strategy is 
first to comply with the law. But second, it is to ensure that 
we have control of our mission. And I believe that GAO pointed 
out that given that situation, as you described it, which I 
believe was definitely the case in 2007, that we have tried 
very hard to make progress to reduce that as a result of the 
Balanced Workforce Strategy.
    Senator McCaskill. Let me also ask DHS, you have identified 
3,500 contractor positions for insourcing and at least 2,600 
Federal positions were filled as of the end of 2011. How much 
as the Department saved by converting contractors to government 
positions?
    Ms. Tomchek. That effort was the very first effort that we 
had underway. It was done prior to the Balanced Workforce 
Strategy. We did a data call last year and we are getting ready 
to implement our second data call to determine what savings 
there might have been. But information from our components as 
of the data call last year was approximately $28 million.
    Senator McCaskill. So by converting contractor positions to 
Federal employees, you saved $28 million?
    Ms. Tomchek. That is what our components reported to us, 
yes, ma'am.
    Senator McCaskill. What methodology, including assumptions, 
have you all used to come up with those numbers? How are you 
doing that?
    Ms. Tomchek. When we sent the data call last year, we asked 
the components to use the same costing methodology that I 
previously described, which is, what was the total cost of the 
contract, and then what is the total cost of the Federal 
workers that have been hired, using the OMB-approved DHS 
modular cost model. It is our understanding that this was 
applied in that fashion and those were the savings that were 
documented.
    Senator McCaskill. Mr. Aronowitz, in the past several 
years, both the Administration and the Secretary of Defense 
have announced initiatives to reduce on the amount spent on 
contractors. Do you know to what extent the Army has reduced 
the total amount spent on contracts over the last 2 years?
    Mr. Aronowitz. Yes, ma'am. I can give you a figure and then 
I can tell you some of the challenges that we have and how I 
think that we can address those going forward. For base budget 
contracts in fiscal year 2009, we spent $32 billion, in fiscal 
year 2010 $36 billion, and in fiscal year 2011 $40 billion. If 
you want, I can also give you the figure for the civilian pay. 
For civilians in fiscal year 2010, it was $20 billion as 
compared to the $32 billion spent on service contracts.
    In fiscal year 2010, it was $22 billion for civilian pay--
and when I say pay, it is really the fully burdened pay of 
civilians--$22 billion in relation to $36 billion spent on 
service contracts. And in fiscal year 2011, $24 billion on 
civilian pay and $40 billion on service contracts.
    The real challenge that we have, ma'am, in terms of 
managing service contracts is that we do not have it very well 
integrated into our program and budget. They tend to be 
executed in the year of execution of the budget, and so it is 
kind of a rear-looking event in terms of how much have we 
executed last year.
    In my written testimony, there is a chart\1\ that shows 
service contract dollars going down significantly in the period 
of fiscal year to 2008 to 2009, and then starting to go back 
up. And interestingly enough, that period of 2008 to 2009 was 
when we first implemented our inventory of contract services 
where we had--requiring activities having to fill out a 
checklist that tracked back to statute in law to ensure that 
they were not going to implement a service contract involving 
inherently government work or an unauthorized personal service 
contract, and whether or not if it was closely associated, that 
one, that there was enough organic government capability to 
oversee the execution and performance of that contract, and 
enough contracting officers representatives (CORs), and that 
the workforce was adequately trained and capable to oversee the 
performance of the contractors.
---------------------------------------------------------------------------
    \1\ The chart referenced by Mr. Aronowitz appears in the appendix 
on page 52.
---------------------------------------------------------------------------
    That was a period when this was totally voluntary. The 
Secretary of the Army sent out a memo and said that the first 
general officer, or the Senior Executive Service (SES), in the 
chain of command would have to certify the checklist so that, 
again, we were not having contractors to perform inherently 
governmental functions.
    And during that period, we saw service contract dollars go 
down significantly. It went from $51 billion in 2008 down to 
$32 billion in 2009. It was the first time that the Department 
seriously looked----
    Senator McCaskill. That is $20 billion. That is some 
significant change.
    Mr. Aronowitz. Yes, ma'am.
    Senator McCaskill. So what happened? Why did it start going 
back up again?
