[Congressional Record Volume 146, Number 27 (Monday, March 13, 2000)]
[House]
[Pages H925-H928]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
DOD'S PRIVATIZATION POLICY IN GUAM
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 6, 1999, the gentleman from Guam (Mr. Underwood) is recognized
for 60 minutes as the designee of the minority leader.
Mr. UNDERWOOD. Mr. Speaker, I take this opportunity to do an extended
special order on a matter of significance not only to the people in
Guam but to the general readiness of our military, and that is the
Department of Defense's continuing privatization efforts.
Today I want to discuss this matter which affects not only Guam, my
home district, but certainly the whole readiness posture of our Armed
Forces.
The Department of Defense has for many years been pursuing a better
way to improve efficiencies in the way they conduct business and have
begun many, many initiatives to improve their business practices. And
like any large government bureaucracy, DoD has for years employed
amongst its ranks thousands of civilians, technicians, and specialists,
operators, maintenance personnel, laborers, and hundreds of other
classifications of jobs.
In all likelihood, I am sure that we all recognize that there are
many redundancies and cost inefficiencies and unsound business
practices which cried out for reform. Indeed, there were thousands of
uniform personnel carrying out tasks and assignments that would have
been more suitable for a civilian technician.
However, as a result of the Cold War and in the name of military
readiness, these non-war fighting jobs remained a part and parcel of
DoD's workforce.
In the age of tight budgets and military drawdowns during the 1990s,
the time has come to reform the Federal Government in general, and DoD
in particular, in order to cut costs and create a more efficient
organization, particularly as we drew down our uniform personnel.
These policies that were employed by the Department of Defense took
several different forms and, to be fair, were proscribed in many ways
by both Congress and the administration.
First, there was the lowering of the troop ceiling to cut back
military end strength. Secondly, the DoD asked for and received, with
Congress's blessings, two rounds of base closures and realignments.
Finally, the DoD dusted off an old friend, known as OMB Circular A-76
to implement the third major reform policy initiative. Of course, DoD
all along could and would employ so-called reductions in force, or
RIFs, to reduce the bureaucracy in order to save money.
In any event, OMB Circular A-76 was employed in tremendous fashion
for many reasons that will be clear in a moment.
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A-76, as it is generally referred to as a tool to conduct a public
versus private competition in a commercial activity in order to
determine if those jobs are best performed by the government or by the
private sector, initially cost was the sole determinant and, to a large
degree, it still is.
More typically, however, the Department of Defense has moved towards
a so-called results based assessment in which the winner of the public/
private competition is judged on how best they can perform a task based
on the quality of the outcome of the work, balanced by price
considerations.
For example, if an A-76 study determines that a particular job would
be better performed by the private sector, the government agency that
conducted the study would be able to lay off those civil service
employees based upon that independent empirical data. The particular
agency's bureaucrats claim that they are justified in these decisions
because numbers do not lie. In the alternative, statistics have shown
that when a study is won by the civil servants, remember there is a
competition as they reinvent themselves, there is still a 30 percent
reduction in cost. This fact alone supports the so-called win/win
touted by A-76 proponents.
If the public sector employees are allowed to bid for their jobs at a
lower rate and they out bid the private contractor that has been
brought in by the government, they are allowed to keep their jobs. So,
therefore, a lot of people think that all of a sudden this is a win/win
situation.
Sounds great. The problem is that these cost cutting advocates
overlook the simple fact that the government is not a business. Could
the government be made more efficient? Definitely. More responsive?
Undoubtedly. Well, how about more cost effective? Well, it depends on
how you measure cost. True, practices that enabled famous $600 hammers
and $3,000 toilet seats needed to be rooted out but when one looks at
hard-to-define requirements such as military readiness, what is
inherently governmental, what is the measure of a good value and what
about the men and women who make up the civil service, who have long
done so out of patriotism and job stability and good benefits and fair
play? They are not out to bilk the government or run up costs for
profit like many unscrupulous contractors who win these bids point of
fact do in the end.
