Human Capital: Building on DOD's Reform Effort to Foster	 
Governmentwide Improvements (04-JUN-03, GAO-03-851T).		 
                                                                 
People are at the heart of an organization's ability to perform  
its mission. Yet a key challenge for the Department of Defense	 
(DOD), as for many federal agencies, is to strategically manage  
its human capital. DOD's proposed National Security Personnel	 
System would provide for wide-ranging changes in DOD's civilian  
personnel pay and performance management and other human capital 
areas. Given the massive size of DOD, the proposal has important 
precedent-setting implications for federal human capital	 
management. This testimony provides GAO's observations on DOD	 
human capital reform proposals and the need for governmentwide	 
reform. 							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-851T					        
    ACCNO:   A07070						        
  TITLE:     Human Capital: Building on DOD's Reform Effort to Foster 
Governmentwide Improvements					 
     DATE:   06/04/2003 
  SUBJECT:   Personnel management				 
	     Human resources utilization			 
	     Internal controls					 
	     Civilian employees 				 
	     DOD National Security Personnel System		 

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GAO-03-851T

Testimony Before the Committee on Governmental Affairs, U. S. Senate

United States General Accounting Office

GAO For Release on Delivery Expected at 9: 30 a. m. EDT Wednesday, June 4,
2003 HUMAN CAPITAL

Building on DOD's Reform Effort to Foster Governmentwide Improvements

Statement of David M. Walker Comptroller General of the United States

GAO- 03- 851T

GAO strongly supports the need for government transformation and the
concept of modernizing federal human capital policies both within DOD and
for the federal government at large. The federal personnel system is
clearly broken in critical respects* designed for a time and workforce of
an earlier era and not able to meet the needs and challenges of today*s
rapidly changing and knowledge- based environment. The human capital
authorities being considered for DOD have far- reaching implications for
the way DOD is managed as well as significant precedent- setting
implications for the rest of the federal government. GAO is pleased that
as the Congress has reviewed DOD*s legislative proposal it has added a
number of important safeguards, including many along the lines GAO has
been suggesting, that will help DOD maximize its chances of success in
addressing its human capital challenges and minimize the risk of failure.
More generally, GAO believes that agency- specific human capital reforms

should be enacted to the extent that the problems being addressed and the
solutions offered are specific to a particular agency (e. g., military
personnel reforms for DOD). Several of the proposed DOD reforms meet this
test. In GAO*s view, the relevant sections of the House*s version of the
National Defense Authorization Act for Fiscal Year 2004 and the proposal
that is being considered as part of this hearing contain a number of
important improvements over the initial DOD legislative proposal.

Moving forward, GAO believes it would be preferable to employ a
governmentwide approach to address human capital issues and the need for
certain flexibilities that have broad- based application and serious
potential implications for the civil service system, in general, and the
Office of Personnel Management, in particular. GAO believes that several
of the reforms that DOD is proposing fall into this category (e. g., broad
banding, pay for performance, re- employment and pension offset waivers).
In these situations, GAO believes it would be both prudent and preferable
for the Congress to provide such authorities governmentwide and ensure
that appropriate performance management systems and safeguards are in
place before the new authorities are implemented by the respective agency.
Importantly, employing this approach is not intended to delay action on
DOD*s or any other individual agency*s efforts, but rather to accelerate
needed human capital reform throughout the federal government in a manner
that ensures reasonable consistency on key principles within the overall
civilian workforce. This approach also would help to maintain a level
playing field among federal agencies in competing for talent and would
help avoid further fragmentation within the civil service. People are at
the heart of an organization*s ability to perform its mission. Yet a key
challenge for

the Department of Defense (DOD), as for many federal agencies, is to
strategically manage its human capital. DOD*s proposed National

Security Personnel System would provide for wide- ranging changes in DOD*s
civilian personnel pay and performance management and other human capital
areas. Given the massive size of DOD, the

proposal has important precedentsetting implications for federal human
capital management.

