[Congressional Record (Bound Edition), Volume 146 (2000), Part 2]
[House]
[Pages 2697-2701]
[From the U.S. 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

[[Page 2698]]

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.

                              {time}  1415

  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 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

[[Page 2699]]

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.

                              {time}  1430

  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.
  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

[[Page 2700]]

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 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

[[Page 2701]]

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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