Privatization and Competition: Comments on H.R. 716, the Freedom From
Government Competition Act (Testimony, 09/29/97, GAO/T-GGD-97-185).

GAO discussed H.R. 716, the Freedom From Government Competition Act, as
a potential vehicle for competitive contracting, using the results of
GAO's recent work on privatization initiatives at the state and local
government levels.

GAO noted that: (1) on the basis of GAO's literature review,
privatization experiences and lessons learned by state and city
governments in implementing privatization efforts, the views of a panel
of privatization experts, and GAO's work in Georgia, Massachusetts,
Michigan, New York, and Virginia, as well as the city of Indianapolis,
GAO identified six lessons that were generally common to all six
governments; (2) in general, the governments found that they needed to:
(a) have committed political leaders to champion the privatization
initiative; (b) establish an organizational and analytical structure to
implement the initiative; (c) enact legislative changes and/or reduce
resources available to government agencies to encourage greater use of
privatization; (d) develop reliable and complete cost data on government
activities to assess their performance, support informed privatization
decisions, and make these decisions easier to implement and justify to
potential critics; (e) develop strategies to help their workforces make
the transition to a private-sector environment; and (f) enhance
monitoring and oversight to evaluate compliance and performance and
ensure that the government's interests are fully protected; (3) H.R. 716
provides a tool but not a substitute for a political champion; (4) H.R.
716 would establish a flexible implementation structure; (5)
implementation of H.R. 716 would be helped by integrating it with
agencies' strategic and performance planning activities; (6) incentives
may be needed for implementing change; (7) the relationship of H.R. 716
to other relevant laws is unclear; (8) reliable and complete cost
information is needed for privatization decisions; (9) H.R. 716
recognizes federal workforce transition needs; (10) effective monitoring
and oversight of contractor performance are essential to successful
privatization; and (11) the Freedom From Government Competition Act
would redirect current policy, which does not now have the weight of
legislative authority and significantly affect the operation and
management of the federal government.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD-97-185
     TITLE:  Privatization and Competition: Comments on H.R. 716, the 
             Freedom From Government Competition Act
      DATE:  09/29/97
   SUBJECT:  Proposed legislation
             Privatization
             Competitive procurement
             Strategic planning
             Cost effectiveness analysis
             Contract monitoring
             State and local procurement
             Procurement regulation
             Federal procurement
IDENTIFIER:  Georgia
             Massachusetts
             Michigan
             New York
             Virginia
             Indianapolis (IN)
             Joint Financial Management Improvement Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Government Management, Information and
Technology Committee on Government Reform and Oversight House of
Representatives

For Release on Delivery
Expected at
9:00 a.m., EDT
Monday
Sept.  29, 1997

PRIVATIZATION AND COMPETITION -
COMMENTS ON H.R.  716, THE FREEDOM
FROM GOVERNMENT COMPETITION ACT

Statement of
L.  Nye Stevens, Director,
Federal Management and Workforce Issues,
General Government Division

GAO/T-GGD-97-185

GAO/GGD-97-185T


(410189)


Abbreviations
=============================================================== ABBREV

  ABC - x
  FASAB - x
  DOE - x
  NASA - x
  OMB - x
  GSA - x

PRIVATIZATION AND COMPETITION: 
COMMENTS ON H.R.  716, THE FREEDOM
FROM GOVERNMENT COMPETITION ACT
==================================================== Chapter Statement

Mr.  Chairman and Members of the Subcommittee: 

I am pleased to be here today to assist the Subcommittee in its
consideration of H.R.  716, the Freedom From Government Competition
Act.  The bill would require that the government procure from the
private sector, with some exceptions, the goods and services it needs
to carry out its functions.  As you know, we testified in June on S. 
314, the Senate companion bill to H.R.  716, and my remarks today
closely parallel our statement before the Senate Committee on
Governmental Affairs.\1 Specifically, I will discuss H.R.  716 as a
potential vehicle for competitive contracting, using the results of
our recent work on privatization initiatives at the state and local
government levels. 