This testimony provides GAO*s observations on DOD human capital reform
proposals and the need for governmentwide reform.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 851T. To view the full
testimony, click on the link above. For more information, contact Derek
Stewart at (202) 512- 5559 or stewartd@ gao. gov. Highlights of GAO- 03-
851T,

testimony before the Committee on Governmental Affairs, United States
Senate

June 4, 2003

HUMAN CAPITAL

Building on DOD*s Reform Effort to Foster Governmentwide Improvements

Page 1 GAO- 03- 851T Chairman Collins and Members of the Committee: I am
pleased to be here today to discuss legislative proposals to help the

Department of Defense (DOD) address its current and emerging human capital
challenges. Over the past few weeks, I have been honored to appear as a
witness before the Congress on three other occasions to discuss this
important issue and related DOD human capital concerns. 1 As the House of
Representatives has reviewed DOD*s legislative proposal, it has added a
number of important safeguards, including many along the lines we were
suggesting, that will help DOD maximize its chances of success in
addressing its human capital challenges and minimize the risk of failure.
Furthermore, the proposed National Security Personnel System Act that is
the subject of this hearing also includes a significant number of
improvements over DOD*s initial proposal. I understand that there are
important issues that will need to be resolved in conference that
obviously have implications for DOD*s reform efforts, and may have major
implications for governmentwide reform efforts.

We strongly support the need for government transformation and the concept
of modernizing federal human capital policies both within DOD and for the
federal government at large. The federal personnel system is clearly
broken in critical respects* designed for a time and workforce of an
earlier era and not able to meet the needs and challenges of our rapidly
changing and knowledge- based environment. Nonetheless, I believe that

we have made more progress in addressing the government*s longstanding
human capital challenges in the last 2 years than in the previous 20, and
I am confident that we will make more progress in the next 2 years than we
have made in the last 2 years.

The human capital authorities being considered for DOD have far- reaching
implications for the way DOD is managed as well as significant
precedentsetting implications for the rest of the federal government. DOD
has almost 700,000 civilian employees. The Department of Homeland
Security, which also has broad human capital flexibilities, has about
140,000 civilian

1 U. S. General Accounting Office, Human Capital: DOD*s Civilian Personnel
Strategic Management and the Proposed National Security Personnel System,
GAO- 03- 493T (Washington, D. C.: May 12, 2003); Defense Transformation:
DOD*s Proposed Civilian

Personnel System and Governmentwide Human Capital Reform, GAO- 03- 741T
(Washington, D. C.: May 1, 2003); and Defense Transformation: Preliminary
Observations on DOD*s Proposed Civilian Personnel Reforms, GAO- 03- 717T
(Washington, D. C.: Apr. 29, 2003).

Page 2 GAO- 03- 851T employees. Other federal agencies that have been
granted broad authorities, such as the Federal Aviation Administration and
the Internal

Revenue Service, have many thousands more federal employees. In essence,
we are fast approaching the point where *standard governmentwide* human
capital policies and procedures are neither standard nor governmentwide.
In this environment, we should pursue governmentwide reforms and
flexibilities that can be used by many government agencies, subject to
agencies having appropriate infrastructures in place before such
authorities are put in operation.

Considering certain proposed DOD reforms in the context of the need for
governmentwide reform could serve to accelerate progress across the
government while at the same time incorporating appropriate safeguards to
maximize the ultimate chances of success and minimize the potential for
abuse and prevent the further fragmentation of the civil service.

More directly, agency- specific human capital reforms should be enacted to
the extent that the problems being addressed and the solutions offered are
specific to a particular agency (e. g., military personnel reforms for
DOD). Several of the proposed DOD reforms meet this test. Importantly, the
relevant sections of the House of Representatives* version of the National
Defense Authorization Act for Fiscal Year 2004 and Chairman Collins,

Senator Levin, Senator Voinovich, and Senator Sununu*s National Security
Personnel System Act, in our view, contain a number of important
improvements over the initial DOD legislative proposal.

