[Congressional Record Volume 143, Number 18 (Wednesday, February 12, 1997)]
[Senate]
[Pages S1310-S1315]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. THOMAS (for himself, Mr. Hagel, Mr. Kyl, Mr. Enzi, Mr. 
        Brownback, and Mr. Craig):
  S. 314. A bill to require that the Federal Government procure from 
the private sector the goods and services necessary for the operations 
and management of certain Government agencies, and for other purposes; 
to the Committee on Governmental Affairs.


          THE FREEDOM FROM GOVERNMENT COMPETITION ACT OF 1997

  Mr. THOMAS. Mr. President, I rise to introduce a bill that is one of 
my top priorities for this Congress. It is called the Freedom from 
Government Competition Act. It is I think a common sense, good 
Government reform bill. I am joined in the effort by Senators Hagel, 
Kyl, Enzi, Brownback, and Craig.
  This legislation has the potential to open up a $30 billion market 
for the Nation's small and large businesses. It is designed to level 
the playing field for thousands of businesses that span the economic 
spectrum of this country from the mundane to the high tech. It will 
also provide a more efficient Government, one that works better and 
costs less.
  Government competition with the private sector is a growing problem. 
Over the last 40 years, it has been the Federal policy of saying let us 
do those things that are commercial in the private sector, but it has 
not worked. We have not moved toward that goal. The bureaucracy has not 
found ways and means to procure goods and services from the private 
sector. For example, CBO has estimated that 1.4 million employees work 
in areas that are commercial in nature. We need a statutory provision 
to correct this problem.
  In order to reach the goal of a balanced budget, we need to rely, I 
believe, on the private sector for many of the Federal Government's 
needs. Various studies indicate that we can save up to $30 billion 
annually doing this. This competition, of course, not only wastes 
taxpayers' money but it stunts job growth in the private sector, 
stifles economic growth, erodes the tax base and hurts small 
businesses. And it has been one of the top priorities in the three 
meetings of the White House Conference on Small Business.
  The bill basically codifies the 40-year-old Federal policy and that 
is to use the private sector. There are exceptions to this policy laid 
out in the bill: those functions that are inherently governmental, 
those goods and services that are in the interest of national security, 
goods or services that the Federal Government can provide better at a 
better value than the private sector, and goods and services, of 
course, that the private sector cannot provide.
  This bill establishes a system where OMB can identify those functions 
to properly stay within the Federal establishment and those that can 
better be done by the private sector. This legislation establishes an 
office of commercial activities within OMB to do that. No longer is the 
agency that is charged with doing the contracting the one that makes 
decisions of whether it will be contracted or not.
  Certainly we are all sensitive to Federal employees' concerns should 
they be impacted. For those who are displaced, we have included 
provisions that facilitate transition to the private sector if they 
choose to follow that path.
  The intention of the legislation is to get agencies to focus on their 
core missions. This focus will ensure a better value to American 
taxpayers. I do not wish to abolish all Government functions. But I am 
saying that there is private sector expertise waiting to be utilized.
  Congressman Duncan in the House has introduced a companion bill. It 
also was introduced today.
  The U.S. Senate is already on record as supporting this concept. Last 
year you may recall the Senate voted 59 to 39 in favor of an amendment 
I offered on the Treasury-Postal appropriations bill that would have 
prevented unfair Government competition with the private sector. 
However, it was dropped from the omnibus spending package. This 
comprehensive legislation builds on that success.
  Also, last year the Senate Governmental Affairs Committee held a 
hearing on this bill. We received some good input and have made some 
changes in the bill based on it. I look forward to working with my 
colleagues on both sides of the aisle on this legislation. I think the 
political climate is right for enacting this concept.
  Finally, it is a fairly simple bill. It says that we still believe in 
the philosophy of having the private sector do those things that are 
commercial in nature. This legislation lays out a system for doing 
that, identifying those things that are inherently governmental and 
those goods and services that can be done in the private sector. It's 
an idea this Congress really ought to consider. It would be a money 
saver. It is philosophically right, it will help the private sector a 
great deal and give taxpayers a bigger bang for their buck.
  I ask unanimous consent that the following materials be printed in 
the Record: A copy of the bill, a section-by-section analysis, a list 
of groups endorsing the bill, a letter of endorsement from the U.S. 
Chamber of Commerce, and a letter of endorsement from the Business 
Coalition for Fair Competition.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 314

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Freedom From Government 
     Competition Act of 1997''.

     SEC. 2. FINDINGS.

       Congress finds and declares that--
       (1) private sector business concerns, which are free to 
     respond to the private or public demands of the marketplace, 
     constitute the strength of the American economic system;
       (2) competitive private sector enterprises are the most 
     productive, efficient, and effective sources of goods and 
     services;
       (3) government competition with the private sector of the 
     economy is detrimental to all businesses and the American 
     economic system;
       (4) government competition with the private sector of the 
     economy is at an unacceptably high level, both in scope and 
     in dollar volume;
       (5) when a government engages in entrepreneurial activities 
     that are beyond its core mission and compete with the private 
     sector--
       (A) the focus and attention of the government are diverted 
     from executing the basic mission and work of that government; 
     and
       (B) those activities constitute unfair government 
     competition with the private sector;
       (6) current laws and policies have failed to address 
     adequately the problem of government competition with the 
     private sector of the economy;
       (7) the level of government competition with the private 
     sector, especially with small businesses, has been a priority 
     issue of each White House Conference on Small Business;
       (8) reliance on the private sector is consistent with the 
     goals of the Government Performance and Results Act of 1993 
     (Public Law 103-62);
       (9) reliance on the private sector is necessary and 
     desirable for proper implementation of the Federal Workforce 
     Restructuring Act of 1994 (Public Law 103-226);