What we are looking at are two distinct but related things. First is
the general policy of reducing the Federal civilian workforce and
outsourcing that work to the private sector. The second is the dynamics
of A-76 process itself and for both I would like to use the Guam
experience on that, because right now, as we speak, the largest BOS
contract, so-called Base Operation System contract, to date as a result
of the A-76 process is being implemented with Raytheon, the winner, in
Guam and effectively putting out of focus about 900 jobs in Guam.
Now, Guam's story on this began with the Base Realignment and Closure
Commission in 1995. What the Navy did was that they decided in 1995
that they wanted to close down a unit in the Naval Activities Section
of Guam called the Public Works Center, and when the Navy was turned
down by the BRAC Commission, allowed to realign it but they were not
allowed to close down the Public Works Center, they then decided that
they would apply A-76; therefore creating a tremendous sense of loss
because the BRAC process is the process that was outlined by Congress
and by law to make a fair assessment of what can be closed and what
cannot be closed.
When the Navy lost their claim that the Public Works Center on Guam
should be closed or realigned downward in dramatic fashion, they didn't
say, okay, we tried it in front of the BRAC Commission and we lost.
They turned around and then dusted off A-76 and went ahead and did it
anyway.
So in the spring of 1997, the Navy announced that they were going to
look towards the bundling of all kinds of functions in this particular
situation and offer them up to a private contractor or to the public
sector. In other words, letting the workers themselves bid in something
called a most efficient organization.
The Navy justified using a Base Operating System contract, taking
such diverse things as providing day care to loading ordnance to house
maintenance, and bundling them all in one contract because they said
that this was the way that they would get an economy of scale.
Another cost saving measure that was being considered by the Navy at
the time was to use foreign or H-2 workers which were allowed into Guam
and therefore it would significantly depress the costs of the
contractor, thereby competing more unfairly with the existing civil
service.
So after I heard about, in particular, the foreign labor possibility,
I introduced an amendment to the Department of Defense reauthorization
prohibiting the use of H-2 workers on any Base Operating System
contract that would be contracted out in Guam, but the Navy continued
on. The Navy continued on with the BOS contract.
Now, the BOS contract was designed to bid out a significant amount of
money to one single contractor. In the end, it was Raytheon that won
this contract.
Now, the Navy attempted to sell this to the people of Guam saying
even
[[Page H926]]
though the likely winner would be a contractor that would not be from
Guam, there would be a lot of subcontracting out to local contractors.
I did not take them at their face value and I invited the Small
Business Administration, and with SBA's help we were successful in
garnering approximately $65 million in small business set-asides.
So even though the Navy was unwilling to do this, we had to bring
them in and then get them to say, look, if you are going to privatize
this at least try to benefit the private companies in the local
community. So we were able to do this.
In the meantime, you had at work the civil service employees who were
being asked to consider the possibility of bidding for their jobs that
they used to have in what is called a most efficient organization.
Imagine if you were employed in a company and the managers of the
company came to you one day and said, the only way that you can
conceivably hold on to your jobs is that we are going to bid out your
jobs against another company, a private company, and if you can prove
to us that you can do the work that you do now for less money than the
private company is bidding, you will be able to keep your jobs. That is
basically what they were confronted with.
Now, in the meantime, the local civil service employees, the American
Federation of Government Employees Local 1689 and the local union, is
generally well placed to challenge and fight the A-76 process and they
have done so from time to time trying to figure out how to be helpful,
but they continually asserted that all that was needed, at least some
of their leaders continually asserted that somehow or another Congress
would simply pass a single amendment that would simply exempt Guam
specifically from this process, kind of a silver bullet technique which
I told them was not realistic and which in light of all the things that
have gone on with all the privatization efforts certainly is
unrealistic.
Well, the Navy last fall decided and announced that Raytheon
Technical Services was the winner and finally this past January the
Navy announced that the base operating support functions would be sent
out to the private sector for performance. The in-house servants, these
are the people who actually work these jobs, had bid $600 million for
what was approximately a $900 million operation.