We reported in March 1997 on the major lessons learned by, and the
related experiences of, state and city governments in implementing
privatization efforts.\2

Our report, done at the request of Representative Scott Klug,
examined the privatization experiences and lessons learned by the
states of Georgia, Massachusetts, Michigan, New York, and Virginia,
as well as the city of Indianapolis.  While not done across the board
each of these governments made extensive use of
privatization--primarily contracting out governmental functions--over
the last several years, tailoring their approaches to their
particular political, economic, and labor environments.  On the basis
of our literature review, the views of a panel of privatization
experts, and our work in the six governments, we identified six
lessons that were generally common to all six governments.  In
general, the governments found that they needed to

  -- have committed political leaders to champion the privatization
     initiative;

  -- establish an organizational and analytical structure to
     implement the initiative;

  -- enact legislative changes and/or reduce resources available to
     government agencies in order to encourage greater use of
     privatization;

  -- develop reliable and complete cost data on government activities
     to assess their performance, support informed privatization
     decisions, and make these decisions easier to implement and
     justify to potential critics;

  -- develop strategies to help their workforces make the transition
     to a private-sector environment; and lastly,

  -- enhance monitoring and oversight to evaluate compliance with the
     terms of the privatization agreement and evaluate performance in
     delivering services to ensure that the government's interests
     are fully protected. 

   Figure 1:  Lessons Learned From
   Our Review of State and Local
   Privatization Efforts

   (See figure in printed
   edition.)

Source:  GAO analysis. 


--------------------
\1 Privatization and Competition:  Comments on S.  314, the Freedom
From Government Competition Act (GAO/T-GGD-97-134, June 18, 1997). 

\2 Privatization:  Lessons Learned by State and Local Governments
(GAO/GGD-97-48, Mar.  14, 1997). 


   H.R.  716 PROVIDES A TOOL BUT
   NOT A SUBSTITUTE FOR A
   POLITICAL CHAMPION
-------------------------------------------------- Chapter Statement:1

The history of government reform has demonstrated that new policies,
whether based in law or in administrative directives, are not
self-implementing.  In our work on state and local privatization
initiatives, we reported that reforms such as privatization are most
likely to be sustained when there is a committed political leader to
champion the initiative.  In the six governments we visited, a
political leader (the governor or mayor), or in one case, several
leaders working in concert (state legislators and the governor),
played a crucial role in fostering privatization.  These leaders
built internal and external support for privatization, sustained
momentum for their privatization initiatives, and adjusted
implementation strategies when barriers to privatization arose. 

H.R.  716 does not, and probably cannot, provide for effective
political leadership.  It has been executive branch policy for more
than 30 years to encourage competition between the federal workforce
and the private sector for providing commercial goods and services. 
However, this policy has been embodied only in an administrative
directive, Office of Management and Budget (OMB) Circular A-76. 
While we have consistently endorsed the concept of encouraging such
competition, its effectiveness in practice has been questioned both
in the executive branch and in dozens of congressional hearings. 

H.R.  716 would give the force of law to general reliance on the
private sector for commercial goods and services, and thus would
provide a stronger foundation, but not a substitute, for political
leadership. 


   H.R.  716 WOULD ESTABLISH A
   FLEXIBLE IMPLEMENTATION
   STRUCTURE
-------------------------------------------------- Chapter Statement:2

To implement their privatization initiatives, the governments we
visited reported the need to establish an organizational and
analytical structure.  A key aspect of this structure is an office to
guide and support the privatization initiative and provide the
analytical framework to evaluate the costs, benefits, and risks of
privatizing a particular activity.  Many of the frameworks
established by the six governments shared common elements, such as
criteria for selecting activities to privatize, methods for cost
comparisons, and procedures for monitoring the performance of
privatized activities. 

Responding to the need for such a centralized structure, H.R.  716
requires OMB to issue regulations and to establish a new "Center for
Commercial Activities," which is given responsibility for

  -- implementing the requirements of the legislation;

  -- ensuring compliance by agencies; and

  -- providing guidance, information, and assistance to both private
     and public sectors. 

OMB is given wide latitude as to what regulations it will issue and
what they will contain.  This grant of broad authority affords OMB
flexibility in implementing the legislation.  However, given the wide
latitude that OMB is afforded by the bill, issues will inevitably
arise during implementation that will have to be dealt with by OMB. 
These issues could include such questions as

  -- Whether government corporations, federally funded research and
     development centers, state governments, or even the U.S.  Postal
     Service should be included within the definition of "private
     sector sources" and thus eligible to compete for the
     government's contracts. 