[[Page S1311]]

       (10) it is in the public interest that the Federal 
     Government establish a consistent policy to rely on the 
     private sector of the economy to provide goods and services 
     that are necessary for or beneficial to the operation and 
     management of Federal Government agencies and to avoid 
     Federal Government competition with the private sector of the 
     economy; and
       (11) it is in the public interest for the private sector to 
     utilize employees who are adversely affected by conversions 
     to use of private sector entities for providing goods and 
     services on behalf of the Federal Government.

     SEC. 3. RELIANCE ON THE PRIVATE SECTOR.

       (a) General Policy.--Notwithstanding any other provision of 
     law, except as provided in subsection (c), each agency shall 
     procure from sources in the private sector all goods and 
     services that are necessary for or beneficial to the 
     accomplishment of authorized functions of the agency.
       (b) Prohibitions Regarding Transactions in Goods and 
     Services.--
       (1) Provision by government generally.--No agency may begin 
     or carry out any activity to provide any products or services 
     that can be provided by the private sector.
       (2) Transactions between governmental entities.--No agency 
     may obtain any goods or services from or provide any goods or 
     services to any other governmental entity.
       (c) Exceptions.--Subsections (a) and (b) do not apply to 
     goods or services necessary for or beneficial to the 
     accomplishment of authorized functions of an agency under the 
     following conditions:
       (1) Either--
       (A) the goods or services are inherently governmental in 
     nature within the meaning of section 6(b); or
       (B) the Director of the Office of Management and Budget 
     determines that the provision of the goods or services is 
     otherwise an inherently governmental function.
       (2) The head of the agency determines that the goods or 
     services should be produced, provided, or manufactured by the 
     Federal Government for reasons of national security.
       (3) The Federal Government is determined to be the best 
     value source of the goods or services in accordance with 
     regulations prescribed pursuant to section 4(a)(2)(C).
       (4) The private sector sources of the goods or services, or 
     the practices of such sources, are not adequate to satisfy 
     the agency's requirements.

     SEC. 4. ADMINISTRATIVE PROVISIONS.

       (a) Regulations.--
       (1) OMB responsibility.--The Director of the Office of 
     Management and Budget shall prescribe regulations to carry 
     out this Act.
       (2) Content.--
       (A) Private sector preference.--Consistent with the policy 
     and prohibitions set forth in section 3, the regulations 
     shall emphasize a preference for the provision of goods and 
     services by private sector sources.
       (B) Fairness for federal employees..--In order to ensure 
     the fair treatment of Federal Government employees, the 
     regulations--
       (i) shall not contravene any law or regulation regarding 
     Federal Government employees; and
       (ii) shall provide for the Director of the Office of 
     Management and Budget, in consultation with the Director of 
     the Office of Personnel Management, to furnish information on 
     relevant available benefits and assistance to Federal 
     Government employees adversely affected by conversions to use 
     of private sector entities for providing goods and services.
       (C) Best value sources.--
       (i) Standards and procedures.--The regulations shall 
     include standards and procedures for determining whether it 
     is a private sector source or an agency that provides certain 
     goods or services for the best value.
       (ii) Factors considered.--The standards and procedures 
     shall include requirements for consideration of analyses of 
     all direct and indirect costs (performed in a manner 
     consistent with generally accepted cost-accounting 
     principles), the qualifications of sources, the past 
     performance of sources, and any other technical and noncost 
     factors that are relevant.
       (iii) Consultation requirement.--The Director shall consult 
     with persons from the private sector and persons from the 
     public sector in developing the standards and procedures.
       (D) Appropriate governmental activities.--The regulations 
     shall include a methodology for determining what types of 
     activities performed by an agency should continue to be 
     performed by the agency or any other agency.
       (b) Compliance and Implementation Assistance.--
       (1) OMB center for commercial activities.--The Director of 
     the Office of Management and Budget shall establish a Center 
     for Commercial Activities within the Office of Management and 
     Budget.
       (2) Responsibilities.--The Center--
       (A) shall be responsible for the implementation of and 
     compliance with the policies, standards, and procedures that 
     are set forth in this Act or are prescribed to carry out this 
     Act; and
       (B) shall provide agencies and private sector entities with 
     guidance, information, and other assistance appropriate for 
     facilitating conversions to use of private sector entities 
     for providing goods and services on behalf of the Federal 
     Government.

     SEC. 5. STUDY AND REPORT ON COMMERCIAL ACTIVITIES OF THE 
                   GOVERNMENT.