    Mr. Aronowitz. Well, the challenges were, again, we do not 
program and budget for the service contracts. They are not 
integrated into our budget and there are year of execution 
issues that we see. And so, the Army's intent going forward is 
to ensure that we integrate these service contracts in our 
program and budget.
    The Army acquisition executive, following DOD guidance, has 
set up a governance structure and a portfolio of management 
structure for service contracts, six portfolios. We have mapped 
our inventory of contract services to these portfolios. And we 
are trying to integrate both our inventory and the portfolios 
into the budget process. And I think if we can achieve that, 
then we will have much better control over the budgets for 
service contracts.
    Senator McCaskill. Thank you very much. Senator Portman.
    Senator Portman. Thank you, Madam Chairman. If I may 
followup a little with DOD because it is an interesting story. 
In 2009, you guys started an insourcing initiative and the 
goal, as I understand it, was to replace 30,000 contractors 
with DOD civilians between 2010 and 2015. And DOD planned at 
the time to achieve budgetary savings equal to 40 percent of 
the cost of the contracts replaced.
    More recent DOD statements have claimed the savings could 
be not 40 percent, but 25 percent. In 2010, August, before he 
left, Secretary Gates said in a speech that Defense agencies, 
quote, were not seeing the savings we had hoped for from 
insourcing, and DOD shifted the policy to try to eliminate 
unnecessary jobs rather than trying to simply trade contract 
workers for Federal employees.
    It is my understanding that the Army suspended insourcing 
altogether in late 2010. What happened? What are the lessons 
that you learned from your insourcing initiative?
    Mr. Aronowitz. Sir, if I can go back to again the period of 
2008 to 2009 when we saw the initial drop, it was a voluntary 
insourcing program that had no undue outside controls or 
influence pressurizing another component of our total force. As 
you mentioned, Secretary Gates directed to the Army a savings 
of $400 million with the assumption that we could save 40 
percent if we insourced.
    That money was taken off of the Army's top line and so we 
were driven to insource approximately 9,000 to 10,000 
contractor man-year equivalence without really having done the 
due diligence, workload analysis up-front. And so, you have----
    Senator Portman. Projections really were not based on a 
thorough analysis. The projections were more of a budget 
decision and then you tried to achieve those budget savings.
    Mr. Aronowitz. Yes, sir, absolutely. In this case, we had 
the budget trying to drive workforce mix decisions. Our 
experience at the Army is that 40 percent was a very aggressive 
goal to meet. We had two instances over different periods of 
time where we achieved anywhere from about 16 to 30 percent 
savings. And really, the percentage savings are really 
dependent upon the function that is being insourced and the 
location of where that is occurring.
    Senator Portman. Well, let me just say, as a general matter 
as we are going through the current downsizing because of the 
cuts and the Budget Control Act and now the potential 
sequestration at the end of the year, I have some of the same 
concerns that you are, establishing budget numbers without 
backing them up with good analysis. And certainly that goes to 
what we talked about today in general, which is that we do not 
have the kind of data-driven analysis that we need to be able 
to make these decisions wisely.
    I talked earlier about this Circular A-76, which is the 
long-standing circular people relied on for years through 
Administrations, Republican and Democrat alike. That is now 
being used since 2009, really because of Congress. And I just--
I am very concerned that we do not have the kinds of careful 
analysis being done because the guidance is not there.
    The Administration has maintained that for jobs that can be 
done by contractors, agencies should, and I quote, evaluate the 
full cost and perform like comparisons. The trouble is that 
unlike A-76 it does not say how you do that. And there is not 
much guidance on how to implement this revised approach.
    GAO has found this new policy has created confusion and 
noted that OMB's criteria do not specify the procedures for 
conducting a cost analysis or define what constitutes the full 
cost of performance. So I guess to all of you, and, Mr. Grimes, 
you talked a little about this, with OMB issuing guidance 
governing everything from the quality of science that has to be 
used by your agencies to the cost/benefit analysis of 
regulations, do you believe that OMB should step in here and 
take a more central role in creating a uniform and a consistent 
credible cost comparison methodology for making these 
insourcing and outsourcing decisions?
    Mr. Grimes. I think OMB would be the central management 
agency that would be best positioned to do that. I would just 
like to point out that there are a number of difficulties with 
cost comparisons that would have to be sort of addressed and 
taken into account.