Raytheon, which won the competition, bid at $321 million. The huge
disparity in the bids is testament to the Navy's disenchanted efforts
in assisting the local workforce and the inherent weakness in the A-76
process, which there is still inadequate union input.
The study on Guam analyzed some 1,200 positions, 950 at the Public
Works Center alone. Many of these workers have pursued the DOD's
general priority placement program which enables alternative Federal
employment on a worldwide basis. Others choose early retirement. Those
who left who face involuntary separation will earn the so-called right
of first refusal for the contracted jobs with Raytheon, meaning that at
the end of the day if you cannot find a job somewhere else within the
civil service system or you are too young for early retirement, you
have the right of first refusal. Raytheon offers you the job, more
likely at a rate 20 percent, 30 percent less than what you used to make
for the same job, and you have the right to accept it or you have the
right to turn it down.
Now, the A-76 process is not the best of methods to mete out savings.
However, in some respects it does afford the civil service an
opportunity to fight it out and occasionally the MEOs or the civil
service employees win in various A-76 studies that have been conducted
around the country.
A-76 is criticized by both the public workforce and the unions, as
well as the private sector who view the process as favoring the
government, not to mention the costs they generally must expend in
order to win. It has long been a concern of many Members of Congress,
particularly those who sit on the House Committee on Armed Services,
that the Department of Defense has placed so high a stake in the
outsourcing and privatization process that it is literally not only
threatening the livelihoods of those loyal civil service workers who
have been employed for the Department of Defense for a long time but it
is threatening the very readiness of our military forces.
In 1999, the Department of Defense announced that by fiscal year
2005, over 230,000 positions will have been studied for possible
outsourcing. The department estimates that by that time they will have
saved some $11.2 billion and achieve a steady state savings rate
beginning in fiscal year 2005 of approximately $3.4 billion annually.
The problem with these numbers, as we have already experienced through
careful review in the House Committee on Armed Services, is that they
are based on far too many assumptions. Indeed, the individual services
often do not account for the costs of performing the study, especially
when they extol the anticipated savings. These costs can include the
paying of the cost comparison study itself as well as associated costs
for voluntary separation incentive pay, early retirement benefits and
the general reductions in forces, meaning RIFs.
One of the things that in our case, in Guam's case, on this, which
has compounded the tragedy and the impact of this, is that when the
Department of Defense carries this out, there are provisions in the
U.S. law that the DOD perform an economic impact assessment on the
community faced with downsizing from outsourcing. Unfortunately, this
law was not passed until after the Navy had decided to go ahead with
Guam's outsourcing study. Regardless, the study requirement is not
comprehensive and is little more than a review of surmised local
economic impact.
If DOD had been required to do an impact study for Guam, it would
show that Guam was really a poor model for the Department of Defense to
conduct this study on a big base/small base comparison, which was part
of their logic. Indeed, even the Navy abandoned this comparison study
in favor of continuing forward with Guam's solitary A-76. If the Navy
had been required to do this study, it would have shown that in the
case of Guam the scale of the economy, which is 150,000 people, roughly
about 60,000 people gainfully employed, about 1/6th working directly
for the Federal Government, approximately 10,000 in the late 1980s to
early 1990s, that any kind of downsizing would have had dramatic impact
on the economic future of the island.
For Guam, the job loss was something of unique and dramatic
proportions because we are talking about a very large number of workers
in a very small community.
Furthermore, it is an erosion of part of the middle class in Guam,
which helps sustain the economy, the rest of the economy in Guam,
through good salaries and mortgages and all the kinds of consumer
purchasing which goes on in Guam.
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Furthermore, it had a dramatic impact on the civil service workers
themselves far out of proportion to the same process being experienced
by other civil service workers.