       (a) Annual Performance Plan.--Section 1115(a) of title 31, 
     United States Code, is amended--
       (1) by striking ``and'' at the end of paragraph (5);
       (2) by striking the period at the end of paragraph (6) and 
     inserting ``; and''; and
       (3) by adding at the end the following:
       ``(7) include--
       ``(A) the identity of each program activity that is 
     performed for the agency by a private sector entity in 
     accordance with the Freedom From Government Competition Act 
     of 1997; and
       ``(B) the identity of each program activity that is not 
     subject to the Freedom From Government Competition Act of 
     1997 by reason of an exception set forth in that Act, 
     together with a discussion specifying why the activity is 
     determined to be covered by the exception.''.
       (b) Annual Performance Report.--Section 1116(d)(3) of title 
     31, United States Code, is amended--
       (1) by striking ``explain and describe,'' in the matter 
     preceding subparagraph (A);
       (2) in subparagraph (A), by inserting ``explain and 
     describe'' after ``(A)'';
       (3) in subparagraph (B)--
       (A) by inserting ``explain and describe'' after ``(B)''; 
     and
       (B) by striking ``and'' at the end;
       (4) in subparagraph (C)--
       (A) by inserting ``explain and describe'' after 
     ``infeasible,''; and
       (B) by inserting ``and'' at the end; and
       (5) by adding at the end the following:
       ``(D) in the case of an activity not performed by a private 
     sector entity--
       ``(i) explain and describe whether the activity could be 
     performed for the Federal Government by a private sector 
     entity in accordance with the Freedom From Government 
     Competition Act of 1997; and
       ``(ii) if the activity could be performed by a private 
     sector entity, set forth a schedule for converting to 
     performance of the activity by a private sector entity;''.

     SEC. 6. DEFINITIONS.

       (a) Agency.--As used in this Act, the term ``agency'' means 
     the following:
       (1) Executive department.--An executive department as 
     defined by section 101 of title 5, United States Code.
       (2) Military department.--A military department as defined 
     by section 102 of such title.
       (3) Independent establishment.--An independent 
     establishment as defined by section 104(1) of such title.
       (b) Inherently Governmental Goods and Services.--
       (1) Performance of inherently governmental functions.--For 
     the purposes of section 3(c)(1)(A), goods or services are 
     inherently governmental in nature if the providing of such 
     goods or services is an inherently governmental function.
       (2) Inherently governmental functions described.--
       (A) Functions included.--For the purposes of paragraph (1), 
     a function shall be considered an inherently governmental 
     function if the function is so intimately related to the 
     public interest as to mandate performance by Federal 
     Government employees. Such functions include activities that 
     require either the exercise of discretion in applying Federal 
     Government authority or the making of value judgments in 
     making decisions for the Federal Government, including 
     judgments relating to monetary transactions and entitlements. 
     An inherently governmental function involves, among other 
     things, the interpretation and execution of the laws of the 
     United States so as to--
       (i) bind the United States to take or not to take some 
     action by contract, policy, regulation, authorization, order, 
     or otherwise;
       (ii) determine, protect, and advance its economic, 
     political, territorial, property, or other interests by 
     military or diplomatic action, civil or criminal judicial 
     proceedings, contract management, or otherwise;
       (iii) significantly affect the life, liberty, or property 
     of private persons;
       (iv) commission, appoint, direct, or control officers or 
     employees of the United States; or
       (v) exert ultimate control over the acquisition, use, or 
     disposition of the property, real or personal, tangible or 
     intangible, of the United States, including the control or 
     disbursement of appropriated and other Federal funds.
       (B) Functions excluded.--For the purposes of paragraph (1), 
     inherently governmental functions do not normally include--
       (i) gathering information for or providing advice, 
     opinions, recommendations, or ideas to Federal Government 
     officials;
       (ii) any function that is primarily ministerial or internal 
     in nature (such as building security, mail operations, 
     operation of cafeterias, laundry and housekeeping, facilities 
     operations and maintenance, warehouse operations, motor 
     vehicle fleet management and operations, or other routine 
     electrical or mechanical services); or
       (iii) any good or service which is currently or could 
     reasonably be produced or performed, respectively, by an 
     entity in the private sector.
                                  ____


  Freedom From Government Competition Act--Section-by-Section Analysis

       Sec. 1. Bill entitled ``Freedom from Government Competition 
     Act.''
       Sec. 2. Establishes findings and declarations, including--
     The private sector constitutes the strength of the American 
     economy; Private sector is the most efficient provider of 
     goods and services; Government

[[Page S1312]]