    As you know, we compare Federal salaries against private 
sector salaries in setting pay for General Schedule employees, 
and we find one thing with the way that we do it and others 
find different answers when they study that issue using other 
assumptions. So to the extent that those assumptions could be 
laid out and followed and considered appropriately, then I do 
agree OMB is the right place to go.
    Senator Portman. And you think there is a need for it, to 
have a uniform standard that is established to provide 
additional guidance?
    Mr. Grimes. I think if you have a need--if you are going to 
make these comparisons across agencies, then uniform standards 
would be helpful.
    Senator Portman. Do you agree, Ms. Tomchek?
    Ms. Tomchek. Yes, sir. The Department of Homeland Security 
would definitely welcome additional guidance on this issue. We 
try very hard to ensure that all of our work adheres to the 
guidance issued by the Congress and by OMB, and this would be 
extremely helpful for us.
    Senator Portman. Mr. Aronowitz.
    Mr. Aronowitz. Sir, in DOD, there is a directive-type 
memorandum (DTM), which is entitled, Estimating the Cost of 
Military and Civilian Manpower and Service Contracts. So within 
DOD, we basically have a cost/benefit analysis tool to ensure 
we have the fully burdened cost of our workforce.
    I would say that before I signed up to a one-size-fits-all 
for the government, that there are some nuances to DOD that 
would have to be considered going forward.
    Senator Portman. Thank you, Madam Chairman.
    Senator McCaskill. Thank you, Senator Portman. Senator 
Tester.
    Senator Tester. Thank you, Madam Chairman. I think we will 
approach this from two different ways, looking backward and 
looking forward. First of all, I do want to say thank you all 
for being here. I appreciate your testimony. I appreciate what 
I have heard today.
    Mr. Aronowitz, you said that in 2009 there was a 40 percent 
savings when it went from contractors to civilians. And you 
also had said there was some elimination of unnecessary jobs--I 
do not want to paraphrase, if that is not what you said, tell 
me--that helped contribute to that 40 percent.
    And I guess it brings up an interesting point to me in that 
when the military, I think, has more control, I think it would 
be fair to say and you can correct me if I am wrong, that they 
have more control with the civilian workforce than they do the 
contractors. Would you agree with that?
    Mr. Aronowitz. Yes, sir.
    Senator Tester. I think it gives them an opportunity to get 
rid of some of the driftwood that was in the staff. As you guys 
make your assessments and your evaluations and make your 
transfers, the ones that are appropriate, what kind of--I mean, 
are you seeing some potential savings from folks who really 
have no function, but just kind of were along for the ride for 
whatever reason?
    Mr. Aronowitz. Sir, I would not subscribe to that writ 
large. First of all, when the Army again did the insourcing in 
2008 and 2009, we achieved about a 30 percent cost savings. 
When DOD directed and took $400 million out of our budget, 
their assumption was that there would be a 40 percent savings, 
and this was in about the fiscal year timeframe.
    Senator Tester. Thirty percent is not chump change. I mean, 
that is pretty incredible.
    Mr. Aronowitz. I would agree, sir.
    Senator Tester. And you need to be applauded for that and I 
would hope that you would move forward. And by the way, when I 
am critical of the contractors, I am not critical of the active 
military. I just want to make that very clear. You guys do an 
incredible job and I want to thank you for your service. I have 
never been around a more professional workforce than I am when 
I was in Iraq and Afghanistan.
    Ms. Tomchek, I remember when Madam Chairman asked a 
question about contractors at Homeland Security. And correct me 
if I am wrong, Claire, but I do not believe that they could 
answer the question as to how many contractors they had.
    Senator McCaskill. And I do not think the Department of 
Defense thinks they can get us that number until 2016 at the 
earliest, I believe, is the date we have been given. Is that 
correct, Mr. Aronowitz?
    Mr. Aronowitz. Well, ma'am, I cannot speak for DOD. I can 
speak for the Army.
    Senator McCaskill. Right. That is right. I am sorry.
    Mr. Aronowitz. During or through our inventory process, the 
Army is very confident in the number of contractors or contract 
man-year equivalence that we capture, which is about 217,000 
today.
    Senator Tester. In this day of computers that basically can 
run processes that are incredible, I think it is amazing that--
everybody should be able to tell us that number just like that. 
I mean, I think that if they cannot, it tells me that the 
system is broken. OK?
