[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


                          CONTRACTING FAIRNESS

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         GOVERNMENT OPERATIONS

                                 OF THE

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              JULY 8, 2016

                               __________

                           Serial No. 114-68

                               __________

Printed for the use of the Committee on Oversight and Government Reform

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                     JASON CHAFFETZ, Utah, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, Jr., Tennessee       CAROLYN B. MALONEY, New York
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
TIM WALBERG, Michigan                    Columbia
JUSTIN AMASH, Michigan               WM. LACY CLAY, Missouri
PAUL A. GOSAR, Arizona               STEPHEN F. LYNCH, Massachusetts
SCOTT DesJARLAIS, Tennessee          JIM COOPER, Tennessee
TREY GOWDY, South Carolina           GERALD E. CONNOLLY, Virginia
BLAKE FARENTHOLD, Texas              MATT CARTWRIGHT, Pennsylvania
CYNTHIA M. LUMMIS, Wyoming           TAMMY DUCKWORTH, Illinois
THOMAS MASSIE, Kentucky              ROBIN L. KELLY, Illinois
MARK MEADOWS, North Carolina         BRENDA L. LAWRENCE, Michigan
RON DeSANTIS, Florida                TED LIEU, California
MICK MULVANEY, South Carolina        BONNIE WATSON COLEMAN, New Jersey
KEN BUCK, Colorado                   STACEY E. PLASKETT, Virgin Islands
MARK WALKER, North Carolina          MARK DeSAULNIER, California
ROD BLUM, Iowa                       BRENDAN F. BOYLE, Pennsylvania
JODY B. HICE, Georgia                PETER WELCH, Vermont
STEVE RUSSELL, Oklahoma              MICHELLE LUJAN GRISHAM, New Mexico
EARL L. ``BUDDY'' CARTER, Georgia
GLENN GROTHMAN, Wisconsin
WILL HURD, Texas
GARY J. PALMER, Alabama

                   Jennifer Hemingway, Staff Director
                 David Rapallo, Minority Staff Director
  Katie Bailey, Staff Director, Subcommittee on Government Operations
                       Patrick Hartobey, Counsel
                           Willie Marx, Clerk
                 Subcommittee on Government Operations

                 MARK MEADOWS, North Carolina, Chairman
JIM JORDAN, Ohio                     GERALD E. CONNOLLY, Virginia, 
TIM WALBERG, Michigan, Vice Chair        Ranking Minority Member
TREY GOWDY, South Carolina           CAROLYN B. MALONEY, New York
THOMAS MASSIE, Kentucky              ELEANOR HOLMES NORTON, District of 
MICK MULVANEY, South Carolina            Columbia
KEN BUCK, Colorado                   WM. LACY CLAY, Missouri
EARL L. ``BUDDY'' CARTER, Georgia    STACEY E. PLASKETT, Virgin Islands
GLENN GROTHMAN, Wisconsin            STEPHEN F. LYNCH, Massachusetts
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 8, 2016.....................................     1

                               WITNESSES

Ms. Angela Styles, Partner, Crowell & Moring
    Oral Statement...............................................     6
    Written Statement............................................     8
Mr. John Palatiello, President, Business Coalition for Fair 
  Competition
    Oral Statement...............................................    14
    Written Statement............................................    16
Mr. Maurice McTigue, Vice President, Outreach, Mercatus Center
    Oral Statement...............................................    23
    Written Statement............................................    24
Mr. Donald Kettl, Professor, School of Public Policy, University 
  of Maryland
    Oral Statement...............................................    28
    Written Statement............................................    29

                                APPENDIX

January 28, 2015, Letter from Anne E. Rung, Administrator, Office 
  of Federal Procurement Policy at White House Office of 
  Management and Budget, to Congressman John J. Duncan, Jr.......    56
Written Statement from Congressman Pete Sessions (TX-32).........    57