     competition is harmful to the private sector, including small 
     business and has been identified as such by the three 
     sessions of the White House Conference on Small Business 
     (1980, 1986, 1994); Entrepreneurial government diverts 
     agencies from their core missions and results in unfair 
     government competition with the private sector; Current laws 
     and policies have failed to address the problem; Reliance on 
     the private sector is consistent with recently enacted 
     government reform legislation, including the Government 
     Performance and Results Act and Federal Workforce 
     Restructuring Act; and It is in the public interest to rely 
     on the private sector for commercially available goods and 
     services and to assist those government employees adversely 
     affected by conversions of government activities to the 
     private sector.
       Sec. 3. Establishes a general policy of reliance on the 
     private sector.
       Provides that the government should rely on the private 
     sector for goods and services except under certain conditions 
     (listed below). The government may not obtain goods and 
     services from or provide goods and services to any other 
     governmental entity.
       Provide exceptions to this general policy for--Goods or 
     services that are ``inherently governmental'' in nature as 
     defined in the bill or as determined by OMB; Goods or 
     services that must be provided by the government for reasons 
     of national security; Goods or services for which the Federal 
     government is the ``best value'' source; and Goods or 
     services for which private sector capabilities or practices 
     are not adequate to satisfy the government's requirements.
       Sec. 4. Provides administrative provisions to implement the 
     Act.--Authorizes OMB to prescribe regulations to implement 
     the Act; Requires regulations to be consistent with the 
     policy of preference for the private sector as established in 
     section 3; Establishes regulations to preserve existing 
     Federal employee benefits and requires OMB consultation with 
     OPM on providing information to Federal employees on relevant 
     benefits and assistance for those affected by a conversion of 
     an activity from government to private sector performance; 
     Requires OMB regulations to create level playing field for 
     determination of the ``best value'' (see Sec. 3 above), 
     including all direct and indirect costs (in accordance with 
     accepted cost-accounting principles), qualifications, past 
     performance and other technical and non-cost factors, 
     developed in consultation with the public and private sector; 
     Requires OMB to establish a process for determining 
     activities that should continue to be performed by the 
     government; and Establishes a ``Center for Commercial 
     Activities'' in OMB to implement the Act, assure proper 
     compliance, and provide guidance, information and assistance 
     to agencies and the private sector on converting activities 
     from the government to the private sector.
       Sec. 5. Requires studies and reports on implementation of 
     the Act.--Rather than creating new reporting requirements, 
     the bill amends the Government Performance and Results Act to 
     include annual reports on agency activities converted to 
     contract and those maintained in-house by the agency. Also 
     requires establishment of a schedule for converting to the 
     private sector those activities that can be performed by the 
     private sector.
       Sec. 6. Provides definitions of terms used in the Act.--
     Defines ``agency'' consistent with existing law; and Defines 
     ``inherently governmental'' consistent with the existing 
     Office of Federal Procurement Policy definition. (OFPP Letter 
     92-1).
                                  ____


   Groups Supporting the ``Freedom From Government Competition Act''

       National Federation of Independent Businesses (NFIB), U.S. 
     Chamber of Commerce, American Consulting Engineers Council 
     (ACEC), ACIL (Formerly the American Council of Independent 
     Laboratories), Business Coalition for Fair Competition 
     (BCFC), Business Executives for National Security (BENS), 
     Contract Services Association, Design Professionals 
     Coalition, Management Association for Private Photogrammetric 
     Surveyors (MAPPS), Procurement Roundtable, Professional 
     Services Council (PSC), and Small Business Legislative 
     Council.
                                  ____

                                        Chamber of Commerce of the


                                     United States of America,

                                 Washington, DC, February 5, 1997.
     Members of the United States Senate:
       The ``Freedom from Government Competition Act of 1997'' 
     (FFGCA), to be introduced by Senator Thomas, is a common 
     sense bill that requires federal agencies and departments to 
     procure goods and services from the private sector whenever 
     possible. The bill precludes federal offices from starting or 
     carrying on any activity if that product or service can be 
     provided by a commercial source. The U.S. Chamber of Commerce 
     strongly urges you to co-sponsor this legislation.
       A balanced federal budget is a bipartisan goal that is the 
     Chamber's top priority. Reducing government infrastructure 
     and overhead is a necessary step in reaching a balanced 
     budget, yet federal agencies and departments continue to 
     perform countless services and functions that could be 
     performed more efficiently and cost effectively by 
     competitive private sector enterprises, saving billions of 
     dollars annually. Additionally, government competition with 
     the private sector is at an unacceptably high level, both in 
     scope and in dollar volume.
       The Freedom from Government Competition Act establishes a 
     consistent government policy that relies upon the private 
     sector to provide goods and services necessary for the 
     operation and management of federal agencies and departments. 
     This policy will serve as an important tool to ensure the 
     reduction of unnecessary infrastructure and overhead that is 
     critical to balanced budget initiatives.
       The FFGCA provides exceptions to the bill, however, for 
     goods or services that are inherently governmental, necessary 
     for national security, or are so unique or of such a nature 
     that they must be performed by the government. The bill 
     requires equal cost comparison of public and private 
     functions and exempts goods and services performed by the 
     government if the production or manufacture by a government 
     source represents the best overall value.
       The U.S. Chamber believes broad Congressional support for 
     legislation such as the Freedom from Government Competition 
     Act is vital to achieving a balanced budget and urges your 
     co-sponsorship of this bill as an important indication of 
     your support of small business. For further information 
     please contact Chris Jahn of Senator Thomas' staff at 224-
     6441 or Jody Olmer of the U.S. Chamber at (202) 463-5522.
           Sincerely,
     R. Bruce Josten.
                                  ____

                                            Business Coalition for


                                             Fair Competition,

                                 Annandale, VA, February 12, 1997.
     Hon. Craig Thomas,
     Washington, DC.
       Senator Thomas: We write to support the Freedom From 
     Government Competition Act of 1997.
       When the delegates to the White House Conference on Small 
     Business (June 1995) made unfair competition by governments 
     and nonprofits one of their top issues they had in mind the 
     dramatic way in which the U.S. government competes unfairly 
     with small businesses.
       Of 434 issues, the following recommendation by 1,800 
     elected and appointed delegates was one of their top fifteen:
       Government and Nonprofit Competition.-- Support fair 
     competition: Congress should enact legislation that would 
     prohibit agencies, tax-exempt and antitrust-exempt 
     organizations from engaging in commercial activities in 
     direct competition with small businesses. (Foundation for a 
     New Century: A Report to the President and Congress, by the 
     White House Conference on Small Business, September 1995.)
       This recommendation originated at the state level where 
     delegates complained that a major competitor for many small 
     businesses is the Federal government.