Moving forward, we believe it would be preferable to employ a
governmentwide approach to address human capital issues and the need for
certain flexibilities that have broad- based application and serious
potential implications for the civil service system, in general, and the
Office of Personnel Management (OPM), in particular. We believe that
several of the reforms that DOD is proposing fall into this category (e.
g., broad banding, pay for performance, re- employment, and pension offset
waivers). In these situations, we believe it would be both prudent and
preferable for the Congress to provide such authorities governmentwide and
ensure that appropriate performance management systems and safeguards are
in place before the new authorities are implemented by the respective
agencies. This approach would help to maintain a level playing field among
federal agencies in competing for talent. Importantly,

employing this approach is not intended to delay action on DOD*s or any
other individual agency*s efforts.

However, in all cases whether through a governmentwide authority or
agency- specific legislation, in our view, such additional authorities
should

Page 3 GAO- 03- 851T be put in operation only when an agency has the
institutional infrastructure in place to use the new authorities
effectively. This

institutional infrastructure includes, at a minimum, a human capital
planning process that integrates the agency*s human capital policies,
strategies, and programs with its program goals and mission and desired
outcomes; the capabilities to develop and implement a new human capital
system effectively; and a modern, effective, and credible performance
management system that includes adequate safeguards, including reasonable
transparency and appropriate accountability mechanisms, to ensure the
fair, effective, and nondiscriminatory implementation of the system.

My recent statements before the Congress have discussed DOD*s human
capital challenges and have provided comments and suggestions on the
initial DOD proposal to create a National Security Personnel System
(NSPS). Building on those statements, today I will comment on current DOD
human capital reform proposals, including the National Security Personnel
System Act, and how those proposals can be used to help leverage
governmentwide change.

As I observed when I first testified on the DOD proposal in April, many of
the basic principles underlying DOD*s civilian human capital proposals
have merit and deserve the serious consideration they are receiving.
Secretary Rumsfeld and the rest of DOD*s leadership are clearly committed
to transforming how DOD does business. Based on our experience, while
DOD*s leadership has the intent and the ability to transform DOD, the
needed institutional infrastructure is not in place within a vast majority
of DOD organizations. Our work looking at DOD*s strategic human capital
planning efforts and looking across the federal government at the use of
human capital flexibilities and related human

capital efforts underscores the critical steps that DOD needs to take to
properly develop and effectively implement any new personnel authorities.
2 In the absence of the right institutional infrastructure,

2 See, for example, U. S. General Accounting Office, Human Capital:
Effective Use of Flexibilities Can Assist Agencies in Managing Their
Workforces, GAO- 03- 2 (Washington, D. C.: Dec. 6, 2002); DOD Personnel:
DOD Actions Needed to Strengthen Civilian Human

Capital Strategic Planning and Integration with Military Personnel and
Sourcing Decisions, GAO- 03- 475 (Washington, D. C.: Mar. 28, 2003); and
Defense Logistics: Actions Needed to Overcome Capability Gaps in the
Public Depot System, GAO- 02- 105 (Washington, D. C.: Oct. 12, 2001).
Observations on

Proposed DOD Reforms

Page 4 GAO- 03- 851T granting additional human capital authorities will
provide little advantage and could actually end up doing damage if the
authorities are not

implemented properly. The following provides some observations on key
provisions of the proposed National Security Personnel System Act in
relation to the House version of the National Defense Authorization Act
for Fiscal Year 2004. First, I offer some comments on the overall design
for a new personnel system at DOD. Second, I provide comments on selected
aspects of the proposed system.

The House version of DOD*s authorization bill would allow the Secretary of
Defense to develop regulations with the Director of OPM to establish a
human resources management system for DOD. The Secretary of Defense

could waive the requirement for the joint issuance of regulations if, in
the Secretary*s judgment and subject to the decision of the President, it
is *essential to the national security** which was not defined in the
proposed bill. As an improvement, the proposed National Security Personnel
System Act also requires that the new personnel system be jointly
developed by the Secretary of Defense and the Director of OPM, but does
not allow the joint issuance requirement to be waived. This

approach is consistent with the one the Congress took in creating the
Department of Homeland Security.