 
                          CONTRACTING FAIRNESS

                              ----------                              


                          Friday, July 8, 2016

                  House of Representatives,
             Subcommittee on Government Operations,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 9:01 a.m., in 
Room 2154, Rayburn House Office Building, Hon. Mark Meadows 
[chairman of the subcommittee] presiding.
    Present: Representatives Meadows, Mulvaney, Grothman, 
Chaffetz, Connolly, Maloney.
    Also Present: Representatives Duncan and Sessions.
    Mr. Meadows. The Subcommittee on Government Operations will 
come to order. And without objection, the chair is authorized 
to declare a recess at any time.
    We're here today to discuss contracting fairness, in other 
words, when it is appropriate for the Federal Government to 
contract with the private sector and when it is not appropriate 
to do so. In making these decisions, it's critically important 
that the government focus on efficiencies and cost. And this is 
not about eliminating--and I want to stress--this is not about 
eliminating Federal employees. This is about ensuring we as a 
government are obtaining the most cost-efficient and cost-
effective solutions when the Federal Government buys goods and 
services.
    The private sector does a lot of things well. It is 
important that the government taps the private sector's 
expertise and efficiencies as appropriate. Obviously, there are 
certain things that only the government should do, such as 
making contract award decisions or granting a security 
clearance, et cetera. Finding the right balance and promoting 
public-private competition through the A-76 process to gather 
the data to support valid cost comparisons is the way we 
realize cost savings for the American taxpayer.
    And one of the key areas where I think there are 
significant questions is how to make the cost-effective 
comparisons between the public and the private sector. For 
example, what are the appropriate cost elements needed to 
develop a valid cost comparison of Federal employees and 
contracting employees? I would welcome the witnesses' input, 
all of you, on this particular area.
    And under existing law, the public-private competitions are 
prohibited, and early in this administration, there was a shift 
towards decreasing the government's reliance on contractors. 
Now, that may make sense as long as we're actually saving 
money. Former Secretary of Defense Gates said in 2010, ``As we 
were reducing contractors, we were not seeing the savings that 
we had hoped for by insourcing.'' And given where we are today, 
we're holding this hearing to learn from the past efforts in 
this area and hopefully to begin anew this discussion in the 
lead up to a new administration.
    I want to thank Mr. Duncan for his leadership in this 
particular area, particularly for his bill, H.R. 2044, the 
Freedom from Government Competition Act. And as we look at 
that, looking at that particular bill further, this bill would 
make clear that the policy preference for obtaining goods and 
services from the private sector, and unless there is no 
private sector option for the goods or services or that they 
are inherently governmental, it addresses that issue.
    I'd like to thank the witnesses here today.
    And I'd like to now recognize the author of that particular 
bill, the esteemed gentleman from Tennessee, my good friend, 
Mr. Duncan.
    Mr. Duncan. Well, thank you very much, Mr. Chairman, for 
calling this hearing.
    As you mentioned, this is an issue I've been working on now 
for over 20 years. Government competition affects small 
businesses every day in every congressional district across the 
country. I've had just about every type of business you can 
think of come to my office and talk to me about government 
competition. These businesses range from high-tech companies 
like engineering firms and low-tech firms such as landscaping 
companies. This issue affects school bus drivers, truck stop 
operators, uniform companies, mapping companies, hearing aid 
dealers, and many, many, many others.
    This bill proposes a very simple concept: If a Federal 
agency is providing a good or service that can be provided by 
the private sector more efficiently and cost effectively, we 
should contract out for that good or service. The activities 
that are inherently governmental, like national defense and 
others, are exempted from this process. If the Federal agency 
can provide that good or service at a lower cost, we should 
certainly allow that government agency to continue to do so.
    In 1998, I worked with then-Senator Craig Thomas of Wyoming 
on this issue. We were able to get a limited version, a sort of 
watered-down version of this bill called the Federal Activities 
Inventory Reform Act. It was called the FAIR Act at that time. 
And that--we actually got that passed into law. This act 
requires every Federal agency to look at what goods and 
services they are providing and determine if those are 
inherently governmental or commercial in nature.
    In October of 2014, I wrote to the director of the Office 
of Management and Budget and asked him how many Federal 
employees were engaged in commercial activities. In January of 
2015, I received a letter back from OMB stating that 1.12 
million--1.12 million full-time equivalent employees were 
engaged in activities that are commercial in nature. Let me 
repeat that: There were 1.12 million, 1.12 million Federal 
employees engaged in activities that could be provided by the 
private sector.
    I would like to ask unanimous consent to submit a copy of 
that letter for the record.
    This bill is----
    Mr. Meadows. Without objection, so ordered.
    Mr. Duncan. This bill is not about contracting out to the 
private sector just for the sake of contracting out. This bill 
is about getting the best service and at the lowest cost for 
the taxpayers. This bill is not about an attack--it is not 
certainly an attack on Federal employees. I'm a Federal 
employee, and I have many hardworking Federal employees in my 
district. It has been hard enough, though, for small businesses 
to survive over the past many years, and they should not have 
to compete against their own government to survive.
    The problem of government competition is not a new one. In 
fact, during the Eisenhower administration in 1955, at the very 
first White House conference on small business, freedom from 
government competition was the number one issue. And that 
conference issued a report that said, quote, ``The Federal 
Government will not start or carry on any commercial activity 
to provide a service or product for its own use if such a 
product or service can be procured from the private sector.'' 
And this has been one of the top three issues of every White 
House conference on small business since then.
    I understand that Ranking Member Connolly is the cochair of 
the bipartisan Private-Public Partnership Caucus. I chaired the 
special panel on P3s in the Transportation and Infrastructure 
Committee in the last Congress. We had a number of hearings and 
heard from expert witnesses all across the country, and that is 
a movement that we need to really get more into as we proceed 
over these next few years.
    All across the country, States and cities are seeing the 
advantages of the savings that can be made by taking advantage 
of the private sector. In fact, a friend of mine, Mayor 
Madeline Rogero of Knoxville, who really is one of the most 
liberal office holders in this country today, just announced 
that she is going to allow private company to manage three 
public properties in Knoxville that are used for concerts, 
fairs, and festivals. And she said that doing this will save 
over $500,000 for the city of Knoxville. If we can save money 
in Knoxville, Tennessee, by relying on the private sector, I 
think we can also do some of that--a little bit more of that 
here.
    Thank you very much, Mr. Chairman.
    Mr. Meadows. I thank the gentleman for his foresight and 
his leadership on this particular issue.
    And, obviously, the chair notes the presence of not only 
the gentleman from Tennessee, Congressman Duncan, but my good 
friend, the gentleman from Texas, the chairman of the Rules 
Committee, Congressman Sessions. And we appreciate your 
interest in this topic and welcome your participation today.
    And I ask unanimous consent that both Congressman Duncan 
and Sessions will be allowed to fully participate in today's 
hearing.
    And without objection, it is so ordered.
    I'm going to now recognize Mr. Connolly, the ranking member 
of the Subcommittee on Government Operations for his opening 
statement.
    Mr. Connolly. I thank the chair.
    And I thank Mr. Duncan for his thoughtfulness and his 
legislation.
    I also cochair the Smart Contracting Caucus, and Taiwan and 
Turkey and Korea and Morocco and Georgia, and vice chair of the 
New Dem Coalition, and cochair of the Sustainable Energy and 
Environmental Caucus. So I'm busy with a lot of caucuses, but 
none less important than this.
    My view on this topic is forged in my experience in local 
government, 14 years in local government. I knew Mr. Palatiello 
then when he was on the Planning Commission in Fairfax County. 
And what I discovered, sometimes to my surprise, was that 
presuppositions on this subject are not always borne out.
    I can remember one specific example. When I became chair of 
the county, I was looking for something to privatize. I said--I 
thought to myself, well, surely there are some functions better 
done in the private sector. And the one I kind of focused on 
was outsourcing the vehicle maintenance. We had a very big 
fleet, vehicle fleet. And I thought, well, surely the private 
sector can do at least mundane things, like oil changes and 
that sort of thing. Jiffy Lube for sure can do it cheaper than 
we can.
    And I had the auditor look at it. I didn't just take the 
word of county employees. What surprised me, and I think a lot 
of my colleagues, was actually, no, we--empirically, we did it 
cheaper and the quality of care and service, because that was 
their mission in life, to make sure that vehicle fleet was 
always in tiptop shape. Couldn't be matched.
    And it was a lesson. It wasn't that you're always better 
off insourcing, but it was a lesson in don't assume and 
approach this in a nontheological way. You shouldn't be looking 
at the whole issue of outsourcing, or insourcing for that 
matter, on an a priori basis. Look at it on a case-by-case 
merit basis. Does it make sense, does it meet certain criteria 
in terms of cost, as Mr. Duncan indicated, but also quality.
    I remember John Glenn. I worked--when I first came to the 
U.S. Senate, I worked inter alia with Senator John Glenn. And 
the story was told that when he was in that capsule about to 
take off and circumnavigate the world, somebody asked him after 
he came back down to Earth, you know, what in the world--what 
must have been in your thought, this profound moment? He said, 
all I could think of was I'm sitting in 90,000 pounds of thrust 
on their little capsule provided by the Federal Government's 
lowest bidder.
    So quality does matter and common sense matters. And I told 
Labor the same thing as I'm saying here, that we really need to 
not approach this as a theological issue. Insourcing is not 
better than outsourcing, and outsourcing isn't better than 
insourcing. There's nothing intrinsically preferable or good 
about one versus the other. And where there is domain 
expertise, where there is the ability to provide quality 
services at a cost-effective way, that always makes sense.
    There are some inherently government functions that should 
never be, in my view, outsourced. Federal oversight of 
contracts that it lets, for example. Most people I know in the 
Federal contracting world think that would be highly 
inappropriate to outsource, that that ought to be managed by 
the government. And it puts them in an awkward position when it 
is outsourced, because they want to bid on contracts and 
sometimes it's the competition or even the collaborator who 
they're evaluating or they're monitoring and managing.
    So I'm glad for the hearing, but I'm always going to look 
askance at anything that smacks of theology on this subject.
    And with that, Mr. Chairman, I yield back.
    Mr. Meadows. I thank the gentleman.
    I will hold the record open for 5 legislative days for any 
member who would like to submit a written statement.
    We'll now recognize our panel of witnesses. And I'm pleased 
to welcome Mr. John Palatiello, president of the Business 
Coalition for Fair Contracting; Mr. Maurice McTigue, vice 
president of outreach at the Mercatus Center; and Mr. Donald 
Kettl, professor at the School of Public Policy at University 
of Maryland.
    And I would like to now recognize the gentleman from Texas, 
chairman of the Rules Committee, Mr. Sessions, to introduce our 
last witness.
    Mr. Sessions. Mr. Chairman, thank you very much. It's a 
great delight for me to be back with not only you but Chairman 
Duncan as he spoke very clearly about his work not only in this 
committee but across Congress for government efficiency.
    I must say, I was delighted to hear Mr. Connolly speak very 
clearly about how important government efficiency and the 
people's money is.
    Today, I show up really to introduce Mrs. Angela Styles. 
Mrs. Styles is a person who, like the other gentlemen who have 
been on this panel today, is a distinguished alumnus, not only 
of the United States Congress as a former staffer, but she 
worked at OMB, in the Office of Management and Budget, and 
served under a great Texan, George W. Bush, and served not only 
with distinction for the President to try and ensure government 
efficiency, but was there with a role to make sure that it was 
done for the benefit of the American people, and as Mr. 
Connolly said, in the none be it theological way.
    The people of the United States want and need a government 
that works properly, that takes every dollar that it needs but 
not a penny more, and ensures that its services are second to 
none.
    Angela not only served at OMB, but the General Services 
Administration. She is a graduate of the University of Virginia 
and the University of Texas Law School. She is a person who is 
a mom on the side, but more importantly, a dedicated public 
servant in her role as a partner with Crowell & Moring.
    So I wanted to come here today when I knew that Angela 
would be here and to let her know that her words of wisdom, her 
insight from out in public service and in the private sector 
does matter to us.
    Lastly, Mr. Chairman, I'd like to say that we are also 
passing on much of which we do to the next generation. And we 
have Meredith Milton, who is here from Parker County, Texas. 
She goes to the University of South Carolina. And she is one of 
our interns who came to Washington with the viewpoint of 
government efficiency and government oversight.
    So I wanted you to know that, just as I was in your chair 
some 15 or 18 years ago trying to learn much about how we can 
make the government more efficient, you now are that person in 
the role, along with Mr. Connolly, and Meredith is looking out 
at you and will learn much. And I hope that there are other 
students who go through our schools, who come to Washington to 
learn we have to have a government that can work effectively 
and efficiently to meet the needs of the American people.
    Mr. Chairman, the last thing I'd like to say is I'd like to 
add to the record the statement that I brought and came with. 
And I want to thank you for allowing me to be here. And I yield 
back my time.
    Mr. Meadows. Without objection, so ordered.
    Mr. Meadows. I thank the gentleman for his remarks and his 
introduction, but his longstanding conservative passion to 
making sure that the government is accountable and efficient. 
And so with that----
    Mr. Connolly. Let the record show, Mr. Chairman, 
progressives care about it too.
    Mr. Meadows. No, no, no. It was not meant to be a slight.
    Mr. Connolly. No, no, I know.
    Mr. Meadows. If I said that you had a conservative bit, you 
might not get reelected, so----
    Mr. Connolly. Right. And by the way, I wanted to thank Mr. 
Sessions for his brilliant remarks, and I hope he'll approve my 
next amendment when I'm up in the Rules Committee.
    Mr. Sessions. We'll do our best to hear you out fully, Mr. 
Connolly, and you know that.
    Mr. Meadows. Well, welcome to all. Pursuant to committee 
rules, all witnesses will be sworn in before they testify, so 
I'd ask that you please rise and raise your right hand.
    Do you solemnly swear or affirm that the testimony that you 
are about to give will be the truth, the whole truth, and 
nothing but the truth?
    Let the record reflect that all witnesses answered in the 
affirmative. Thank you so much.
    In order to allow time for discussion, please limit your 
oral testimony to 5 minutes. Your entire written statement will 
be made part of the record. Many of our members will be coming 
and going today, but I can tell you that they have staff that 
will be following up on that.
    And so at this point, I would like to recognize you, Ms. 
Styles, for 5 minutes.