  -- Whether public buildings would need to be sold to the private
     sector in order to house federal employees. 

  -- How OMB will incorporate congressional views when significant or
     highly sensitive conversions are proposed. 

Given concerns such as these, Congress will need to oversee OMB's
performance of its responsibilities.  The strategic and annual
performance plans and annual report that OMB is to produce under the
Government Performance and Results Act, provide a mechanism for such
accountability.  OMB could include in its strategic plan an objective
and strategy for implementing the bill's requirements.\3 The strategy
could be developed in consultation with Congress and could describe
major priorities as well as specific milestones for implementing the
bill's provisions.  In addition, OMB through its annual performance
plan could provide a schedule for changing current policies and
systems that would be necessary to accomplish the bill's purposes. 
Such a schedule would provide greater direction for agencies as they
go through the process of identifying potential activities to be
included in their annual performance plans.  It could also provide a
firm basis for Congress to assess OMB and agency activities as they
relate to the bill's requirements. 

To effectively carry out the role envisioned for it under the bill,
OMB will require additional resources or will need to reallocate
existing resources from other mandated responsibilities.  We reported
in 1995 that we were concerned about OMB's capacity to carry out its
already numerous management responsibilities, which have been
expanded significantly in recent years.\4 Such a plan might be an
appropriate vehicle for addressing such resource issues. 


--------------------
\3 The Results Act:  Observations on the Office of Management and
Budget's July 1997 Draft Strategic Plan (GAO/AIMD/GGD-97-169R, Aug. 
21, 1997). 

\4 Office of Management and Budget:  Changes Resulting From the OMB
2000 Reorganization (GAO/GGD/AIMD-96-50, Dec.  29, 1995). 


      IMPLEMENTATION OF H.R.  716
      WOULD BE HELPED BY
      INTEGRATING IT WITH
      AGENCIES' STRATEGIC AND
      PERFORMANCE PLANNING
      ACTIVITIES
------------------------------------------------ Chapter Statement:2.1

The experiences of other governments as well as of major private
firms indicate that, when the outsourcing of functions is
contemplated, answers to fundamental questions about the purpose and
mission of an organization should precede any major outsourcing
activities.  The bill has significant implications for the ongoing
implementation of the Results Act; the Act focuses on what activities
the government should or should not be performing from the
perspective of overall contributions to missions and goals, while the
bill addresses how and by whom those activites should be performed. 
Under the provisions of the Results Act, agencies are required to set
their strategic direction through multiyear strategic plans, develop
annual goals, and report on performance against those goals.  Agency
strategic plans and performance measures are intended to provide
Congress with a vehicle for asking fundamental questions about
federal functions and their performance.  In our recent reports on
the implementation of the act, we have found that many agencies are
not yet well positioned to specify their plans and strategies in
terms of tangible results.\5

If enacted, the bill's implementation will occur as agencies are
going through their first cycle of planning, measuring, and reporting
on program performance, as called for under the Results Act.  The
bill would amend the Results Act by requiring, among other things,
that agencies include in the annual performance plans and reports
that they submit to Congress (1) inventories of functions that are
and are not subject to the Freedom From Government Competition Act's
provisions and (2) a schedule for converting to private sector
performance those functions capable of, but not currently, being
performed by the private sector.  Requiring agencies to specify the
activities they would perform directly, and those they would convert
to private sector performance, is consistent with the Result Act's
strategic planning requirements. 

If Congress chooses to enact H.R.  716, an opportunity exists to
further integrate implementation of the bill's provisions with the
Results Act.  A key provision of H.R.  716 requires OMB to create a
methodology for making determinations on what types of activities
should and should not remain in government.  This provision, if
integrated with the strategic planning and annual performance
planning requirements of the Results Act, could avoid the potential
situation of agencies inadvertently replacing unneeded federal
functions with unneeded private sector contractors--a concern we have
expressed regarding Department of Defense depots.\6

By making clear that, as part of their strategic planning and
performance measurement activities, agencies should review potential
outsourcing candidates in light of their contribution to mission
accomplishment, the bill could reduce the possibility of such an
outcome. 


--------------------
\5 Managing For Results:  Critical Issues for Improving Federal
Agencies' Strategic Plans (GAO/GGD-97-180, Sept.  16, 1997); The
Government Performance and Results Act:  1997 Governmentwide
Implementation Will Be Uneven (GAO/GGD-97-109, Jun.  2, 1997). 