The proposed National Security Personnel System Act requires the Secretary
of Defense to phase in the implementation of NSPS beginning in fiscal year
2004. Specifically, the new personnel authorities could be

implemented for a maximum of 120,000 of DOD*s civilian employees in fiscal
year 2004, up to 240, 000 employees in fiscal year 2005, and more than
240,000 employees in a fiscal year after fiscal year 2005, if the
Secretary of Defense determines that, in accordance with the bill*s
requirement that the Secretary and the Director of OPM jointly develop
regulations for DOD*s new human resources management system, the
Department has in place a performance management system and pay formula
that meets criteria specified in the bill. We strongly support a phased
approach to implementing major management reforms, whether with the human
capital reforms at DOD or with change management initiatives at other
agencies or across the government. We suggest that OPM, in fulfilling its
role under this section of the bill, certify that DOD has a modern,
effective, credible, and, as appropriate, validated performance management
system with adequate safeguards, including reasonable DOD*s Overall Human

Capital Program

Page 5 GAO- 03- 851T transparency and appropriate accountability
mechanisms, in place to support performance- based pay and related
personnel decisions. The proposed National Security Personnel System Act
states that the

Secretary of Defense may establish an employee appeals process that is
fair and ensures due process protections for employees. The Secretary of
Defense is required to consult with the Merit Systems Protection Board
(MSPB) before issuing any regulations in this area. The DOD appeals
process must be based on legal standards consistent with merit system
principles and may override legal standards and precedents previously

applied by MSPB and the courts in cases related to employee conduct and
performance that fails to meet expectations. The bill would allow appeal
of any decision adversely affecting an employee and raising a substantial

question of law or fact under this process to the Merit Systems Protection
Board under specific standards of review, and the Board*s decision could
be subject to judicial review, as is the case with other MSPB decisions.
This proposal affords the employee review by an independent body and the
opportunity for judicial review along the lines that we have been
suggesting.

The proposed National Security Personnel System Act does not include an
evaluation or reporting requirement from DOD on the implementation of its
human capital reforms, although DOD has stated that it will continue its
evaluation of the science and technology reinvention laboratory
demonstration projects when they are integrated under a single human
capital framework. We believe an evaluation and reporting requirement
would facilitate congressional oversight of NSPS, allow for any midcourse
corrections in its implementation, and serve as a tool for documenting
best practices and sharing lessons learned with employees, stakeholders,
other federal agencies, and the public. Specifically, the Congress should
consider requiring that DOD fully track and periodically report on the
implementation and results of its new human capital program. Such
reporting could be on a specified timetable with sunset provisions. These
required evaluations could be broadly modeled on the evaluation
requirements of OPM*s personnel demonstration program. Under the
demonstration project authority, agencies must evaluate and periodically
report on results, implementation of the demonstration project, cost and
benefits, impacts on veterans and other Equal Employment Opportunity

groups, adherence to merit principles, and the extent to which the lessons
from the project can be applied elsewhere, including governmentwide. The
reports could be done in consultation with or subject to review of OPM.
Employee Appeals Procedures DOD Human Capital Reform

Evaluation and Reporting

Page 6 GAO- 03- 851T There is widespread understanding that the basic
approach to federal pay is outdated and that we need to move to a more
market- and performancebased

approach. Doing so will be essential if we expect to maximize the
performance and assure the accountability of the federal government for
the benefit of the American people. DOD has said that broad banded
performance management and pay for performance systems will be the
cornerstone of its new system.

Reasonable people can and will debate and disagree about the merits of
individual reform proposals. However, all should be able to agree that a
modern, reliable, effective, and validated performance management system
with adequate safeguards, including reasonable transparency and
appropriate accountability mechanisms, must serve as the fundamental
underpinning of any successful results- oriented pay reform. We are
pleased that both the House version of DOD*s fiscal year 2004
authorization bill and the proposed National Security Personnel System Act
contain statutory safeguards and standards along the lines that we have
been suggesting to help ensure that DOD*s pay for performance efforts are
fair to employees and improve both individual and organizational
performance.