                       WITNESS STATEMENTS

                   STATEMENT OF ANGELA STYLES

    Ms. Styles. Thank you very much. Chairman Meadows, 
Congressman Connolly, Chairman Duncan, members of the 
subcommittee, I really appreciate the opportunity to be here 
today, particularly, Chairman Sessions, for that very kind 
introduction. I have to say, he has been a friend and a mentor 
throughout my entire career, and I wouldn't be here today 
without him. And as a native of Dallas, I certainly know there 
are many issues on his mind today, so thank you very much for 
the kind introduction.
    As a former administrator for Federal procurement policy at 
the Office of Management and Budget from 2001 to 2003, I had 
the unique opportunity to lead the most significant effort by 
the Federal Government to open commercial activities performed 
by the government to the dynamics of competition between the 
public and private sectors.
    I applaud this subcommittee for shining a bright light on 
the commercial activities performed by public sector employees. 
These activities have long been insulated from competition or 
even, frankly, review at all.
    In my written testimony, I tried to address the bipartisan 
history behind public-private competition and the demonstrated 
benefits of market-based government. It isn't just about saving 
money or moving jobs to the private sector, as you heard 
Congressman Connolly say; it's about improving the performance 
of our government for its citizens. It is a travesty, a true 
travesty of public governance that public-private competition 
has been stalled for 8 years, and every attempt to create a 
true infrastructure for competition has been struck down by 
special interests.
    The Bush administration competitive sourcing initiative 
forced Federal Government personnel to critically examine their 
processes and determine how they could improve the delivery of 
services to remain competitive. Not surprisingly, as the 
competition increased, so did the pressure to save Federal 
jobs.
    A series of legislative actions resulted in a full 
moratorium on public-private competition by 2008. Once in 
office, the budget request from the Obama administration asked 
for the continuation of the prohibition. The legislative 
moratorium shunned market-based government, competition, 
innovation, and choice. Taxpayers and citizens were the losers. 
Not only are we paying more for Federal employees to perform 
commercial services, taxpayers are not benefiting from improved 
service delivery that derives directly from competition.
    Second, anybody that questions the true benefits of 
competition is diluting themselves. The cost savings have been 
proven out over 40 years. My written testimony provides several 
real examples and citations to significant studies. There are 
thousands more examples to be studied if you need more 
evidence.
    Most significantly, I'd like to point out testimony from 
2002 given by Comptroller General David Walker. The testimony 
was given after studying public-private competition with a 
panel of experts for over a year, and this is what he said: 
``The panel concluded that the current A-76 process has been 
used to achieve significant savings and efficiencies for the 
government. Savings result regardless of whether the public or 
private sector wins the cost comparison. This is because 
competitive pressures have served to promote efficiency and 
improve the performance of the activity studied.''
    In standing up the Bush administration competitive sourcing 
initiative, we made great strides in creating infrastructure, 
people and processes for competition. Sadly, the people have 
moved on over the years. But on a positive note, the processes 
in place for competition remain. There is a place to start in 
the executive branch.
    Now, H.R. 2044, the Freedom from Government Competition Act 
of 2015, would reverse the 8-year drought. The 8 years that not 
a single commercial activity performed by the Federal 
Government has faced an iota of scrutiny. But this moment, it's 
really only Congress that has the ability to allow and then 
encourage the executive branch to take full advantage of the 
best capabilities that both sectors have to offer.
    This concludes my prepared remarks.
    [Prepared statement of Ms. Styles follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Meadows. Thank you, Ms. Styles.
    Mr. Palatiello, you're recognized for 5 minutes.

                  STATEMENT OF JOHN PALATIELLO

    Mr. Palatiello. Thank you, Mr. Chairman. And I realize when 
I say ``Mr. Chairman,'' that's inclusive of everyone on this 
panel who has at one time or another been a chairman.
    I'm president of the Business Coalition for Fair 
Competition, and we support the yellow pages test. It's a very 
simple process that says if you can find firms in the yellow 
pages of the phone book that are providing a good or a service 
and a government agency that's providing that same good or 
service, then that government activity ought to be subjected to 
a review, a government--a private competition to break up 
what's, in effect, in in-house monopoly, subject it to market 
competition and get a better value for the taxpayer.
    This is a test that has been successfully applied on a very 
bipartisan basis by mayors and governors and county executives 
across the country. Unfortunately, the Federal Government does 
not have such a process in place today, and that's for two 
reasons: First, Congress has failed for more than 80 years to 
enact legislation to codify such a process to set the ground 
rules. Additionally, Congress has imposed a very unfortunate 
moratorium on OMB Circular A-76, which has guided this process 
administratively since 1955.
    As Mr. Duncan pointed out, the Federal Government today has 
a total workforce of 2.6 million employees, not including our 
men and women in uniform and the Postal Service. Of that, 1.2 
million are in functions that are commercial in nature. This is 
the aggregate of all of the FAIR Act inventories. So in other 
words, 43 percent of the Federal workforce is in commercial 
positions, and only a handful of them have ever been studied to 
determine whether the in-house function is performing as 
efficiently as it could.
    When these studies are conducted, the literature shows that 
the average saving is 30 percent, regardless of whether the 
activity stays in-house or gets contracted. When applied to all 
1.12 million positions, the annual potential savings are as 
much as $35 billion.
    You asked with regard to best practices, Mr. Chairman, and 
I would point to the 3DEP, or Three-Dimensional Elevation 
Program of the U.S. Geological Survey, in Reston, Virginia, in; 
Mr. Connolly's district. Over a period of some 20 years, USGS 
has successfully transitioned from being an in-house mapping 
production agency that, quite frankly, the private sector felt 
duplicated and competed with them, to where the USGS now uses 
the private sector for a majority of its mapping data 
acquisition and processing, and focuses its employees on 
standards, coordination, and other inherently governmental 
activities.
    Perhaps the most successful thing the Federal Government 
has done in its 240-year history, in my view, was the original 
GI Bill. My late father was a D-Day veteran. He was a 
beneficiary of that program. After World War II, Congress 
provided every eligible veteran an opportunity to buy a home 
and get an education, but the government did not start in-house 
homebuilding and did not start Federal schools. The GI Bill was 
essentially a voucher program, a contracting program.
    The government used the private sector, let our veterans go 
out into the market and get what they needed to return to 
civilian life. That's a bipartisan best practices model I 
believe the government should emulate again today.
    You also asked in your invitation, Mr. Chairman, to examine 
the impact on the private sector from decreased competition. In 
its last study of A-76, the Small Business Administration found 
that of companies that received these procurements, 71 percent 
were small business. So it is clear that the moratorium on A-76 
harmfully and disproportionately impacts small and small 
disadvantaged businesses.
    As has already been stated, this is not about eliminating 
Federal employees. Let's put that myth to rest here today. What 
this is about is lower cost, better service, but also access to 
expertise, better quality, improved risk management, 
innovation, better meeting of peak demand, and timeliness.
    We have a couple of recommendations that we would like to 
share with the committee. First, we do support Mr. Duncan's 
bill, the Freedom from Government Competition Act. Second, the 
moratorium on A-76 should be repealed. Third, insourcing should 
be ended or at least there should be a requirement for a 
reverse A-76 to study whether it is more cost effective to 
bring something back in-house. We think the establishment of a 
Federal entity to review commercial activities.
    Mr. Connolly will remember that for about 15 years, 
Virginia had the Commonwealth Competition Council; was very 
effective. And we believe that there needs to be an enhancement 
to Federal agency contract management and improvement of the 
acquisition workforce.
    Mr. Chairman, today, the Federal Government has become too 
big to succeed. In an effort to be all things to all people, it 
cannot effectively provide its core services. The Federal 
Government is spread out too thin, carrying out too many 
activities best left to free enterprise. Using the private 
sector for commercially available products and services will 
help focus the government on its core inherently governmental 
activities, those things that the American people expect from 
Uncle Sam, and it will improve the effectiveness of those 
important government activities.
    Thank you for the invitation. It's a pleasure to be here. 
I'll be happy to take your questions.
    [Prepared statement of Mr. Palatiello follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Meadows. Thank you for your testimony.
    Mr. McTigue, you're recognized for 5 minutes.