\6 Defense Depot Maintenance:  Privatization and the Debate Over the
Public-Private Mix (GAO/NSIAD-96-148, Apr.  17, 1996). 


      INCENTIVES MAY BE NEEDED FOR
      IMPLEMENTING CHANGE
------------------------------------------------ Chapter Statement:2.2

Encouraging the magnitude of change that this bill contemplates will
require incentives if it is to be effective.  We believe that
integrating the bill's requirements with those of the Results Act is
one of the best incentives Congress could use to ensure successful
implementation.  The Act should, if successfully implemented, expand
opportunities for congressional oversight of agency performance,
including, for example, closer scrutiny of agency budget requests for
specific activities in the context of expectations about program
performance.  Another incentive could be to allow government agencies
to use savings gained from eliminating duplication and unnecessary
non-core functions to further improve operations or satisfy other
priorities such as modernization.\7 However, such proposals need to
be carefully examined as they raise questions of congressional
oversight and the allocation of scarce financial resources. 

State and local governments that we reviewed used incentives to
accomplish their goals.  In Virginia, officials said department
managers were allowed to retain savings garnered through
privatization and restructuring for use in productivity and
technology improvements.\8 This practice, according to the Director
of Virginia's Commonwealth Competition Council, provided the
incentive needed and helped solve the question often asked by
managers of "what's in it for me"?  In Indianapolis' managed
competition process, if the public sector won a competition and the
union-management team performed the activity at the desired level of
performance for less than it had bid, the team would receive a share
of the savings at the end of the year.  The city, after tracking
performance over a period of years, could place a moratorium on
bidding for areas for which city employees had demonstrated
performance excellence and in which they had consistently outbid
private competitors.  In addition, Indianapolis built community
support by taking some cost savings achieved through outsourcing and
managed competitions and allocated it to hiring additional police,
lowering tax rates, and increasing infrastructure projects. 
According to the Deputy Mayor, this approach built community support
and provided further incentives for managed competition and
outsourcing. 

In contrast, Georgia's Governor instituted a budget redirection
program that required all agencies to prioritize their current
programs and activities and identify those programs that could be
eliminated or streamlined.  The agencies were required to make at
least 5 percent of their total state-funded budgets available for
redirection to higher priorities.  According to a Georgia
Privatization Commission official, agencies were given a 6-month
notice that their budgets would be cut by 5 percent.  State officials
said these budget cuts required managers to rethink how they could
perform the same activities for a lower cost.  This action provided
the incentive for agencies to contract out more activities, such as
vehicle maintenance and management services for a war veterans
facility. 


--------------------
\7 See for example:  DOD High-Risk Areas:  Eliminating Underlying
Causes Will Avoid Billions of Dollars in Waste
(GAO/T-NSIAD/AIMD-97-143). 

\8 S.  959, Workforce Transition Act of 1995, Chapter 811 of the Acts
of Assembly, Commonwealth of Virginia. 


   THE RELATIONSHIP OF H.R.  716
   TO OTHER RELEVANT LAWS IS
   UNCLEAR
-------------------------------------------------- Chapter Statement:3

In our state and local work, we found that all five states and the
city of Indianapolis used some combination of legislative changes and
resource cuts as part of their privatization initiatives.  These
actions were taken to encourage greater use of privatization. 
Georgia, for example, enacted legislation to reform the state's civil
service and to reduce the operating funds of state agencies. 
Virginia reduced the size of the state's workforce and enacted
legislation to establish an independent state council to foster
privatization efforts.  These actions, officials told us, reduced
obstacles to privatization and sent a signal to managers and
employees that political leaders were serious about implementing it. 

While providing a statutory basis for competitively contracting out
government functions, H.R.  716 has implications for certain existing
laws.  As currently drafted, the bill is broad in its application,
and how it will relate to existing laws and policies is not entirely
clear.  For example, H.R.  716 prohibits agencies from beginning or
carrying out any activity to provide any products or services that
can be provided by the private sector, and it prohibits agencies from
providing any goods or services to any other governmental entity. 
This could conflict with the "Economy Act of 1932" (31 U.S. 
1535-1536), which authorizes interagency orders for goods and
services, as well as with the General Services Administration's (GSA)
authority to provide agencies with goods and services.  GSA was
created, and still exists, to provide goods and services to agencies,
such as office space, consolidated purchasing, air fare contracts,
and excess property disposal.  Its role under H.R.  716 is unclear. 