When you lose your Federal job in Guam, you cannot drive over to the
next county to find another Federal job, or find another job at all. If
you wanted to stay within the Federal system, it meant that you would
have to sell your home and travel at least 3,500 miles to Hawaii, if
lucky enough, or perhaps 6,000 miles to the West Coast, or, if very
unlucky, 9,000 miles to the East Coast. In fact, people who went
through the Navy apprenticeship program and had the promise of gainful
employment and learned some very unique skills in their lives, were now
faced with the prospect that because of the A-76 process, because of
impending RIFs, they now had to uproot their families and move
thousands of miles away.
The Navy completely disregards all of this because they say it is not
required. Their main concern is the so-called cost savings, which, in
the end, they have been unable to document. Now we have not only the
impact on the Guam economy and the local economy, but we also have to
consider the impact on the workers themselves.
For those workers who choose to stay on island, who choose to stay in
the local community and leave the Federal service for a contractor job,
they are given the so-called right of first refusal.
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Let us just take a look at what is meant by a right of first refusal.
The wages for this are calculated by something called a prevailing wage
calculator in the Federal system. This measures a wage rate for a
particular job, but does not account for the cost of consumer goods
that are available on island.
Federal jobs, when you are employed in the Federal job you have your
base salary plus you have a cost of living adjustment because of where
you are. It depends on whether you are in a high-cost area or in a low-
cost area. Guam happens to be a high-cost area. But here we have a
situation where the private contractor is not required to pay the COLA,
can simply ignore the COLA, and, moreover, is probably going to offer
significantly less for the base pay for the same position.
I will give you a few examples of this. Case one is a management
level employee working out of the Navy Family Services Section at
Commander Naval Force, Marianas. She indicated that they were very busy
developing the contract assurances standards for Raytheon. She
indicated that this area of operation would be subcontracted. When
asked if it was true that Raytheon was renegotiating the contract, she
replied, with Family Services they are not meeting their recruitment
goal. She added that salary offers to affected civil service staff were
at least 50 percent of what they were previously making, if you compute
the COLA into it.
In one case, a staff member making $28,000, not a very high sum of
money, per annum base pay, was offered $17,000 by the contractor. She
said that employees have turned the jobs down, and these are positions
that require a level of experience that is not easily found anywhere,
but in particular in the case of Guam, because of its isolation. Here
you had a group of trained civil service employees who knew the job,
who understood the job, who had been experienced in the job. They are
forced to leave the island by this A-76 process. The contractor comes
in and says I can do it for less, does not have the labor pool to
identify, and will end up bringing in a lot of people from off island,
from off of Guam, resulting in some level of displacement of the
population.
What has now started to happen is that employees are being offered
match-based pay without COLA, and this has resulted in an erosion of
Raytheon's plan, because Raytheon has had to reconsider how they were
doing this.
Now, predictably, what does that mean for Raytheon? What would that
mean for the contractor? It means that the contractor might likely come
back up and increase the amount of money it is going to take to carry
out the award, in effect, driving the cost up, so now they are not
saving the money they anticipated. It will not be long before in this
continuing process that perhaps in 2 or 3 or 4 years of this privatized
contracting system, the cost of conducting, of implementing the
contract, might be driven up as high as that originally bid by the
civil service workers.
Case two. This refers to the Personal Property Office, which is
responsible for packing and movement of service members' and
dependents' personal goods. Unlike the case I just gave you, Raytheon
will administer this contract.
Interviews were conducted with nine affected employees. These
interviews were conducted beginning in mid-February, last month. Of the
nine interviewed, only two were given offers with a simple accept or
decline scenario. In both cases the employees' base pay is $28,000, or
$12.68 an hour, and the offers were for $8.50 an hour, a cut of about
one-third. The source indicated that the company representatives are
now complaining that there were activities that were being performed
out of this particular shop that they were not aware of during the
bidding process.
Utilizing the quadrennial review, every 4 years we get a defense
review as the progenitor, the Department of Defense has conveniently
been provided with a mandate to plow back the anticipated savings into
modernization projects. The Department is fond of claiming that through
the synthesis of private sector innovations into government operational
practices they will be able to mete out the ``best value'' for the
taxpayer. Interestingly, ``best value'' is not always necessarily the
lowest cost.