                  STATEMENT OF MAURICE McTIGUE

    Mr. McTigue. Chairman Meadows, Ranking Member Connolly, I 
am honored to have been invited to present testimony in front 
of you today on the issue of competition in government 
operations.
    Before I became a member of parliament in New Zealand, I 
was a farmer. Farmers really understand the value of 
competition. When you take your stock to market, if there are 
plenty of hot buyers, the prices are good. If there is only one 
buyer, you have a bad day. So I am an enthusiast for 
competition.
    Competitive sourcing in government should really be based 
upon what delivers the best prices with the best goods and 
services from the best suppliers using the best technology. 
This is the only acceptable rationale, in my view, for 
competitive sourcing. I agree with Mr. Connolly, it should not 
be about ideology; it should be about what's going to provide 
the best services for the consuming public.
    Governments have had mixed results with competitive 
sourcing. One of the reasons, in my view, is that the rules 
often don't allow the competition to occur, so the rules must 
be written in such a way that the competition can occur.
    Some of the other things that have been failures in the 
process in the past, the first, not accurately defining what 
best means. Best does not mean cheapest. And best should be 
able to be defined for every competition, because best when 
you're delivering social services will require certain 
components that are very difficult to provide if you just use 
the normal commercial criteria. Not writing good specifications 
for the bidding process is often one of the failures in 
competitive sourcing. That's a professional contract management 
requirement, and agencies need to have that capability or they 
need to buy that capability if they're going to embark in 
competition.
    No departures from the contract is a really important 
criteria, because competitive sourcing often gets a bad name by 
people being able to lowball their bid knowing full well that 
they'll get a departure from the contract, which will allow 
them to readjust the price at a later date. That discredits the 
whole of the process and makes everybody consider it to be 
unfair.
    There should be fixed terms for the contracts, so no 
automatic renewals, so that the bidding process can be repeated 
over and over again. The competition has to be seen to be fair. 
It needs to be fair to the public sector bidders, and it needs 
to be fair to the private sector bidders.
    When I arrived in the United States in 1997, Al Gore was in 
the middle of his reinventing government process, and I 
attended many forums on just exactly that. There were two 
outstanding mayors that presented at many of those forums: 
Mayor John Norquist from Milwaukee, a Democrat; and Mayor 
Stephen Goldsmith from Indianapolis, a Republican. Both of them 
used competitive sourcing to help rescue their city budgets.
    Their experiences saw successful bidders come from the 
private sector and the public sector. Their experience showed 
that at the next iteration of those contracts they often saw 
them turn around. What they got from that, though, was a big 
win for the citizens in that those cities received better 
services at better prices.
    I just want to now quote an example from New Zealand, which 
is a variation on this process. One of the things that the New 
Zealand Government did was that it allowed governments--
government departments to compete to provide goods and services 
with each other. We call it internal markets.
    But a department that had a very high quality legal 
department could sell those services to another department or 
they could combine to buy payroll services or HR services, 
accounting, data collection. They might buy that from the 
private sector or the public sector, but they were looking at 
how you can utilize competition to improve the quality of those 
services. This needs to be a strictly contractual undertaking 
with legally enforceable contracts. It might surprise you, but 
when government departments deal with each other, they 
frequently cheat, so you need to be able to stop the cheating 
if the competition is going to remain fair.
    In conclusion, the success with this process should be 
measured in terms of improved services, greater innovation, 
technological superiority. It shouldn't be measured in terms of 
this group got it or that group got it. I hope this initiative 
is adopted as part of cost efficiencies and service 
improvement.
    Thank you for the chance to testify, and I'd be very happy 
to take your questions.
    [Prepared statement of Maurice McTigue follows:]
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    Mr. Meadows. Thank you for your testimony.
    Professor Kettl, you are now recognized for 5 minutes.