In addition, the bill does not contain language limiting judicial
review of management actions taken under its provisions.  The
possibly unintended effect of subjecting management decisions to
judicial review could slow implementation and increase costs due to
litigation. 


   RELIABLE AND COMPLETE COST
   INFORMATION NEEDED FOR
   PRIVATIZATION DECISIONS
-------------------------------------------------- Chapter Statement:4

In the governments we visited, reliable and complete cost data on
government activities were deemed essential in assessing the overall
performance of activities targeted for privatization, in supporting
informed privatization decisions, and in making these decisions
easier to implement and justify to potential critics.  Most of the
governments we surveyed used estimated cost data because obtaining
complete cost and performance data, by activity, from their
accounting systems was difficult.  However, Indianapolis, and more
recently Virginia have used activity based costing (ABC)\9 to obtain
more precise and complete data on the cost of each separate program
activity. 


--------------------
\9 ABC is a methodology that assigns costs to products or services
based on the resources they consume.  It assigns functional costs,
direct and indirect, to the activities of an organization and then
traces activities to the product or service that caused the activity
to be performed.  ABC gives visibility to how effectively resources
are being used and how all relevant activities contribute to the cost
of a product or service.  Such information may be key to making
decisions about whether to restructure or privatize an activity.  See
Glossary:  Terms Related to Privatization Activities and Processes
(GAO/GGD-97-121, July, 1997). 


      H.R.  716 REQUIRES COST AND
      PAST PERFORMANCE INFORMATION
      IN MAKING PRIVATIZATION
      DECISIONS
------------------------------------------------ Chapter Statement:4.1

A notable feature of the draft legislation is the provision
describing the criteria that are to be used in contracting for goods
and services.  The legislation requires OMB to prescribe standards
and procedures that are to include the analyses of all direct and
indirect costs, and to be performed in a manner consistent with
generally accepted cost accounting principles as well as with past
performance of sources.  We have found in the past that the
widespread absence of this type of information has compromised
effective public-private comparisons.  This provision of the bill is
consistent with current efforts aimed at improving federal financial
management. 

In the past, when competitive contracting has been done at the
federal level under the provisions of Circular A-76, the absence of
workload data and adequate cost accounting systems has made the task
all the more difficult.  Given that most agencies do not have cost
accounting systems in place at this point, the bill's requirement to
use past performance and cost data will be difficult for many federal
activities to meet. 

Efforts are under way to develop the type of cost and performance
data that would be necessary to compare public versus private
proposals, as could occur under the provisions of H.R.  716.  The
Federal Accounting Standards Advisory Board (FASAB) has developed
standards that are designed to provide information on the costs,
management, and effectiveness of federal agencies.  These standards
require agencies to develop measures of the full costs of carrying
out a mission or of producing products and services.  Such
information, when available, would allow for comparing the costs of
various programs and activities with their performance outputs and
results.  To help agencies meet these standards, the Joint Financial
Management Improvement Program (JFMIP) plans to issue guidance to
facilitate the acquisition and development of managerial cost
accounting systems needed to accumulate and assign cost data
consistent with governmentwide data.\10


--------------------
\10 The JFMIP is a joint cooperative undertaking of the Office of
Management and Budget, the General Accounting Office, the Department
of the Treasury, and the Office of Personnel Management, working in
cooperation with each other and with operating agencies to improve
financial management practices throughout the government.  An
exposure draft of the system requirement was issued in April 1997,
and final issuance is projected for later this calendar year. 


   H.R.  716 RECOGNIZES FEDERAL
   WORKFORCE TRANSITION NEEDS
-------------------------------------------------- Chapter Statement:5

We found that governments we visited needed to develop strategies to
help their workforces make the transition to a private-sector
environment.  Such strategies, for example, might seek to involve
employees in the privatization process, provide training to help
prepare them for privatization, and create a safety net for displaced
employees.  Among the six governments we visited, four permitted at
least some employee groups to submit bids along with private-sector
bidders to provide public services.  All six governments developed
programs or policies to address employee concerns with privatization,
such as the possibility of job loss and the need for retraining. 