                freedom from government competition act

       Currently, hundreds of thousands of Federal employees are 
     producing billions of dollars worth of products and services.
       This bill establishes as new national policy full and 
     uncompromised reliance on the private sector for goods and 
     services.
       This historic and precedent-setting legislation would for 
     the first time eliminate government competition as a matter 
     of national policy.
       The Business Coalition for Fair Competition, a coalition of 
     national associations, supports the Freedom From Government 
     Competition Act which states that government may conduct only 
     operations that are so ``inherently governmental'' that the 
     public interest requires production or performance by a 
     Government employee. For example, the definition of 
     ``inherently'' would only apply to such narrowly defined 
     areas as specific parts of law enforcement and armed forces 
     missions. The bill allows the government to do the work if 
     ``there is no private source capable of providing the good or 
     service.'' In the case of commercial activities, private 
     industry can do almost everything any government needs done.


                       executive branch proposals

       In 1993, Vice President Gore stated: ``Every federal agency 
     needs support services--accounting, property management, 
     payroll processing, legal advice, and so on. Currently, most 
     managers have little choice about where to get them; they 
     must use what's available in house. But no manager should be 
     confined to an agency monopoly.''
       The Administration then created new authorities and 
     opportunities for the Executive Branch to do commercial work 
     by issuing a ``Revised Supplemental Handbook on Performance 
     of Commercial Activities, Circular No. A-76.'' We warned the 
     Administration December 15, 1995 that their revisions would 
     not meet with support from the delegates to the White House 
     Conference on Small Business.
       The OMB revisions do not provide any encouragement to small 
     businesses. For example, the revisions:
       1. Allow any work that can be done by ten or fewer Federal 
     employees to be kept in-house.
       2. Encourage agencies to keep ``core'' teams intact so the 
     agency always has the capability of doing bigger things when 
     more funding is available.
       3. Discourage any small business from proposing to do a 
     government job.
       4. Discourage agencies from giving serious consideration to 
     any proposal from a small business.
       5. Allow government agencies to spend up to 10 percent more 
     than the private sector for the same work.

[[Page S1313]]

       6. Encourage government agencies to do more contracting 
     with each other.
       Many agencies complained to OMB in December 1995 that the 
     A-76 system is awkward and cumbersome, inhibiting rather than 
     empowering.
       In fact, the whole A-76 system is built around ``cost 
     comparisons'' which exceed the depth and length of a Ph.D 
     dissertation. The system advocated by the Executive Branch is 
     fatally flawed.
       On the one hand the Supplemental Handbook attempts to make 
     the cost comparison system more rigorous. But, on the other 
     hand, the Supplemental Handbook implements a recommendation 
     of the National Performance Review helping agencies market 
     themselves to other agencies, thus by-passing the need to 
     rely on the private sector.
       Supporting an amendment you offered in the 104th Congress, 
     the Senate voted 59-39 to request restrictions on the 
     unchecked proliferation of ``Interservice Support 
     Agreements.'' Despite the Senate vote, the Administration has 
     done nothing to restrain the growth of such agreements.
       Today some Federal agencies provide business services to 
     state and local governments and to private entities. This 
     activity has neither been authorized by Congress nor is it 
     regulated by A-76.


                     private sector reliance works

       Can Federal managers be more effective outsourcing 
     contracts than supervising thousands of Federal employees 
     doing commercial work? Outsourcing works for private industry 
     where managers are doing more outsourcing than ever. DOD says 
     it works for them. NASA outsources almost the entire space 
     program using thousands of private sector contracts.
       By getting the government out of business, as proposed by 
     the Freedom From Government Competition Act, Congress can 
     return agencies to their core functions such as establishing 
     safety rules. To achieve this change, public administrators 
     will need more training and supervision in the management of 
     outsourcing. Passage of this bill will result in a dramatic 
     and long-overdue change in the way the government operates.


     Freedom from Government competition act: saves money and time

       We need a fresh start on this problem. This bill is that 
     fresh start. Whereas DOD did many cost comparisons in the 
     1980s, they do few today. If the A-76 system has failed at 
     DOD, why does the Administration continue to impose the 
     system on the whole government? The Freedom From Government 
     Competition Act is a far better approach.
       In comparison to the OMB's expensive 36-month cost-study 
     approach, the bill's approach is far preferable; the costs 
     and time wasted in thousands of studies need not occur. Under 
     this legislation, the Federal policy would be to rely on the 
     private sector. The government would get out of certain 
     businesses. Federal employees would manage but not perform 
     various contracts awarded to the private sector.
       Agency employees would shift from being direct service 
     providers to managers of service contracts. Federal personnel 
     management training would shift from supervision of extensive 
     commercial activities to management of contracts. These 
     changes have already begun to work for the DOD and NASA. It 
     can work for the whole Executive Branch.