                   STATEMENT OF DONALD KETTL

    Mr. Kettl. Thank you very much, Mr. Chairman and Mr. 
Meadows and Ranking Member Connolly. It's a great pleasure to 
have a chance to be able to appear before you this morning.
    And it's also a great privilege to have a chance to 
continue the conversations with Mr. Grothman. For years in 
Wisconsin, we worked hard to try to improve government 
performance, and it's just such a great privilege and 
opportunity to be able to continue that conversation here 
today.
    The primary point of my testimony is to focus on the best 
lessons for procurement and acquisitions from the private 
sector. And what the private sector teaches us is that 
effective procurement and contracting requires a smart buyer, a 
buyer that, first, knows what it is that the buyer wants to 
buy; second, that the buyer knows how to try to choose a good 
supplier and providing the highest quality of goods and 
services at the lowest and best prices; and finally, making 
sure that the supplier provides what it is that, in fact, the 
buyer wants to go out and purchase.
    Those are the important lessons of the private sector, and 
those are the things that government needs to do and do even 
better. And what I want to suggest, there are five ways of 
going about doing that. First is to recognize that contracts 
for commercial products are an essential part of this and have 
become, in fact, a more important part of government's 
strategy; that, at this point, contracting represents two-
fifths of all Federal discretionary spending. And commercial 
items, as a percentage of all contracting, has actually gone up 
significantly in the last 5 years from 21.3 percent of all 
Federal contracts to 25.2 percent in the last figures in 2015. 
So that, in fact, we have an increasing trend of more 
commercial products being part of government contracting, even 
though government contract spending as a whole has declined for 
a variety of reasons. But it's clear that we are, in fact, 
focusing significant attention on the purchase of commercial 
products.
    The second item, though, is that we need to focus, 
essentially, on the management of contracts and contractors, 
because contracts--and we learned this from the private 
sector--do not manage themselves. We can look over a series of 
issues in the last few years, whether it's the Office of 
Personnel Management's challenges in trying to manage the 
employee background checks, problems in Medicare where about 
one out of every $10 spent on Medicare is spent on programs 
that--and on payments that are judged improper, where a 
company, in the last year, paid a $146 million fine for false 
claims filed for supplies to--for our troops in Afghanistan. 
It's clear that contracts don't manage themselves, and good 
Federal management is essential to ensure that we get our 
money's worth for the money that we spend.
    The third point is that, in fact, strong contract 
management can reap big success. I've recently completed a 
study of GAO's high risk list of the programs in the Federal 
Government most prone to fraud, waste, abuse, and 
mismanagement. And there are two things that are important 
coming out of that study. The first is that half of all the 
programs in the high risk list have been identified as having 
problems in contract management. That's the bad news. The good 
news is that over the last 25 years, 24 areas have been taken 
off that list, and of the 24 areas, half of them have been 
taken off because of improvements in contract management, so 
that effective contract management is essential to try to deal 
with the underlying problems.
    There are several issues and examples throughout the 
Federal Government where that's, in fact, happened. NASA is a 
premier example, as is the DOD's effort in improving supply 
chain management, and I'd be happy to discuss that more in the 
question period as well.
    The fourth point is that all of this depends on an 
effective cost comparison system; that is, if we want to try to 
buy from the best and the cheapest supplier, we need to know 
who that is. And the problem, unfortunately at this point, is 
that, as GAO has shown in a series of studies, our current cost 
comparison systems are simply inadequate. We do not have a good 
methodology for making good, sustained, effective comparisons 
about who it is who's cheaper.
    The problems are many in part trying to assess the relative 
value of the salaries, assessing fringe benefits, looking at 
overhead rates, total life-cycle costs, capacity, transparency, 
flexibility questions. These are all eminently solvable 
problems, but at this point we're handicapped in making 
comparisons because we do not have a common and accepted 
methodology for how to go about doing that.
    What we most need if we're going to try to advance our 
efforts to try to improve increased contracting out for 
commercially available products is to have a system where we 
know and can have confidence in the cost comparisons that we're 
making. And one suggestion that I would make, in fact, is the 
Federal Advisory Committee that would look carefully into this 
question so that we know that, in fact, we're getting our 
money's worth.
    The fifth point is that new and enhanced strategies for 
improving the effectiveness of contract management could vastly 
improve our ability to be able to get our money's worth. And 
that means, in particular, focusing on human capital inside 
government and improved category management to try to improve 
the government's ability to be able to buy as one and reduce 
the level of duplication and to improve relationships with 
those who supply goods and services to government.
    So, Mr. Chairman, that concludes my remarks, and I'd be 
very happy to try to answer any questions that the committee 
may have. Thanks so much.
    [Prepared statement of Mr. Kettl follows:]
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    Mr. Meadows. Thank you, Professor Kettl.
    The chair recognizes the gentleman from South Carolina, Mr. 
Mulvaney, for 5 minutes.
    Mr. Mulvaney. I thank the chairman.
    I thank everybody for participating. Reminds me of my days 
on Small Business, which I miss from time to time.
    Ms. Styles, let's start with you and we'll just go down the 
aisle. I want to talk with you a little bit about the history, 
because I was not aware until recently of the demise of the A-
76 competition program. Tell me, why did the administration say 
they wanted to discontinue or suspend this program?
    Ms. Styles. Well, I mean, it's largely about Federal jobs. 
It's protecting the Federal jobs. It's the labor unions, the 
Federal employee labor unions protecting those jobs. It's as 
simple as that.
    Mr. Mulvaney. But the argument was made, right, it was 
supposed to save money? Correct?
    Ms. Styles. Yes.
    Mr. Mulvaney. How did that work out?
    Ms. Styles. Not so well.
    Mr. Mulvaney. Tell me about that.
    Ms. Styles. Well, it's very clear from history, and it's 
very clear from 40 years of history and studying A-76 and 
studying the competition, there are cost savings. Could there 
be better ways to measure, as Professor Kettl pointed out? 
Absolutely. But there's just a lot of--there have been dynamics 
for 40 years about the politics of this and whether you want 
the Federal jobs to stay in place or whether you want those 
jobs to go to the private sector.
    And so you see, you know, it's back and forth or it's a 
pendulum, however you want to describe it. Sometimes we look at 
it and say, we really need to examine these commercial 
activities; and other times we say, oh, we've examined them, we 
know we need to protect the Federal employees. So it's been 
back and forth, even though it's very, very clear when you 
subject these jobs to the pressures of competition, whether the 
private sector wins, the public sector wins, you get cost 
savings and you get better service.
    Mr. Mulvaney. Mr. Palatiello, is the private sector ready 
to step up and have these competitions again? Are there 
businesses that are prepared to provide the same services that 
the government does?
    Mr. Palatiello. Oh, absolutely. Absolutely. They're 
providing it in a marketplace today. You have examples where 
you have one Federal agency, for example, that considers 
something inherently governmental and another is successfully 
contracting for that service. So you have firms--for example, 
I'll use the mapping example that I mentioned in my testimony.
    You have the geological survey that has demonstrated very 
successfully how to use the private sector in this field, but 
then you have, for example, NOAA that still does a significant 
amount of its hydrographic surveying and mapping in-house.
    I got an email the other day from a company--and this is 
not unusual. I get these every couple of months--companies that 
have indefinite delivery, indefinite quantity contracts for 
surveying and mapping with the Corps of Engineers and then 
don't get task orders, don't get any work out of the contract. 
And then they go on FedBizOpps and that same office with the 
Corps of Engineers is spending millions of dollars to buy 
equipment to beef up its in-house capability, but yet they're 
telling the firm we don't have any requirements, we don't have 
any money.
    Mr. Mulvaney. Is the Federal Government still in the pest 
extermination business?
    Mr. Palatiello. It is to a certain degree, and we applaud 
your efforts in that regard. There is a negotiated settlement 
between USDA and the pest management industry, but that's an 
example. This is a little bit of a dated example, but there was 
a--this is no disrespect to the dais, but there was a pest 
problem here on the Hill. Did the Congress contract out to a 
private company? No, they brought in the Department of 
Agriculture. No competitive bidding.
    Mr. Mulvaney. And I still have the mice traps in my office.
    Mr. McTigue, thank you. But you mentioned something I never 
even considered before, which is competition and 
intragovernment competition. Could you tell us very briefly 
about--more details about that, what you guys did in New 
Zealand? I've never heard of such a thing, never even occurred 
to me.
    Mr. McTigue. One of the things that happens inside 
government is that you often have to build a capability for a 
pretty small operation. So a relatively small agency has to 
build legal services, accounting services, payroll services, HR 
services. It's just smart to say, hey, not everybody has to do 
that. So-and-so next door has excess capacity there, we will 
buy it from them. In some cases, they will actually buy that, 
get together and buy it from the private sector.
    Mr. Mulvaney. I'm sorry to interrupt you, but you've just--
something just popped into my head, because we've had similar 
hearings on this exact topic, or something similar, I think, in 
this room, which is computer security; that certain agencies 
within the government have--do a tremendous job of protecting 
their computer systems and others do a really, really lousy job 
and don't even use some of the same systems.
    Would that be--could you do the same type of competition in 
that service area?
    Mr. McTigue. Certainly. But one of the experiences of the 
New Zealand Government, after having made huge mistakes in 
technology purchases, was to actually start contracting for 
capabilities. So what kind of capability do we want on people's 
desks, and we would buy those services?
    So instead of buying computers and servers, you bought that 
capability, and the provider made certain that you had that 
capability there all the time and it was continually renewed. 
It also means that you didn't have to go through dealing with 
the problem of getting capital for new purchases because you 
were now buying a service that was outside the capital budget.
    Mr. Mulvaney. Thank you. That's very helpful.
    Professor Kettl, I don't have any time left, but I have--
you said something, sir, that stunned me, in fact, shocked me. 
You said you had pleasant conversations with Mr. Grothman.
    Mr. Kettl. That's actually true, sir.
    Mr. Mulvaney. Can you--afterwards, can you teach us how to 
do that because we're----
    I yield back the balance of my time that I don't have.
    Mr. Meadows. I thank the gentleman.
    The chair recognizes the ranking member, Mr. Connolly, for 
5 minutes.
    Mr. Connolly. I thank the chair.
    And it may come as a further shock to my friend from South 
Carolina, I remember we had one vote--I can't remember when, 
though. It's a number of years ago--on the floor, and I was the 
only Democrat at that time who supported A-76. I mean, it was a 
lonely place. But I have been consistent in my position.
    Mr. Mulvaney. Have you figured out the Grothman thing yet?
    Mr. Connolly. And I'm working on that one.
    Mr. Mulvaney. Okay. All right.
    Mr. Connolly. I'm working on that one. We're working 
through a dictionary and the whole thing.
    I will say, sometimes people are consistent and 
inconsistent. Secretary Gates, when he was Secretary of 
Defense, of all people, a Bush holdover, announced that there 