The statutory standards described in the National Security Personnel
System Act proposal are intended to help ensure a fair, credible, and
equitable system that results in meaningful distinctions in individual
employee performance; employee involvement in the design and
implementation of the system; and effective transparency and
accountability measures, including appropriate independent reasonableness
reviews, internal grievance procedures, internal

assessments, and employee surveys. In our reviews of agencies* performance
management systems* as in our own experience with designing and
implementing performance- based pay reform for ourselves at GAO* we have
found that these safeguards are key to maximizing the chances of success
and minimizing the risk of failure and abuse.

The proposed National Security Personnel System Act also takes the
essential first step in requiring DOD to link the performance management
system to the agency*s strategic plan. Building on this, we suggest that
DOD should also be required to link its performance management system to
program and performance goals and desired outcomes. Linking the Specific
DOD Human

Capital Policies and Practices Performance Management and

Pay Reform

Page 7 GAO- 03- 851T performance management system to related goals and
desired outcomes helps the organization ensure that its efforts are
properly aligned and

reinforces the line of sight between individual performance and
organizational success so that an individual can see how her/ his daily
responsibilities contribute to results and outcomes.

The proposed National Security Personnel System Act includes a detailed
list of elements that regulations for DOD*s broad band pay program must
cover. These elements appear to be taken from DOD*s experience with its
civilian acquisition workforce personnel demonstration project as well as
the plan, as described in an April 2, 2003 Federal Register notice to
integrate all of DOD*s current science and technology reinvention
laboratory demonstration projects under a single human capital framework.
3 Many of the required elements in the proposed National Security
Personnel System Act are entirely appropriate, such as a communication and
feedback requirement, a review process, and a process for addressing
performance that fails to meet expectations. However, other required
elements, such as *performance scores*, appear to imply a particular
approach to performance management that, going

forward, may or may not be appropriate for DOD, and therefore may have the
unintended consequence of reducing DOD*s flexibility to make adjustments.
Congress has an important and continuing role to play in the design and
implementation of the federal government*s personnel policies and
procedures. Congress should consider how best to balance its
responsibilities with agencies* needs for the flexibility to respond to
changing circumstances.

Finally, under the proposed act, for fiscal years 2004 through 2008, the
overall amount allocated for compensation for civilian employees of an
organizational or functional unit of DOD that is included in NSPS shall
not

be less than the amount of civilian pay that would have been allocated to
such compensation under the General Schedule. After fiscal year 2008,
DOD*s regulations are to provide a formula for calculating an overall
amount, which is to ensure that employees in NSPS are not disadvantaged in
terms of the overall amount of pay available as a result of their
conversion into NSPS while providing DOD with flexibility to accommodate
changes in the function of the organization, the mix of employees
performing those functions, and other changes that might affect pay
levels.

3 68 Fed. Reg. 16, 119- 16,142 (2003).

Page 8 GAO- 03- 851T Congress has had a longstanding and legitimate
interest in federal employee pay and compensation policies and, as a
result, there are

provisions consistent with that interest in the National Security
Personnel System Act. However, as currently constructed, the proposed bill
may have the unintended consequence of creating disincentives, until
fiscal year 2009, for DOD to ensure that it has the most effective and
efficient organizational structure in place. This is because, based on our
understanding of the bill*s language, if DOD were to reorganize,
outsource, or undertake other major change initiatives through 2008 in an
organizational or functional unit that is part of NSPS, DOD may still be
required to allocate an overall amount for compensation to the reorganized
unit based on the number and mix of employees in place prior to conversion
into NSPS. In other words, if priorities shift and DOD needs to downsize a
unit in NSPS significantly, it may still be required that the downsized
unit*s overall compensation level remain the same as it would have been in
the absence of the downsizing. While pay protections during a transition
period are generally appropriate to build employee support for the
changes, we believe that, should the Congress decide to require overall
organizational compensation protection, it should build in additional

flexibilities for DOD to make adjustments in response to changes in the
size of organizations, mix of employees, and other relevant factors.