In A-76 studies, the Pentagon has moved towards results-based work
when drafting the Performance-Based Review, formerly the Public Works
Statement. This calculus is then used to devise the request for
proposal which both the public and private sector then bid on. One of
the negative results of this is the creative financing that a
contractor employs when devising its bid against the public workforce.
Now, for example, at the Public Works Center in Guam, Raytheon, which
won the bid in the public-private competition, now has a dubious plan
to hire workers for a 32-hour work week to perform base operation
support. Raytheon used the 32-hour configuration to win the bid,
claiming that they could accomplish the entire workload that previously
was done by the civil service. The goal, they claim, was to hire as
many of the former civil service employees as possible. The rub is
that, of course, very few of these former workers are taking the
positions, because the pay is too low and the benefits are far less.
So if you were bidding for the contract, let us say you worked in the
shop and there were 15 of you civil service employees and your work was
up for this A-76 review, there are 15 of you, so you are now going to
find a way to bid. Well, you anticipate you are going to take a pay
cut, and maybe you will conclude that, well, maybe 13 of us can do what
the 15 used to do formerly. But now, in the meantime, the contractor is
outbidding, and in this instance has used the strategy of cutting back
on 20 percent of the hours, but still giving the illusion that they are
giving everybody the right of first refusal.
It is very, very convenient, very effective, to be able to
demonstrate and dramatize that you have actually brought costs down.
But, in the long run, we know those costs are going to start creeping
back up.
So, what is Raytheon going to do? Well, they will have to renegotiate
so they can hire workers at a higher rate. This seems almost like
Raytheon low-balled the contract in order to win, and is now claiming
they cannot comply with the terms. So now they will negotiate for more
money.
There is no savings to be had here. The bottom line is that most of
Guam's brightest civil service workforce has already left the island, a
brain drain, and those who are left are going to have a very difficult
time.
Unlike BRAC, there is no job retraining for the displaced. If you
were displaced by BRAC, you get some retraining. If you are displaced
by A-76, you do not get job training. Guam's experience with the Navy's
A-76 is an example of commercial activities administration at its
worst. As a result of the dismal salaries and the 32-hour work week,
many of Guam's workers are simply not taking the jobs, preferring
unemployment insurance, which will pay a higher benefit.
The island has a limited population that cannot accommodate a war-
time surge in work. Now, imagine this: Guam has a service of what we
normally refer to as forward-deployed bases. It has to have a surge
capacity, because if something happens in East Asia that brings about a
conflict, there will be a dramatic increase in the nature of resupply
and logistics work in Guam, not only in terms of munitions and
ordnance, but also just in terms of providing supplies for American
forces that could potentially be used in a conflict in East Asia.
What has A-76 done? Well, A-76 has depleted the capacity of a
civilian workforce in Guam to be able to deal with such a contingency.
Furthermore, by this A-76 process, and this applies nationally, you
are taking people that are younger and basically driving them out of
the civil service, and the people who are going to be in the priority
placement system are going to be older and they are going to be moving
around from position to position within the civil service, thereby
creating a general aging in the civil service workforce. Not that there
is anything wrong with having an older workforce, but, in the process
of managing your human resources, you want to have a natural
progression of people who are older, who in turn mentor those who are
younger, and who in
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turn mentor those who are younger still.
Well, we are taking the middle out of that as a result of this A-76
process. The employees who decide to stay on island and who leave the
civil service are permitted, as I said earlier, with a right to first
refusal for private sector jobs. But we have seen this is not very
meaningful when the positions being offered are far below what they
were previously earning.
The local Navy command on Guam is not to blame for the inherent
weaknesses of the A-76 process. In fact, I would have to say they have
done a very decent job in advertising their civil service employees
with regard to benefits, Separation Incentive Pay, VERA, and Priority
Placement Programs. However, the methods of employment and application
of the A-76 rules and procedures were applied haphazardly by Navy's
Pacific Division in Hawaii, with little regard for the human toll.