was too much outsourcing and we needed to just put an 
artificial limit on it. And it reminded me of the scene in 
Amadeus where, you know, the emperor is saying to Mozart, you 
know, your music is beautiful but there are just too many 
notes. Cut out a few, it'd be perfect. And Mozart says, well, 
which notes did his majesty have in mind?
    How does one in a--is this some platonic ideal of what 
constitutes just the right percentage of outsourcing or just 
the right percentage of insourcing? And so I've tried to be 
consistent. I took on Secretary Gates, and we won that battle, 
actually, in the--in Virginia, about, no, we're not going to 
have artificial limits and there is no such thing as too much 
or too little.
    And I'm, you know, I'm going to be boringly consistent that 
it may not always make you happy because probably your 
prejudice on this side of the table tilts toward the private 
sector can always do it better. That's actually not always 
true, just factually not always true, as I discovered in 
running a local government. On the other hand, there are some 
things that absolutely the expertise is there, the management 
and expertise and so forth.
    Ms. Styles, I took your point about wanting to expand the 
outsourcing of services, which really began in bulk under 
Ronald Reagan and, maybe to the surprise of some, actually 
expanded under Bill Clinton and sustained under George W. Bush 
and expanded.
    But one of the things I think would be a fair criticism--
and my guess is Professor Kettl would agree--during those years 
of growth and outsourcing in the Bush years, what we did not do 
was keep up with quality contract management. We actually--the 
ratio changed lower and the risk of that is bad project 
management, losses, waste, and sometimes fraud. You agree?
    If you look back on in terms of area of self-criticism, 
would that be a fair criticism from your point of view?
    Ms. Styles. Well, I do agree, but I think there were a 
number of things going on. So you were in a post-2000 9/11 
environment, right. And so the Federal Government spending with 
the private sector went from $200 billion to $600 billion, and 
that's right after we'd gotten through Clinton administration 
cuts to the Federal workforce and to the Federal contracting 
workforce. Honestly, it was too much for them to handle all 
together at that time.
    Mr. Connolly. Professor Kettl, do you want to comment on 
that?
    Mr. Kettl. Sure. There are a couple of points that are 
worth making. The first is that whoever it is who can do the 
job best and most cheaply ought to do the job, and we have a 
hard time trying to make those comparisons. But the other 
thing--and this is a lesson the private sector teaches us--
contracts don't manage themselves. And one of our real 
problems, and if you look at sustained studies from OMB and GAO 
over the years, is that our acquisitions workforce is not 
strong enough and is not capable enough to be able to do the 
jobs that we're asking it to do.
    Mr. Connolly. Yeah.
    Mr. Kettl. The same things would be true for the private 
sector as well. And the costs of that are everything from the 
fact that $1 out of every $10 spent on Medicare through 
contracts is subject to improper payments and is a major 
problem. If you look at GAO's high risk list, we have a huge 
number of programs that are on the list because of inadequate 
contract management.
    So contracting, that makes great sense, but only makes 
sense if we have the capacity to be able to manage the 
contracts well.
    Mr. Connolly. Yeah. I think that's really key. If we're 
going to expand on outsourcing, we've got to have the contract 
management capability, the procurement and management 
capability. And as contracts get more technical, more 
technically detailed and complex, that becomes even more of a 
challenge because, quite frankly--I mean, I worked in the 
private sector for 20 years with two IT companies. The Federal 
Government has difficulty just matching the expertise of the 
private sector on the other side of the contract table, even 
when both parties mean well and want to make sure it works, let 
alone--you know, but the Federal--increasingly, the Federal 
manager on the other side is older and less skilled 
technically, if we're talking about IT contracts, big systems 
integration contracts, for example.
    And what can go wrong when you don't really have the 
expertise to manage a multibillion dollar, multiyear complex--
even--you need help from the outside in even determining the 
terms of reference to the contract, because you may know in 
laymen's terms what you want to accomplish but translating that 
technically into a contract so that the specified services are 
matched against your objectives, actually even that requires 
increasingly private sector expertise to help. And what can go 
wrong with that? Well, self-dealing, conflicts of interest, and 
so forth.
    Mr. Palatiello, you look like you want to comment on that.
    Mr. Palatiello. I do, Mr. Connolly, my Congressman. You 
make an excellent point, but I would place a caveat. If a 
Federal agency doesn't have the expertise because it's an aging 
population, it's not current with technology, that it can't 
write specifications and can't write a contract, you cannot 
then conclude that that agency has the capability to actually 
do that technology work in-house. And if you're not smart 
enough to go out and buy it--it's like the experience I once 
had.
    You know, I walked into the kitchen one day and Sally says 
to me, the garbage disposal is broken. I have a decision to 
make. Do I try to replace it myself or do I call the plumber 
and have him come in? Well, I tried to fix it myself.
    Mr. Connolly. Yeah.
    Mr. Palatiello. In a couple of days and several----
    Mr. Connolly. But in this case, there's no question about 
that. They are outsourcing, but they're having--I'm getting at 
the contract management piece, and it starts with how you write 
the terms of reference for what you think you need. You know--
--
    Mr. Palatiello. And we need the workforce to do that.
    Mr. Connolly. Yes. Yeah, because----
    Mr. Palatiello. I stated that in my testimony as well.
    Mr. Connolly. Absolutely.
    Mr. Palatiello. And that's an inherently governmental 
function, that is right. You don't want contractors hiring 
contractors on behalf of the government. That is a very 
important function, and it's a question of priorities. We need 
to have a good, strong acquisition--a stronger acquisition 
workforce in the government, absolutely essential.
    Mr. Connolly. Absolutely. And I just stand on this, because 
I can tell--you know this, but, I mean, the private sector 
doesn't want to be in that position. The private sector doesn't 
want to be in the position of substituting itself for contract 
management because it creates--well, it can sometimes eliminate 
them from competing. Because if you're going to do that, you 
can't compete for the actual work. And the government has kind 
of sometimes strict and funny conflict-of-interest rules that 
preclude the ability of companies, even pro bono, to provide 
expertise that we sometimes need.
    My time is up, Mr. Chairman. Thank you for indulging me.
    Mr. Meadows. I thank the gentleman.
    The chair recognizes the gentleman from Wisconsin, Mr. 
Grothman, for 5 minutes.
    Mr. Grothman. Thanks much.
    Professor, first of all, for Professor Kettl, how did you 
wind up over here?
    Mr. Kettl. I'm here--actually, I've--in what may have been 
a mistake in judgment, I left Wisconsin, and I'm now at the 
University of Maryland, where I actually served as dean for 5 
years, and I'm now a professor of public policy.
    Mr. Grothman. Okay. Very good. Now I got that.
    Mr. Kettl. But I still want to, for the record, assert the 
fact that I remain a shareholder of the Green Bay Packers.
    Mr. Grothman. Very good. Very good.
    Okay. I have questions for Ms. Styles or Mr. McTigue. The 
competitive sourcing critics say that any cost savings is eaten 
up by the cost of administering the competition. Is there any 
truth to that charge? Do you want to respond to that charge?
    Ms. Styles. So, of course, there's a cost to administering 
it. There's an infrastructure of people that actually have to 
run the competitions and then have to manage the contracts. But 
the cost savings are so significant, whether it stays in-house 
or whether it goes out to the private sector, it is not wholly 
eaten up. There are still cost savings, and frankly, there are 
still tremendous benefits of simply the pressure of competition 
giving us better performance and better service.
    Mr. Grothman. Is there any way we can measure, you know, 
the savings we had last time, the last time we used A-76 
competition?
    Ms. Styles. Well, what I was fascinated by, as I left the 
government at the end of 2003, and competitive sourcing 
continued to build--you know, a lot of the infrastructure for 
the civilian agencies, built on what had been done by the 
Clinton administration at DOD and pushing out the civilian 
agencies--I've been really stunned by the lack of data and 
information from those competitions that used to be out there. 
There was a law that required the information to be out there 
about the cost savings. It has almost entirely been taken down 
from the White House Web sites and the agency Web sites. The 
data should be there. It was reported to Congress. But it's 
there, there's just very, very little analysis of the most 
recent iteration.
    Mr. Grothman. So if I want to be a little bit jaded, I 
might wonder if there is a lot of cost savings, but for 
political reasons you want to hide the savings. Do you think 
that's what's going on here?
    Ms. Styles. I am really worried about that, because I was 
stunned. Professor Kettl actually mentioned the Federal 
Advisory Committee panel. There was one led by David Walker in 
2002. This is the report that they came out with. It cannot be 
found on the Internet. It literally--like how is that possible 
that a year's worth of efforts with a panel of ten experts is 
not available on the Internet? And this talks about the 
savings.
    Mr. Grothman. Hmm. Can you extrapolate from that report on 
the savings that you think we might have today if----
    Ms. Styles. Absolutely. I went back--and this was only, you 
know, a few days' effort, because Mr. Palatiello and I have 
lots of old files that we don't rely on the Internet 
necessarily to keep. And I went back through GAO reports, the 
Center for Naval Analyses, and I just scratched the surface of 
the ones that are available that demonstrate the cost savings. 
They're really hard to find now, though.
    Mr. Grothman. Okay.
    Mr. Palatiello. Mr. Grothman?
    Mr. Grothman. Yes.
    Mr. Palatiello. If I may, after Ms. Styles left the Office 
of Federal Procurement Policy, the program continued and OMB--
OFPP was issuing annual reports. The last one was in May of 
2008, reported on the competitive sourcing results for fiscal 
year 2007, and it documented the 2003 to 2007 savings at $7.2 
billion, with the majority of the savings to be realized over 
the next 5 years, and the annualized expected savings of over 
$1 billion. I have the full report. It is rather lengthy. 
Whether you want to enter it into the record or not----
    Ms. Styles. And it's not on the Internet. I looked for it. 
I could not--you may have been able to more easily.
    Mr. Palatiello. I think it could be found in some back 
archive someplace. It is not on the White House Web site any 
longer. But that is the most recent report that actually 
documents the savings that were achieved.
    Mr. Grothman. Professor Kettl, you must do research all the 
time. Do you find this is sometimes something you deal with in 
government; if the results are not what they want, it kind of 
gets hidden and you can't find the results?
    Mr. Kettl. In terms of trying to track down, especially old 
documents, things from the late 1990s and early 2000s are 
sometimes refugees from the Internet. And these are--this is 
information we need to try to recapture. But the broader point 
is that it is undoubtedly the case that we can save money by 
effective contracting. It's also undoubtedly the case that we 
can lose substantial money from ineffective contracting.
    We can create fraud, waste, and abuse by contracting 
managed poorly, and we can improve government performance by 
managing it well. And what we really need to do is to make sure 
we do more of the good stuff and less of the bad stuff. And our 
problem is creating the capacity for being able to do that and 
making the cost comparisons to make sure that we're making the 
smart decisions. And that's where the really difficult problems 
are.
    Mr. Grothman. You just think it's coincidence that that 
stuff is not on the Internet, of all the things that are on the 
Internet?
    Mr. Kettl. I think it probably--I can point to lots of 
stuff from back in the late 1990s and early 2000s that I have 
been looking for and just can't find anymore either. So it may 
very well be, especially if it's not the product of a 