                         department of defense

       During the U.S. military operations in Bosnia, the 
     Department used private firms to provide health care, 
     payroll, accounting, data management, supply management, 
     logistics, transportation, security, maintenance and 
     modernization of weapons, and management of military bases.
       The Washington Post reported ``The Defense Department has 
     said it can save billions of dollars by contracting out, or 
     `outsourcing' a wide range of military functions. . . . That 
     way, the Pentagon reasons, it will have more money for its 
     combat and humanitarian duties.''
       On the other hand the Army Corps of Engineers is 
     extensively in the campground business. The Army plans a 
     hotel on Ft. Myer to complete with the 9,110 hotel rooms 
     already available from commercial companies in Arlington, 
     Virginia. And the Air Force proposes to repair the jet 
     engines of commercial airlines.
       On the one hand, the Chairman of the Joint Chiefs of Staff, 
     General John M. Shalikashivili told the Senate Armed Services 
     Committee: ``We must continue to push with all energy 
     acquisition reforms, commercial off-the-shelf opportunities, 
     privatization, outsourcing of non-core activities, and 
     further reductions of our infrastructure.''
       On the other hand, a war could have come and gone by the 
     time DOD does a cost comparison. In its recommendations to 
     the Office of Management and Budget, the Department reported 
     it needs not 36 months but 48 months to conduct cost studies 
     before contracting out. Studies of this length are excessive 
     and underscore the impracticability of the Administration's 
     position.


           the u.s. forest service: head-to-head competition

       A small campground business was forced out of business by 
     the Federal government in 1996. When the U.S. Forest Service 
     began a new campground in Payson, Arizona, at the Tonto 
     National Forest, they went into business right across the 
     highway from a for-profit small campground business. Using $3 
     million of taxpayers money, they went directly ``in your 
     face,'' despite admonishment from the Forest Service Policy 
     Manual which discourages competition with the private sector. 
     While the Business Coalition for Fair Competition and the 
     National Association of RV Parks and Campgrounds (ARVC) have 
     opposed this new campground. The Forest Service plunged 
     ahead. The private campground was forced to close.
       This is an example of why A-76 does not work: the Forest 
     Service argues that they don't have to adhere to OMB Circular 
     A-76 except in the selection of vendors. The build-or-not-
     build decision is unaffected by the Circular. Establishing a 
     government-owned campground is a policy matter not a 
     procurement or acquisition matter, in the eye of the Federal 
     government. There is no Federal policy or regulation forcing 
     the Forest Service to study the impact of their construction 
     on small business. Nor is there any Federal rule that 
     requires the Forest Service to listen to the appeal of any 
     small businessperson who appeals or makes a counter proposal.


           surveying and mapping: $1 billion federal business

       The Federal Government spends $1 billion annually on 
     surveying and mapping in some 39 agencies, employing nearly 
     7,000 Federal workers. Less than 10% of the $1 billion of 
     Federal expenditure is contracted to the private sector for 
     these services. A private sector comprised of more than 6,000 
     surveying and 250 mapping firms have capabilities to meet and 
     exceed those of the government agencies.


             Military Exchanges: Taking Over Retail Markets

       Members of the North American Retail Dealers Association 
     document direct competition from military exchanges in the 
     sale of consumer electronics products and other items. 
     Military exchanges are among top 10 retailers in the US 
     measured by sales volume. They compete unfairly because they 
     do not collect sales taxes, do not pay for land and are not 
     subject to federal antitrust laws.


        Contract Services: Private Sector Offers the Best Value

       Members of the Contract Services Association of America who 
     provide services of every conceivable type, from low to high 
     technologies, point to studies and analyses which show that 
     outsourcing of commercial activities will result in 
     substantially reduced costs to the government with at least 
     equal quality, but more often, improve quality of service. 
     The outsourcing of commercial activities must be seen not 
     only as a matter of logic and fairness to the private sector, 
     but also as a guarantor of the American taxpayer obtaining 
     the best value for his or her tax dollar.


           Laundry Services: VA Bids For Private Sector Work

       A laundry in Sioux Falls, South Dakota, found that the 
     Department of Veteran Affairs bid against him on a contract 
     to provide laundry services to a children's home. When he 
     questioned the VA about competing directly with the private 
     sector, he was told that VA needed to increase its revenues.


                  Hearing Aids: Government Competition

       The International Hearing Society, whose members dispense 
     the majority of hearing aids in the United States, report 
     that government competition erodes the client base of 
     taxpaying hearing aid specialists. Unfettered government 
     competition with hearing aid specialists and other taxpaying 
     small business men and women undermines the free market. IHS 
     urges swift enactment of this legislation, which will help to 
     level the competitive playing field and generate increased 
     opportunity for private sector business concerns, including 
     hearing aid specialists.


          Executive Order Inspiring the Entrepreneurial Drive

       When we investigated why so many Federal agencies are 
     increasing their competition with the private sector, it 
     became clear that Executive Orders from the White House and 
     directions from the National Performance Review are inspiring 
     Federal workers toward being more entrepreneurial. Agencies 
     are justifying their new commercial drive by referring to the 
     new Administration policy.
       In contrast to the work of the Congress in downsizing 
     government, this new entrepreneurial spirit is a loophole 
     giving Federal employees an alternative for saving their job: 
     if their agency can win a contract for providing a service to 
     another agency or with someone in the private sector, work 
     will continue. In this way, the will of the Congress to 
     reduce government will be thwarted.
       In a meeting with the White House, we were told the 
     Administration urges agencies such as all the Federal labs to 
     (1) save themselves despite Congressional budget reductions 
     (2) seek business from agencies and the private sector and 
     (3) do as much work as possible in-house (vs. outsourcing).
       The Administration's position drives us to conclude that 
     only the Freedom From Government Competition Act will work.