The current allowable total annual compensation limit for senior
executives would be increased up to the Vice President's total annual
compensation (base pay, locality pay, and awards and bonuses) in the

proposed National Security Personnel System Act and the House National
Defense Authorization Act for Fiscal Year 2004. In addition, the highest
rate of (base) pay for senior executives would be increased in the House
version of the authorization bill.

The Homeland Security Act provided that OPM, with the concurrence of the
Office of Management and Budget, certify that agencies have performance
appraisal systems that, as designed and applied, make meaningful
distinctions based on relative performance before an agency could increase
its total annual compensation limit for senior executives. While the House
version of DOD*s fiscal year 2004 authorization bill would still require
an OPM certification process to increase the highest rate of pay for
senior executives, neither the proposed National Security Personnel System
Act nor the House bill would require such a certification for increasing
the total annual compensation limit for senior executives. DOD Senior
Executive Service

Performance and Pay Reforms

Page 9 GAO- 03- 851T To be generally consistent with the Homeland Security
Act, we believe that the Congress should require that OPM certify that the
DOD senior

executive service (SES) performance management system makes meaningful
distinctions in performance and employs the other practices used by
leading organizations to develop effective performance management systems,
including establishing a clear, direct connection between (1) SES
performance ratings and rewards and (2) the degree to which the
organization achieved its goals. DOD would be required to receive the OPM
certification before it could increase the total annual compensation limit
and/ or the highest rate of pay for its senior executives.

The National Security Personnel System Act contains a number of provisions
designed to give DOD flexibility to help obtain key critical talent. It
allows DOD greater flexibility to (1) hire experts and pay them special
rates for temporary periods up to six years, and (2) define benefits for
certain specialized overseas employees. Specifically, the Secretary

would have the authority to establish a program to attract highly
qualified experts in needed occupations with the flexibility to establish
the rate of pay, eligibility for additional payments, and terms of the
appointment. These authorities give DOD considerable flexibility to obtain
and compensate individuals and exempt them from several provisions of
current law. Consistent with our earlier suggestions, the bill would limit
the number of experts employed at any one time to 300. The Congress should
also consider requiring that these provisions only be used to fill
critically needed skills identified in a DOD strategic human capital plan,
and that DOD report on the use of the authorities under these sections
periodically. As I mentioned at the outset of my statement today, the
consideration of

human capital reforms for DOD naturally suggests opportunities for
governmentwide reform as well. The following provides some suggestions in
that regard.

We believe that the Congress should consider providing governmentwide
authority to implement broad banding, other pay for performance systems,
and other personnel authorities whereby whole agencies are allowed to use
additional authorities after OPM has certified that they have the
institutional infrastructures in place to make effective and fair use of
those authorities. To obtain additional authority, an agency should be
required to have an OPM- approved human capital plan that is fully
integrated with the agency*s strategic plan. These plans need to describe
the agency*s Attracting Key Talent for DOD

Governmentwide Human Capital Reforms

Governmentwide Performance- Based Pay and Other Human Capital Authorities

Page 10 GAO- 03- 851T critical human capital needs and how the new
provisions will be used to address the critical needs. The plan should
also identify the safeguards or other measures that will be applied to
ensure that the authorities are

carried out fairly and in a manner consistent with merit system principles
and other national goals. Furthermore, the Congress should establish
statutory principles for the

standards that an agency must have in place before OPM can grant
additional pay flexibilities. The standards for DOD*s performance
management system contained in the National Security Personnel System Act
are the appropriate place to start. An agency would have to demonstrate,
and OPM would have to certify, that a modern, effective, credible, and, as
appropriate, validated performance management system

with adequate safeguards, including reasonable transparency and
appropriate accountability mechanisms, is in place to support more
performance- based pay and related personnel decisions before the agency
could put the new system in operation. OPM should be required to act on
any individual certifications within prescribed time frames (e. g., 30* 60

days). Consistent with our suggestion to have DOD evaluate and report on
its efforts, agencies should also be required to evaluate the use of any
new pay or other human capital authorities periodically. Such evaluations,
in consultation with or subject to review of OPM, could be broadly modeled
on the evaluation requirements of OPM*s personnel demonstration

program. Additional efforts should be undertaken to move the SES to an
approach where pay and rewards are more closely tied to performance. This
is consistent with the proposed Senior Executive Service Reform Act of
2003. Any effort to link pay to performance presupposes that effective,
results- oriented strategic and annual performance planning and reporting
systems are in place in an agency. That is, agencies must have a clear
understanding of the program results to be achieved and the progress that
is being made toward those intended results if they are to link pay to
performance. The SES needs to take the lead in matters related to pay for
performance.