particular agency that didn't have archival policies at that 
point.
    Mr. Grothman. We will give you one more question, and this 
is for Ms. Styles again. Are there any limitations we should 
place on the A-76 competitions? Either you or any one of the 
folks.
    Ms. Styles. Sure. I mean, there are inherently governmental 
functions, and that's a public policy decision to make. I mean, 
there were times after 2011 that we thought screening at 
airports was an inherently governmental function. And so there 
are some things that should be off limits, but saying that 
nothing should happen, that there should be zero examination of 
commercial activities, is not the right response.
    Mr. Grothman. It seems the answer should be obvious. Thanks 
much and I'll----
    Mr. Meadows. I thank the gentleman.
    Ms. Styles, if you will get the report to this committee, 
we will make sure that it's on the Internet in short order, and 
I can assure you that it will not disappear.
    Ms. Styles. Thank you.
    Mr. Meadows. And, Mr. Palatiello, if you've got something 
that you think would be prudent, and I think Professor Kettl 
makes a good point, is we need to look at the balance. Good 
data always makes for at least informed decisions. And so, in 
doing that, it doesn't always make for good decisions, but it 
makes for informed decisions. And so, as we do that, we will do 
that.
    The chair recognizes the gentleman from Tennessee, Mr. 
Duncan, for 5 minutes.
    Mr. Duncan. Well, thank you, Mr. Chairman, and I want to 
thank all of the witnesses for what I think has been very 
interesting and informative testimony.
    I tell people in my district all the time that we all don't 
hate each other up here, though some people out in the country 
seem to think that's the case and that everything is so 
partisan and divisive. I think I get along with almost all the 
Democrats in the Congress, but at the same time, I will say 
that, in this committee, we have had many fairly contentious 
hearings.
    This has been about the most pleasant hearing I think we've 
ever had in this committee, because I think I agree with about 
everything that everybody said here today.
    And Mr. Connolly talked about outsourcing the oil change 
functions and so forth. And I can tell you, I said in my 
statement, I said: This bill is not about contracting out to 
the private sector for the sake of just contracting things out; 
this bill is about getting the best service and at the lowest 
cost for the taxpayers.
    And Professor Kettl talked about how we need to manage 
these contracts better, and I agree with that, because I can 
tell you I am horrified when I read about some Federal 
contractor who is ripping the taxpayers off. That's not what 
this is about at all.
    Mr. Connolly talked about all the caucuses that he chairs, 
and he is a very hardworking and effective Member. I will tell 
you that, in this Congress--of course, in the Congress, to have 
an official caucus, you have to have a Republican co-chair and 
a Democratic co-chair. I'm the Republican chair of the Clean 
Water Caucus, because that is a special interest of mine.
    But I think it was about 12 years ago, the British Embassy 
called up and said they had run a genealogy and found out that 
I had more Scottish heritage than just about anybody in the 
Congress, and they asked me would I form a Friends of Scotland 
Caucus. And I was a little surprised at that, but I did that, 
and I still co-chair that caucus, and I really enjoy that. And 
I get teased all the time about being too tight, and maybe it's 
because of that Scottish heritage. But I remember I was told 
that they had two thick notebooks in one department that had 
biographical sketches of all the Members of Congress, and at 
the bottom, it had questions commonly asked at hearings. And 
they said, on most Members, it didn't have many questions 
listed, but under mine, it said: How much does it cost?
    And I thought, well, they've gotten me pretty accurately, 
but I think that we haven't had enough Members who have asked 
that question as much as we should have.
    And Mr. Connolly is correct also in saying that I guess 
most of us on this side do generally favor the private sector.
    Professor Kettl, what would you say to this: As a general 
rule, do you think the private sector does things more 
economically and efficiently than the public sector, or would 
you disagree with that?
    Mr. Kettl. I think it's a question that needs to be 
examined. Sometimes the answer is yes; sometimes the answer is 
no. Sometimes what government seeks to buy is not the kind of 
stuff that the private sector supplies. Sometimes when it comes 
to a lot of commercial activities, it does.
    And I think, as Mr. Connolly pointed out earlier, what's 
essential is to try to figure out what we want to buy, who can 
supply it best, and how the government can make sure it gets 
its money's worth. And that is the set of core questions that 
we have to examine, and there isn't I think a black or a white 
question on this. And we've sometimes gotten ourselves into the 
biggest problems by assuming we know the answers to the 
questions before we start looking at the evidence. I think we 
need just a much more careful examination of cost comparisons 
to be able to do this, and that I think is the key to unlocking 
the A-76 question.
    Mr. Duncan. Well, I think that's exactly right, what you've 
just said. And I also have read about the 10 percent of 
improper payments in the Medicare program, and that's something 
that we all want to fight and do as much as we can about.
    I guess another thing, I always usually root for the 
underdog in sports, and I usually almost always root for the 
small business against the big business. So one reason I've 
worked with Mr. Palatiello for so many years is that, you know, 
he's testified here today that 71 percent of the businesses 
that would benefit from this primarily are small businesses.
    And do any of you question or doubt this when he said that 
the potential savings here are probably $35 billion or more? 
Would any of you question that? In other words, do all of you 
agree that there can be substantial savings----
    Ms. Styles. I certainly agree, yes.
    Mr. Duncan. --if we expand this?
    Mr. McTigue?
    Mr. McTigue. I just want to make two comments there, Mr. 
Duncan, that I think are important. The first is, one of my 
jobs in government was controlling government spending. You can 
save all of the money if you stop doing everything. So there's 
a tradeoff. You're going to spend some money, but what you 
really need to measure is what you get in return. So sometimes 
the lowest price is not necessarily the best deal. I think 
that's very important.
    The second thing is, unrelated to this, please don't think 
that A-76 is a miraculous, perfect document. I would start off 
with a big red pencil and get rid of three-quarters of it. It 
tries to micromanage the process too much. And if you were just 
judging the end result, you would get a much better result than 
you would by using all of that micromanagement, because a lot 
of the accountability is for complying with the process rather 
than getting the best result.
    Mr. Duncan. Right. Mr. Palatiello, this isn't all just 
about savings, saving money, though, is it? Aren't there other 
potential benefits?
    Mr. Palatiello. Well, yes, and I spelled them out in my 
testimony, in terms of bringing in innovation, being able to 
manage the workforce for peak loads, things of that nature.
    But two other points. One is I think all the Kumbaya has 
just gone out, because Mr. McTigue would take a red pen to A-
76, and he's sitting here with the author of the last version 
of A-76. So I think Angela may be a little offended by that.
    Let me point out something that we really haven't discussed 
in detail this morning and the reason why I stand behind my $35 
billion figure. The way A-76 works is an agency says: Okay. We 
have a widget-making function that we have in our agency, and 
we are using government employees, and we have 100 Federal 
employees involved in making widgets, and we are going to 
compete that against the private sector.
    Well, the first thing that occurs is that 100-person 
widget-making function goes through what is called an MEO, a 
most efficient organization reengineering. And they may 
determine that they can make widgets with 75 people. Well, it's 
that 75-person function that then gets competed against the 
private sector, and the better provider wins.
    So, in terms of cost saving, the taxpayer saves regardless 
of whether the activity gets contracted out or stays in-house, 
because then that 75-person MEO gets implemented and the 
savings are achieved.
    I would point out in the study that--or the report from OMB 
that I cited earlier, in fiscal year 2007, this was not 
something that was applauded by the private sector. Seventy-
three percent of the A-76s that were conducted in fiscal year 
2007 stayed in-house, but there were still savings.
    So your bill, for example, Mr. Duncan, doesn't mandate 
contracting out; it mandates some type of review. Do something 
with that commercial activity so a saving and an efficiency 
will be achieved, regardless of whether the work gets 
contracted or not.
    So, to Mr. Connolly's point, no, our position is not that 
the private sector is always more efficient than the 
government. We think things always ought to be studied and 
competed to make the determination as to who should be the 
better provider.
    Mr. Duncan. Well, I've gone way over on my time, and I 
apologize, but let me say this. We were able to pass this 
earlier bill out of this committee, and it's in law, and I am 
very pleased about that. But what we're trying to do is go a 
little bit further, expand on that. And I think that it would 
be a good thing if we could do that, and that's what this is 
about. Anyway, I will stop.
    I will say this, Mr. McTigue. I came to New Zealand many 
years ago. It's a beautiful country, and they actually had me 
shear a sheep on a sheep farm there. And my dad told me many 
years ago, he said, everything looks easy from a distance. And 
I can tell you there's a lot of truth in that, because that is 
a very difficult thing. The professionals make it look pretty 
easy, but it's not.
    Mr. McTigue. Every Scotsperson should be able to shear a 
sheep.
    Mr. Duncan. Thank you.
    Mr. Meadows. I thank the gentleman for his questions and 
his interest in this topic.
    The chair recognizes himself for a series of questions, and 
so I just want to try to bring some of this into focus in two 
ways. One is I want to thank all of you for being here today 
and, actually, for the genteel way that we have had differing 
opinions bantered back and forth. I think I would agree with 
Mr. Duncan that it's refreshing.
    I would be remiss, however, if I would suggest that we're 
all on the same sheet of music at this particular point, 
because this is the start--and I would like to reemphasize--the 
start of really looking at procurement overall and how we do it 
and how it should be done, what are best practices.
    Mr. Connolly and I have really agreed to start to lay the 
foundation for real reform. It will not happen this year. And 
so that foundation will start to be laid, hopefully, again, in 
the spring of the next term, provided that both of our 
constituencies believe that we should return, and then, from 
there, start to make real progress on how we look at 
procurement overall, whether it is the public/private side of 
things, whether it is procurement overall, whether it is best 
practices. And this is much larger than just this particular 
contracting issue.
    With that being said, it is incumbent on all of you, all 
four of you, to get us real details on what you see are the 
problems associated with this. Mr. Connolly actually has two 
very tough constituencies. He has Federal contractors and 
Federal workforce, of which those have at times competing 
interests with regard to this particular issue that he has 
articulated. He has also been one who has been very transparent 
in saying he wants to make sure that we do the best thing at 
the right time at no expense to the American taxpayer, and I'm 
taking him at his word. We've been able to work in a real 
bipartisan way there.
    So, with that being said, here's what I would like each one 
of you to comment on. As we start to look at the procurement 
process and if we are going to go from less insourcing to more 
outsourcing, one of the troubling things--and I see some of our 
Federal contractors here--that I get, it gets to be we have an 
outside firm who is going to do some Federal work, but we put 
so many parameters on it that we don't actually allow the 
outside firms to come forward with a proposal that will 
actually be implemented in an effective way.
    So then the finger-pointing starts. I used to have general 
contractors that worked for me. So you had a general contractor 
say: Well, it wasn't my fault. It was the subcontractor over 
here, or it was this person.