                 Defense Reliance on the Private Sector

       Thanks to the 104th Congress and an initiative by 
     Congressman John Duncan of Tennessee the Defense 
     Authorization bill called on the Defense Department to 
     promptly provide information on the government's commercial 
     activities: a solid step in the right

[[Page S1314]]

     direction. Section 357 of Public Law 104-106 stated: ``The 
     Secretary shall identify activities of the Department . . . 
     that are carried out by employees of the Department to 
     provide commercial-type products or services for the 
     Department. . . .''
       The passage of this measure caused the Department of 
     Defense to issue a report titled ``Improving the Combat Edge 
     Through Outsourcing'' (March 1996) which shows that leaders 
     in DOD want the extensive savings they can achieve through 
     outsourcing.


                        Privatization Task Force

       Narrowed from a list of a dozen recommendations submitted 
     by President Clinton, the 104th Congress passed legislation 
     to privatize the U.S. Enrichment Corporation, the Naval 
     Petroleum Reserve, the Alaska Power Marketing Administration 
     and the National Helium Reserve. The sale of these Federal 
     assets will (1) generate to the US Treasury several billion 
     dollars and (2) save annual costs of staffing, maintenance 
     and operations.
       Congress has also authorized the outsourcing of forecasting 
     functions of the National Weather Service, commercial real 
     estate brokerage at the General Services Administration, debt 
     collection at the Internal Revenue Service, and experimental 
     privatization of several airports.


     Defense Sciences Board and the Heritage Foundation Recommend 
                   Contracting OUt and Privatization

       At the beginning of the 104th Congress, the Heritage 
     Foundation issued two reports: Showing that Congress could 
     cut Federal spending by $9 billion per year by contracting 
     out routine support services to the private sector. Showing 
     that Congress could save $11 billion in a single year by 
     privatizing nine Federal activities and by eliminating 
     various barriers to privatization established by Congress.
       In late 1996, the Defense Science Board Task Force released 
     its report ``Outsourcing and Privatization'' to the Office of 
     the Under Secretary of Defense for Acquisition and 
     Technology.
       The Task Force included military, private sector and 
     academic participants and was chaired by Philip A. Odeen, 
     President and CEO, BDM International, Inc.
       The Task Force predicts that the Department of Defense can 
     save 30-40% of costs ``by outsourcing services for their own 
     use. Local commanders that achieve an aggressive DoD 
     outsourcing initiative could generate annual savings of $7 to 
     $12 billion by FY 02. . . . Local commanders that achieve 
     outsourcing objectives should be rewarded with promotions and 
     desirable assignments.''
       The report concludes by stating ``DoD is left with only one 
     practical alternative to meet its future modernization 
     requirements: sharply reduce DoD support costs, and apply the 
     savings to the procurement account. The Task Force firmly 
     believes that extensive savings can be achieved--if DoD is 
     willing to abandon its traditional reliance on in-house 
     support organizations in favor of a new support paradigm that 
     capitalizes upon the efficiency and creativity of the private 
     sector.''
       The report estimates ``the number of DoD personnel actually 
     engaged in commercial-type activities greatly exceeds the 
     640,000 total . . . contractors could perform most of the 
     work currently executed by these civilian employees.''
       The Task Force was opposed to the current system of 
     reliance on OMB Circular A-76. ``A-76 public/private 
     competitions are extremely time-consuming, biased in favor of 
     the government entity, and concentrated in narrow, labor-
     intensive support functions involving relatively small 
     numbers of government employees.''
       The Task Force said A-76 competitions ``fail to fully 
     consider other important factors such as the bidder's 
     capability to improve the quality and responsiveness of 
     service delivery. . . . By outsourcing broad business areas, 
     DoD can provide vendors with greater opportunity to 
     reengineer processes--and greater potential to achieve major 
     improvements in service quality and cost.''
       Despite its shortcomings, the A-76 system has saved DoD 
     $1.5 billion per year. ``A more aggressive DoD initiative 
     will yield proportionally greater benefits,'' the report 
     states.
       The Task Force summarized data from private enterprise 
     indicating that companies save 10-15 percent when outsourcing 
     $100 billion worth of functions. Ninety percent of company 
     executives report that outsourcing is successful, according 
     the Outsourcing Institute's ``Purchasing Dynamics, 
     Expectations, and Outcomes, 1995.''


general accounting office supported congressional action as long ago as 
                                  1981

       ``Although it has been the executive branch's general 
     policy since 1955 to rely on contractors for these commercial 
     goods and services, agency compliance with this policy has 
     been inconsistent and relatively ineffective,'' the GAO 
     reported to Congress June 19, 1981.
       Little has changed. Agency compliance with this policy 
     continues to be lax. Much of what GAO wrote about this 
     subject in the last two decades still applies.
       Here is what GAO said in 1981: ``Circular A-76 provides 
     that it is the executive branch's general policy to rely on 
     the private sector for goods and services unless it is more 
     economical to provide them in-house. Federal purchases of 
     goods and services from the private sector cost about $117 
     billion in fiscal year 1980. Although this policy to rely on 
     the private sector has existed for over 25 years, OMB 
     information shows that as many as 400,000 Federal employees 
     are currently operating more than 11,000 commercial or 
     industrial activities at almost $19 billion annually. These 
     employees represent almost one-fourth of the total executive 
     branch civilian work force.''
       In 1981, GAO advised Congress as follows: ``We believe the 
     Congress should act on our earlier recommendation to 
     legislate a national policy of reliance on the private sector 
     for goods and services.''
       GAO's advice in 1981 is still appropriate today. Therefore, 
     the only recourse is for adoption by Congress of a new 
     national policy of reliance on the private sector as proposed 
     by the Freedom From Government Competition Act.
                                                    Kenton Pattie,
     Executive Director.
                                  ____