    I just want to move on just a little bit. There were $60 
billion that was lost to waste, fraud, and abuse in Iraq and 
Afghanistan for the entire contracting process. This was done 
by the Commission on Wartime Contracting. Occasionally I get to 
sit on the floor and do some presiding, and I hear folks 
continually get up and talk about Solandra 500 and $35 billion 
wasted, and by the way, that is totally unacceptable. We are 
talking about $60 billion here.
    Can any of you answer the question as to, if there is any 
possibility of recouping that money and what percentage of that 
money might possibly be recouped?
    Mr. Aronowitz. Sir, since I believe that is a DOD figure, I 
would like to take that for the record and get it back to the 
Subcommittee.
    Senator Tester. I would love to see what is going on. I 
mean, it is an amazing figure for me. I recently joined Senator 
McCaskill on legislation that would implement many of the 
recommendations for the Commission on Wartime Contracting. Your 
perspective, Mr. Aronowitz, or any of you for that matter. Do 
you think the recommendations would have a positive effect on 
the way that the Army, Department of Defense--I know you cannot 
speak for both, but maybe you can--would do business with 
contractors? Or would it hurt your ability to achieve a 
savings?
    Mr. Aronowitz. I know that the legislation is now being 
reviewed back in the Pentagon and we will get a response back 
through DOD on that. The Secretary of the Army takes this very 
serious and he has directed the Army's staff to basically 
expedite the hiring initiative we had to grow the acquisition 
workforce and also to increase the military by about 1,000 
soldiers in the acquisition field to build an expeditionary 
acquisition capability.
    And again, I know this is reaction to the Commission on 
Wartime Contracting, but again, we take it very serious in the 
Department.
    Senator Tester. One last question, and I would direct it to 
Mr. Aronowitz, but any of you can answer the question because I 
think it applies to the government across the board, whether it 
is DOD, Department of State, or Homeland or any others as far 
as that goes. I know that in Iraq and Afghanistan, we have 
awarded and re-awarded non-compete contracts. Can you give me 
any idea to what extent this still happens, that folks are 
awarded non-compete government contracts?
    Mr. Aronowitz. Again, sir, I would have to take that for 
the record and get you a better fidelity on the numbers and get 
back to the Subcommittee.
    Senator Tester. We would love to get that. Would you two 
want to respond to that at all?
    Ms. Tomchek. I do not have those numbers, but would be 
happy, also, to get them for you. I would add that the law that 
we follow, which is Section 736 of the Fiscal Year 
Appropriations Act, specifically asked us to look at sole 
source non-competed contracts when we do these reviews, and it 
is something that is captured on our questionnaire, to make 
sure that we could sort those out and look at those separately 
if we needed to do so.
    Senator Tester. And have you?
    Ms. Tomchek. Our questionnaire process has a database in 
the back and we have not yet derived much information from it.
    Senator Tester. Chuck.
    Mr. Grimes. I know that we do look at that, but to give you 
specific figures, I would have to get back to you for the 
record.


                       information for the record


    OPM does award non-competitive contracts, on an exception 
basis. In FY 2011, 25 percent of the total dollars awarded by 
OPM were through non-competitive actions. These awards are 
merit-based, justified in accordance with long-standing 
statutes that authorize the use of non-competitive contracting 
in certain prescribed situations, such as urgency, the 
availability of only one responsible source, or the protection 
of national security. Justifications must be approved.

    Senator Tester. I would like that. And thanks for the 
latitude, Madam Chairman. I would just say that I think 
everybody in this room gets it and I know you guys get it. When 
you have non-compete contracts, you are not getting best value. 
I would say I dare somebody to show me how you get best value 
out of a non-compete contract. And when the average taxpayer 
looks at that, they are saying to themselves, What is going on?
    When I go buy a car, I do not walk into the auto dealer and 
look at the list price and say, Write up the papers. You go to 
several auto dealers and then you negotiate on the price. And 
it is the same thought process, for my mind anyway. So I really 
think it is a non-starter. And I know a lot of these contracts 
come out and they are so doggone big that you might only get 
one person to bid on it, and that is another problem, by the 
way. We need to break those down so that they are available to 
be bid on companies, because quite honestly, if you get more 
bidders, you are going to get better value for your dollar.
    So I want to thank the Chair for holding this hearing and I 
want to thank the people who have testified today. I appreciate 
your straight-forwardness.