    What I need from each one of you for you to comment on is 
where you get that conflict, where you have a Federal agency 
that puts out an RFP that is maybe too ambiguous, and so 
everybody is bidding on this, and then all of a sudden, we try 
to work it out later on in the process.
    And, Mr. McTigue, have you ever seen that happen in the 
public arena?
    Mr. McTigue. Absolutely. I also had the task of stopping it 
from happening. And one of the things is what I mentioned in my 
testimony, allowing, readily allowing departures from the 
signed contract, because around that, you get changes to terms 
and conditions and changes to payments, and then it's not fair 
to all of those who failed in the bid.
    The second thing I would say about that is that there's too 
much focus on how many jobs are being contracted. I think that 
it's the task that you are contracting that is more important 
and whether or not you can get better outcomes from putting 
that out to competition.
    And part of it is not just about price; it's about, how can 
we do it better? That might be better technology. It might just 
be better empathy with the subject groups that you're going to 
deal with. Also, sometimes, it means that the best bid is one 
you have to turn down. I got a bid once, we were putting--
contracting out debt collection. And that was very effective. 
We were getting a lot of debts that previously were hard to 
collect. One of the bidders was actually the Road Knights 
motorcycle gang, and they theoretically had a very good record 
of collecting money, but we had to say: No, you are not a 
satisfactory bidder.
    So those things have to be taken into account in the 
process.
    Mr. Meadows. Point well taken.
    Ms. Styles, in that Mr. McTigue would like to redline most 
of your proprietary work, how would you take some of that and 
streamline it so that we can be more efficient and effective as 
it relates to the contracting and procurement process?
    Ms. Styles. Well, what I really appreciate about this 
hearing is, I will tell you, in my 3 years at OMB--and I must 
have testified like more than 20 times on this issue while I 
was in the government--is that rarely do people understand that 
public-private competition wasn't going to be effective unless 
our procurement system was really effective.
    And I think what you're finding today is that, as the 
dollars increase going out the door to Federal contractors--and 
it wasn't just public-private competition; it was just because 
we were spending more to fight terrorism, really--is that the 
oversight increases.
    So what you see today is you've got the Department of 
Justice, DCAA. You've got the IGs. You've got AUSAs. You've got 
the press that all look at contractors, and what has happened 
is there has been this extraordinary chill in the discussions 
between them.
    So when you describe the situation where, you know, the 
government comes out because nobody will talk to them about 
what their requirement is, they don't really have enough 
information from the private sector to really put together a 
good RFP. And then when things start going bad, they're even 
scared to talk to the government about it, just because, are we 
going to be investigated? Is my contracting officer going to be 
investigated? Is my company going to be investigated? So it's 
created a real chill in the procurement system in terms of 
providing the best service, I think, for the taxpayer.
    I will say, though, in the A-76 process and in rewriting 
it, like anything else, it's a compromise. We worked extremely 
closely, believe it or not, with the AFGE on rewriting that. 
You know, the door was very open. They commented on many 
versions of it. I'm not going to say that it was always 
friendly, but the door was always open, and we worked really 
hard on that.
    I think, after I left, it became just more, you know, 
difficult between the administration and the AFGE. And it's 
really critically important, whether you rewrite A-76 or not, 
that you really have both parties at the table to compromise. 
And it's going to be a compromise. And sometimes that means 
that compromise on how you do the process is pretty 
complicated.
    But I will say my mantra in running my law firm is that you 
should never let the perfect be the enemy of the good enough. 
And here you see $1.2 million commercial activities that aren't 
being competed. Do something. You know, actually, take a look 
at some of these things as opposed to waiting for the perfect 
process or the perfect cost comparison. That will never exist.
    Mr. Meadows. Professor Kettl, obviously, as you've looked 
at this, you can see a number of the cost issues. Have you seen 
there being a very difficult time to determine that real cost 
comparison?
    So you have public sector, private sector. I was in the 
private sector all my life, and I put everything in there, 
because, I mean, whether it was the gas to get vehicles there, 
I had to figure it, because if I made a mistake, it meant that 
I had to declare bankruptcy. And so it was accounting for all 
those costs. And at times, in the public sector, we don't 
necessarily do that.
    So would you suggest that the current cost analysis at 
times is ambiguous or--and I don't want to put words in your 
mouth, but you've looked at that and testified to that.
    Mr. Kettl. Sure. You can look at whether it's ambiguous, 
whether it's uncertain. At the very least, it's contentious. 
The basic problem is we just don't have an agreed-upon 
methodology for making the cost comparisons. If the basic point 
is, whoever it is who can do the job best and cheapest ought to 
get the work, we need to be able to figure out how to do that 
and how to have some consensus on agreeing on what that looks 
like. And we have no consensus on how to do that.
    My suggestion is to circle back, perhaps, to this idea of 
creating an advisory committee to establish a methodology that 
creates a level playing field. This is a set of rules by which 
everybody will agree to play, and it's something that, in the 
coming year, may be something--can be the foundation for both 
trying to reinvigorate A-76 and being able to establish the 
goal of giving the work to whoever it is who can do it best and 
cheapest.
    Mr. Meadows. All right.
    Mr. Palatiello. Mr. Chairman, there are three things that I 
would add. First of all, the FAIR Act was a compromise. As Mr. 
Duncan indicated, he had an earlier version of the Freedom from 
Government Competition Act. There was a negotiation between the 
private sector--I was chairing the Procurement and 
Privatization Council of the U.S. Chamber at the time, so I was 
very much involved in those discussions--AFGE and the Clinton 
administration, and what we all could agree to was the FAIR 
Act.
    I would agree with Mr. Duncan that the shortcoming and one 
thing we had to give in that was the FAIR Act said: Do the 
inventory and then review everything on the inventory. We could 
not reach agreement as to what constituted that review. The 
term was not defined. And his current bill tries to establish 
what that review process is.
    I would agree that the--you know, when I cited before, when 
in the last year where there's a report from the Bush 
administration, that 73 percent of the competition went to the 
government, the private sector was saying: Well, we don't have 
a good methodology for calculating the in-house government 
cost; there's no way they could be winning that percentage. So 
I would agree that revisiting that issue is probably 
worthwhile.
    Three things that I think are absolutely essential: One, as 
I think many of us have said, is training and rebuilding that 
acquisition workforce.
    The second is communication, and Ms. Styles mentioned that. 
It is amazing today, when a government agency puts out an RFP, 
the communication shuts down. ``Oh, I can't talk to you about 
this because we have to preserve procurement integrity. If I 
tell you something, I'm afraid I won't tell one of your 
competitors.'' So the communication just gets shut down, and 
that's not good for the process. So I think that is another 
thing we have to review.
    And the third is, surprisingly, the communication within 
the government. Often, whether this is a regular procurement or 
an A-76, the program manager often doesn't see the RFP until 
it's out in the--I am dating myself, Commerce Business Daily--
FedBizOpps. So there's this lack of communication between the 
contracting officers and the program people that actually have 
to use the service or product once it's purchased. So I think 
enhancing that communication would really improve the process 
all the way around, communication within the government and 
communication between government and the firms that are seeking 
to compete for the contract.
    Mr. Meadows. All right. Well, thank you all.
    I'm going to recognize the ranking member, Mr. Connolly, 
for his closing remarks.
    Mr. Connolly. Thank you, Mr. Chairman.
    And thank you to the panel.
    And good luck with that apples-to-apples thing. I mean, we 
have that problem even within the private sector, because there 
are people who come in and low bid and win contracts. And I can 
remember arguing about whether they had fully loaded costs in 
their proposal and so forth and accurate overhead and 
administrative costs and so forth.
    So, at the end of the day, this happens all the time, but, 
I mean, for various and sundry reasons, sometimes because of 
set-asides or whatever, but somebody who wins the contract 
obviously patently does not have the capacity to undertake the 
contract and then has to subcontract with the people who do 
have the expertise. And it's a bit of a shell game, so that we 
meet check boxes or meet certain statistical goals. And I am 
not sure the public is well-served by that, or the private 
sector, frankly, is well-served by that, but that is a 
different issue.
    I just want to point out in context and to end, Mr. 
Chairman--because one would not want the impression left from 
this hearing that somehow we're starving the private sector of 
Federal Government business--we spend over a half a trillion 
dollars a year on outside products and services. And that's a 
pretty big increase from where we started, say, at the 
beginning of the Bush administration, 2000. We grew 87 percent 
in that time period. It's growing at a rate of about 5 percent 
a year.
    Contracting also grew as a percentage of total Federal 
spending during that time. So it's not like, ``Well, yeah, but 
if you look at the total pie, it shrunk.'' No. Actually, 
contracting grew from 11 percent to 15 percent.
    And then a final point that the GAO presented to us: The 
Federal Government spends more on contract employees--your 
point when you were talking about my district--than it does on 
public employees. GAO pointed out that non-DOD agencies spent 
$126 billion on service contractors, and DOD spent $184 
billion, for a total of $310 billion. The total cost of Federal 
civilian employees, excluding Postal Service--they are not 
exactly Federal employees--by way of contrast, was $240 
billion.
    So, you know, again, for me, it's not theology, but I did 
want to put it in context. Actually, contracting has grown. 
Non-Federal employment in this context has also grown. And the 
Federal workforce, as a percentage or in a ratio to U.S. 
population, has actually shrunk.
    Thank you, Mr. Chairman.
    Mr. Meadows. I thank the gentleman.
    I'd like to thank all of our witnesses for being here, and 
so let me just close by saying this. It is not my policy nor my 
desire to hold hearings just to hold hearings. And I think you 
will find the ranking member and I have been committed to not 
only hold hearings but to follow up on those things. So, 
whether it's input from stakeholders, whether it's input from 
you, as witnesses and experts in this field, if you will get it 
to this committee. This fits into really a painting that we've 
started to paint on a canvas that, when we came in, really was 
blank. We said: We're going to take a blank canvas, make no 
assumptions, and then start to put the different images on a 
canvas. And by that, whether it is this, whether it is job 
sharing, whether it is FITARA, whether it is the DATA Act, a 
number of these areas that start to bring in different 
parameters on what we do well and what we don't do well, we are 
in that information-gathering process, but it is one that we 
will be tenacious and diligent on until, ultimately, we come up 
with a product that incorporates something like Mr. Duncan has 
in his and a number of other legislative remedies and then 
working with whatever administration is there to hopefully look 
at the procurement process that advances the efficiency and 
accountability that we all want.
    So I want to thank you, look forward to your continued 
input.
    And, with that, if there is no further business, without 
objection, the subcommittee stands adjourned.
    [Whereupon, at 10:29 a.m., the subcommittee was adjourned.]


                                APPENDIX

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