We believe it would be highly desirable for the Congress to establish a
governmentwide fund where agencies, based on a sound business case, could
apply to OPM for funds to be used to modernize their performance
Governmentwide SES

Performance and Pay Reforms

Performance Management Improvement Funds

Page 11 GAO- 03- 851T management systems and ensure that those systems
have adequate safeguards to prevent abuse. Too often, agencies lack the
performance

management systems needed to effectively and fairly make pay and other
personnel decisions. The basic idea of a governmentwide fund would be to
provide for targeted investments needed to prepare agencies to use their
performance management systems as strategic tools to achieve
organizational results and drive cultural change. Building such systems
and safeguards will likely require making targeted investments in
agencies* human capital programs, as our own experience has shown. (If
successful, this approach to targeted investments could be expanded to
foster and support agencies* related transformation efforts, including
other aspects of the High Performing Organization concept recommended by
the Commercial Activities Panel. 4 )

Finally, we also believe that the Congress should enact additional
targeted and governmentwide human capital reforms for which there is a
reasonable degree of consensus. Many of the provisions in the proposed
Federal Workforce Flexibility Act of 2003 and the governmentwide human

capital provisions of the House version of DOD*s fiscal year 2004
authorization bill fall into this category.

Since we designated strategic human capital management as a governmentwide
high- risk area in January 2001, the Congress, the administration, and
agencies have taken steps to address the federal government*s human
capital shortfalls. In a number of statements before the Congress over the
last 2 years, I have urged the government to seize on the current momentum
for change and enact lasting improvements. Significant progress has been*
and is being* made in addressing the federal government*s pressing human
capital challenges. But experience has shown that in making major changes
in the cultures of organizations,

4 The panel was mandated by section 832 of the National Defense
Authorization Act for Fiscal Year 2001, which required the Comptroller
General to convene a panel of experts to study the process used by the
federal government to make sourcing decisions. After a yearlong study, the
panel published its report on April 30, 2002. See Commercial Activities

Panel, Improving the Sourcing Decisions of the Government: Final Report
(Washington, D. C.: Apr. 30, 2002). The report can be found on GAO*s Web
site at www. gao. gov under the Commercial Activities Panel heading.
Additional Targeted

Governmentwide Reforms Summary Observations

Page 12 GAO- 03- 851T how it is done, when it is done, and the basis on
which it is done can make all the difference in whether we are ultimately
successful.

DOD and other agency- specific human capital reforms should be enacted to
the extent that the problems being addressed and the solutions offered are
specific to particular agencies. A governmentwide approach should be used
to address certain flexibilities that have broad- based application and
serious potential implications for the civil service system, in general,
and OPM, in particular. This approach will help to accelerate needed human
capital reform in DOD and throughout the rest of the federal government.

Chairman Collins and Members of the Committee, this concludes my prepared
statement. I would be pleased to respond to any questions that you may
have.

For further information about this statement, please contact Derek B.
Stewart, Director, Defense Capabilities and Management, on (202) 512- 5140
or at stewartd@ gao. gov. For further information on governmentwide human
capital issues, please contact J. Christopher Mihm, Director, Strategic
Issues, on (202) 512- 6806 or at mihmj@ gao. gov. Major contributors to
this testimony included William Doherty, Bruce Goddard, Hilary Murrish,
Lisa Shames, Edward H. Stephenson, Martha Tracy, and Michael Volpe.
Contacts and

Acknowledgments

(450227) (450227)

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