              Business Coalition for Fair Competition 1997

     ACIL (Formerly the American Council of Independent 
         Laboratories)
     American Bus Association
     American Society of Travel Agents
     Colorado Coalition for Fair Competition
     Helicopter Association International
     IHRSA (The International Health, Racquet and Sportsclub 
         Association)
     International Association of Environmental Testing 
         Laboratories
     International Hearing Society
     Management Association for Private Photogrammetric Surveyors
     National Association of RV Parks and Campgrounds
     National Association of Women Business Owners
     National Burglar and Fire Alarm Association
     National Child Care Association
     National Community Pharmacists Association
     National Tour Association
     Professional Services Council
     Small Business Legislative Council
     Society of Travel Agents in Government
     Textile Rental Services Association
     United Motorcoach Association
       By Mr. HARKIN:

  S. 315. A bill to amend the Internal Revenue Code of 1986 to reduce 
tax benefits for foreign corporations, and for other purposes; to the 
Committee on Finance.


                  THE CORPORATE WELFARE REDUCTION ACT

 Mr. HARKIN. Mr. President, there's a story that's told about 
the film actor and comedian W.C. Fields. He was hardly religious, but 
on his deathbed a friend discovered him reading the Bible. So he asked 
Fields what we he was doing--and the actor responded with 
characteristic dry wit, ``I'm looking for loopholes.''
  For too long, many multinational firms and foreign corporations 
operating in this country have done the same thing with the United 
States Tax Code. They have searched our tax laws for loopholes--and 
carved out special-interest breaks to avoid paying their fair share. 
And they've done it with great success. Today, for example, over 
seventy percent of foreign-based corporations in the United States pay 
no Federal income tax. Meanwhile working families who play by the rules 
struggle just to make ends meet. This is simply wrong and as a matter 
of basic fairness, it must end.
  So today, Mr. President, I rise to introduce the Corporate Welfare 
Reduction Act of 1997 which will save taxpayers over $20 billion over 
the next 6 years. Companion legislation has been introduced in the 
other body by my friend and colleague Representative Lane Evans. Now is 
the time to act on this measure.
  In the coming days, we will take up a constitutional amendment to 
balance the Government's budget. I will vote for it. I believe we must 
get our financial house in order if we are to pass on to future 
generations a legacy of hope, and not a legacy of debt.
  But if we are going to balance our Government's budget--and keep it 
balanced in the years to come--every taxpayer will have to do their 
part. There's no doubt that working families and small businesses on 
Main Street already are contributing significantly. But foreign-based 
and multinational corporations simply have not paid their fair share.
  One of the central goals of Government policy--particularly tax 
policy--ought to be promoting investment in our people and in our 
businesses here at home. For too long, though, our tax policies have 
had it backwards--rewarding U.S. companies that move overseas and 
granting unfair tax giveaways to foreign subsidiaries in this country.
  American businesses shouldn't be forced to compete against foreign 
subsidiaries here that don't pay their fair

[[Page S1315]]

share of taxes. And American workers shouldn't be left out in the cold 
because our tax laws encouraged companies to ship jobs away and ship 
products back.
  That is why I am introducing the Corporate Welfare Reduction Act. 
This legislation contains six main provisions.
  First, it ends the use of transfer pricing rules by multinational 
corporations to lower their U.S. tax liability. Multinational companies 
often sell a product to their subsidiaries at a discounted price--
effectively increasing a company's income while decreasing its U.S. tax 
liability. This bill would restrict a company's interagency pricing 
policies and, instead, tax the sale of products at their fair market 
value.
  Second, the bill disallows the practice of ``sourcing'' income from 
the sale of inventory property. In many cases, multinational 
corporations pass the title of sale to a foreign-owned subsidiary in 
order to avoid paying U.S. taxes even though the sale is completed in 
the United States.
  Third, it limits the excessive use of tax credits taken by 
multinational corporations on foreign oil and gas extraction income 
[FOGEI] and foreign oil related income [FORI]. U.S. tax credits should 
only be applied against foreign taxes, not the fees and royalties 
assessed by foreign nations.
  Fourth, it narrows section 911 of the tax code that exempts the first 
$70,000 of earned income from U.S. taxes for American citizens living 
and working abroad. However, this bill would allow those persons who 
work for non-profit organizations to still claim this exemption and 
would allow all U.S. citizens working abroad to deduct their children's 
education expenses up through high school.
  Fifth, it ends the tax-exempt status of foreign investors who buy 
private-issued debt by requiring these persons to pay a 30-percent 
withholding tax on the interest they earned on the bonds.
  Finally, this legislation would end the exemption of foreign 
individuals from capital gains taxes on the sale of stock in a U.S. 
corporation--unless they spend more than half the year in the United 
States.
  The revenue raised in this legislation from closing these loopholes 
will go solely to deficit reduction. As I said, in a time when we are 
trying to reach a balanced budget, everyone must pay their fair share.
  Mr. President, this is a common sense bill that will provide some 
fairness to working families and integrity to our Tax Code. I urge my 
colleagues to join me in supporting this common sense measure.
                                 ______