Their desire to save money is so egregious, apparently, among some
people, that they misinterpreted what functions should be exempt.
I am just going to give one example here before I make my conclusion.
One of the things when you conduct a study like this is that you are
supposed to make an assessment of what kind of activity constitutes
``inherently governmental.'' What does it mean to say that we are able
to contract out everything except these positions, because they are
inherently governmental?
Now, when you ask that question in terms of the Department of
Defense, what is ``inherently governmental?'' Well, one would assume
that those things which are inherently governmental are those items,
those activities, which directly contribute to the war-fighting
capability and readiness of our Armed Services.
In Guam's case, in this A-76 process which I have just outlined,
PACDIV's assessors nominated Guam's ordnance shop for the cutting
board. Now, Guam has a huge facility currently called Naval Magazine
which supplies ordnance for the fleet, which is the largest magazine,
largest ordinance storage facility, of the Navy in the entire Pacific.
{time} 1445
But the Navy, some of these guys who are driven by this desire to
save money, decided that moving around ordnance was somehow not
connected to war-fighting capability or the preparation for war-
fighting. Sometimes in the Committee on National Security we talk about
the state of readiness; and this is an area, ordnance, where I think
that if we do not have trained civil service employees with proven
records, patriotic records, not dependent upon contractors who may or
may not find the workers, who then have to deal with, well, what if we
have a big surge of activity, we are going to have to charge even more.
So we have all of these factors, and the Navy decided that the RFP
for ordnance needed to be let out. But it is even more incompetent than
this particular issue because now the Navy has admitted that they
inaccurately calculated the work data for the ordnance activity which
they have contracted out; and now, today, Navy and Raytheon are
renegotiating to increase the scope of the work and, guess what, move
up the cost.
So there we have it, Mr. Speaker. What we have here is an example of
how not to do an A-76 study, an example of how an A-76 commercial study
cannot only negatively impact a community in terms of its economic
base, but also deal with an almost unconcern with the human toll, the
individual experience of the civil service worker, and in the process,
not really understand what is inherently governmental.
We had a hearing, a joint hearing between the Subcommittee on Civil
Service and the Subcommittee on Readiness over in the Committee on
Armed Services last week. When I asked the question of DOD officials,
what does the term ``inherently governmental'' mean for defense
operations, and they said, well, every service kind of defines it its
own way. Well, if you have the motivation to cut costs as the primary
motivator in making the decision on A-76, ``inherently governmental''
is going to be defined in a way that is going to hurt readiness and is
going to be damaging to the security and defense of this country.
In conclusion, Mr. Speaker, in light of these fallacies and problems
which have occurred on Guam and which occur in other places as well
with the Navy's A-76, I am calling for two things: one, I am calling
for the Navy to explore halting the implementation of this contract,
exploring every possible avenue to stop and take a breather on this
contract until many of these grievances and miscalculations can be
reassessed. Secondly, I am calling upon the U.S. General Accounting
Office to conduct an audit into the way the Navy organized, planned,
and conducted this outsourcing study on Guam with seemingly little
regard to the impact on the small isolated community that, relative to
its population, has a dramatically significant role in the readiness of
the U.S. military in the western Pacific.
Finally, our beleaguered civil servants are beginning to emerge as a
kind of endangered species. As times and practices change, they too
will have to adapt in order to remain relevant in the national defense
arena. In spite of this, they should not have to endure negative
fallout as a result of DOD's panacea called outsourcing,
notwithstanding their own admitted skepticism.
The DOD must do better in bridging the benefits gap to alleviate
displaced employees, especially when, inevitably, many will lose their
livelihoods. In the end, all DOD may be left with is reduced readiness,
a degraded military capability, and an exiled civil service workforce
that collectively contributes to the weakening of America's national
security policy.
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