    Senator McCaskill. Thank you, Senator Tester. One of the 
things that has happened a lot, and frankly, it has been a 
head-scratcher for me, is that there have been people beaten up 
on people who work for the government. And all of you are great 
examples and I have been blessed to be surrounded by, and for 
many years, people who have decided government service is 
honorable work.
    And I have never met anybody who has gone into a government 
job looking for big money. I think most people who take 
government jobs know that while it does offer stability, I do 
not think that most people who seek public sector employment 
are looking for a big payday. It just has not been my 
experience.
    And so, I have been disappointed at some of my colleagues 
who think that they can get to a leaner, meaner Federal 
Government just by beating up on the level of pay of Federal 
employees, and that brings me to contractor compensation. I 
have never seen anyone give a speech on the floor that we need 
to do something about the high rate of salaries with 
contractors.
    And as you may well know, there have been attempts to put 
in legislation, to put a cap on contractor salaries. I think 
most Americans would be shocked to know that we have one now 
and it is $693,000 a year. So right now, the Federal Government 
can pay contractors up to almost 700 grand a year.
    And my colleagues, Senators Boxer and Grassley, have 
proposed changing this cap to $400,000 a year for all 
contractor and subcontractor employees. Others have even 
proposed lowering the cap even further. And for civilian 
contracts, the cap only applies to senior executives. I believe 
the cap should be extended to all contractor and subcontractor 
employees.
    I understand the Department of Defense has conducted a 
survey of its nine top contractors and found that changing the 
cap from $693,000 to $400,000 could save the agency $421 
million. That is a big number. Let me ask you, do you at the 
Army, Mr. Aronowitz, or you, Ms. Tomchek, have any idea how 
much money you could save by lowering the cap that we would pay 
in terms of contractor salaries?
    Mr. Aronowitz. Ma'am, my office does not track that 
information, but again, I would like to have the opportunity to 
come back to the Subcommittee with that information.
    Senator McCaskill. Ms. Tomchek.
    Ms. Tomchek. I would say something similar. I am in the 
Chief of Human Capital Office and I would be happy to 
coordinate with my colleagues as we have our interdisciplinary 
group and try to see if I could answer that question for you.
    Senator McCaskill. And, Mr. Grimes, is there any data 
available through your office that would get to this issue of 
how many very well-paid executives are we paying for on some of 
these service contracts?
    Mr. Grimes. We do not collect that information, so we would 
not have any idea really what people make in the service 
contracts. I am sorry.
    Senator McCaskill. I think that is something--I will tell 
you this. I am not voting for--I do not support anymore 
freezing of the salaries for Federal workers until we freeze 
some salaries for contractors, particularly at that high level. 
I think--and by the way, we are not telling private companies 
what they can pay their people.
    They can pay them whatever they want. If they want to pay 
them more, they are welcome to do so. This is not about the 
government telling private companies how much people should 
make. It is about telling private companies how much the 
government will pay. And there is a big difference there. If 
they want to supplement someone's salaries with revenue streams 
from other sources, that certainly is up to them. And this is 
not, I think, a matter of government getting in the way of the 
private sector.
    But if you are going to do business with the Federal 
Government, I think it is reasonable that you would assume that 
we are not going to pay somebody 700 grand a year. I just think 
that is reasonable and I hope that we can get that cap in place 
and realize those savings.
    The same thing with overhead costs. Looking at the data 
that the Army collected in 2011, there are a few figures that 
jumped out at me that I would like to look at a little closely. 
If you look at the portfolio Knowledge-Based Services 
Contracts, the total invoices were for $13 million.
    Overhead costs accounted for $6.7 million of that, almost 
50 percent of the overall costs. In that same portfolio, 
Federal workspace was provided for 82 percent of the contracts, 
and 71 percent of them had government issued equipment. So I am 
trying to reconcile those numbers. You have a $13 million 
contract. More than half of it, or just at half of it, is 
overhead, but we are providing workspace for 82 percent of them 
and we are issuing our equipment for 71 percent of them.
    Is that the kind of thing that would jump out at you, Mr. 
Aronowitz?
    Mr. Aronowitz. Well, ma'am, let me, if I can, walk you 
through the numbers and I can tell you how the Army is 
beginning to analyze this data and how we are integrating with 
the acquisition community. As you mentioned, for the Knowledge-
Based portfolio, about $13 billion total invoiced amount is 
what the government paid. The direct labor costs, in other 
words, what was paid or charged for direct labor hours, about 
$4.8 billion.
    About $1.5 billion for direct non-labor costs, and again, 
this would be for packaging, special equipment, travel, and 
then the amount, the overhead that you mentioned, the $6.7 
billion, that is overhead and profit. And when we start to talk 
about comparing Federal civilian employees' benefits versus 
contractors and whether we use A-76 or the Department of 
Defense's directive-type memorandum, the health and benefits 
cost for the contract employees is in that $6.7 billion amount, 
that overhead amount.
    And so again, it is about 50, 51 percent, and again, that 
includes the profit for the contractor as well as expenses that 
he or she has for their employees for their health, benefits, 
leave, and things of that nature, as well as their retirement.
    Senator McCaskill. So that was a ``B'' not an ``M'' which 
means I really want to get into it. Do we do apples-to-apples 
on benefits?
    Mr. Aronowitz. Again, within the DOD, by using the DTM, we 
do have a fully burdened cost for our civilian and military 
manpower. It is a very expensive tool.
    Senator McCaskill. Especially because that also includes 
all the pensions for active, right?
    Mr. Aronowitz. Yes, ma'am. It is pensions, child care 
costs, all the subsidies for groceries; for civilians, it is 
the unpaid accrued retirement, so for both our military and 
civilians fully burdened. For the contractors, the only figures 
we use are what is invoiced to the government and what we pay.
    Senator McCaskill. Well, I would really like to take a look 
at that because I think that this has been the assumption that 
we have been working on without data, which this hearing is all 
about, is how can we get guidance from OMB so that there is 
governmentwide assistance in the kind of decision tree that you 
are trying to implement, Ms. Tomchek.
    But second, this assumption that if you hire--and I have 
told this story a million times. My dad peeled potatoes in 
World War II. We are never going to have a soldier peel 
potatoes again in theater, in a contingency. That will never 
happen. So contracting is here to stay.
    So the question is, the assumption has been--and I think 
this is how we got way ahead of ourselves in contracting and 
contingency, especially around the Logistics Civil Augmentation 
Program (LOGCAP). The assumption was, our benefits are so 
significant, that our overhead is so high that contractors just 
intuitively are going to be cheaper. And I am not sure that we 
ever held contractors' feet to the fire about what they were 
billing us in that regard.
    So I would love to see, on a typical contract, if you can 
pull out the data for me what the benefit costs are versus the 
benefit costs of our employees, and to make sure that the 
underlying assumption that I think has driven a lot of these 
decisions without good data, is even actually correct, 
especially if you factor in some of these guys are making 600 
grand a year, 700 grand a year. That takes up a lot of overhead 
as it relates to benefits.
    Mr. Aronowitz. Absolutely, ma'am.
    Senator McCaskill. If the salaries are so much higher, then 
pretty soon you are under water, even considering all the 
overhead that we have as it relates to benefits, pensions, and 
so forth, health care in our system. So if you could do that 
for me, I would like to take a look at that.
    Mr. Aronowitz. Yes, ma'am.
    Senator McCaskill. But I did not understand until you 
explained it that also was profit, so that also makes sense. I 
thought it was just overhead. Thank you for walking through the 
figures.
    We have a number of more questions. There is a vote that is 
being called right now, so I will adjourn this hearing. I want 
to thank all three of you. And by the way, I know in the 
contracting community I am not a popular person because of the 
work I do in this area, but I do understand there are great 
people that work for these companies and that do good work for 
the Army and do good work for the Department of Homeland 
Security.
    It is not that they are the enemy. It is just that I do not 
think our government has been very good at tracking the costs 
and making sure that we are making the kind of analysis that 
taxpayers have a right to expect. So I will look forward to 
OMB's guidance. I will look forward to your input after that 
guidance comes out.
    If all three of you would make a note that we will be 
following up with you to get your take on the guidance, once it 
is issued, if you think it is workable, if you think it is 
going to make a difference, and we will direct a number of 
questions that we have that we still have not had answered yet 
today to you in writing. I thank all three of you for being 
here today and for the hard work you are doing on behalf of our 
government.
    [Whereupon, at 11:14 a.m., the subcommittee was adjourned.]



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