The bill's findings section states that it is in the public interest
for the private sector to utilize government employees who are
adversely affected by conversions of functions to the private sector. 
The legislation does not create any new benefit or competitive job
right that does not already exist.  It does, however, assign to the
Director of OMB the function of providing information on available
benefits and assistance directly to federal employees.  This would be
a new and possibly burdensome function for OMB--a function that
probably could be better handled by the Office of Personnel
Management, which already has responsibility and experience in this
area. 


      COMPETITIVE CONTRACTING
      HELPED ATTAIN EMPLOYEE
      COOPERATION
------------------------------------------------ Chapter Statement:5.1

Involving employees in the privatization process by letting them
compete for the right to provide the service was a strategy used by
state and local governments to gain employee cooperation during the
privatization process.  H.R.  716 neither encourages nor prohibits
public-private competitions.  However, it does give implicit
authority to OMB to implement such a program, by requiring that the
implementing regulations include standards and procedures for
determining whether it is a private sector source or an agency that
provides certain goods or services for the best value.  While the
question of how such determinations would be made is left up to OMB,
competitive contracting has been the traditional method for making
such determinations both at the federal level and the state and local
level.\11


--------------------
\11 Under competitive contracting, also referred to as managed
competition, a public-sector agency competes with private-sector
firms to provide public-sector functions or services under a
controlled or managed process.  This process clearly defines the
steps to be taken by government employees in preparing their own
approach to performing an activity.  The agency's proposal, which
includes a proposal for cost-estimation purposes, is useful in
competing directly with private-sector offers. 


   EFFECTIVE MONITORING AND
   OVERSIGHT OF CONTRACTOR
   PERFORMANCE ARE ESSENTIAL
-------------------------------------------------- Chapter Statement:6

When a government's direct role in the delivery of services is
reduced through privatization, we found that, at least among the
state and local governments we visited, the need for aggressive
monitoring and oversight grew.  Oversight was needed not only to
evaluate compliance with the terms of the privatization agreement,
but also to evaluate performance in delivering goods and services in
order to ensure that the government's interests were fully protected. 
Indianapolis officials said their efforts to develop performance
measures for activities enhanced their monitoring efforts.  However,
officials from most governments said that monitoring contractors'
performance was the weakest link in their privatization processes. 

The essential foundation for effective oversight is good cost and
performance data.  H.R.  716's analytical requirements call for the
consideration of all direct and indirect costs, qualifications, and
past performance as well as other technical considerations.  These
requirements, along with the authority and flexibility given to OMB
in implementing the legislation, provide the necessary foundation for
effective performance monitoring and oversight, but they do not
resolve capacity problems. 

Converting government activities to private-sector performance will
increase the contracting workload on federal agencies.  Conversion to
contract performance requires considerable contract management
capability.  An agency must have adequate capacity and expertise to
successfully carry out the solicitation process and effectively
administer, monitor, and audit contracts once they are awarded.  In
past reports on governmentwide contract management, we identified
major problem areas, such as ineffective contract administration,
insufficient oversight of contract auditing, and lack of high-level
management attention to and accountability for contract
management.\12 Some federal agencies have recognized the problem and
have taken actions intended to improve their contract management
capacity.  The Department of Energy (DOE) and The National
Aeronautics and Space Administration (NASA) provide examples of the
challenges agencies face in overseeing contractors. 

DOE--the largest civilian contracting agency in the federal
government--contracted out about 91 percent of its $19.2 billion in
fiscal year 1995 obligations.  We designated DOE contracting in 1990
as a high-risk area, vulnerable to waste, fraud, abuse, and
mismanagement, because DOE's missions rely heavily on contractors and
DOE has a history of weak contractor oversight; however, it has been
working to improve its contract management practices.  As we recently
reported in our high-risk report on DOE,\13 changing the way DOE does
business has not come easily or quickly.  DOE has taken various
actions in the past to improve its contracting, and a recent contract
reform effort that has received high priority and visibility appears
promising; however, much remains to be done to ensure effective
oversight of contractors. 

NASA's contracting reforms demonstrate what can be accomplished when
an agency places high priority on contractor oversight.  NASA spends
about 90 percent of its budget on contracts with businesses and other
organizations.  NASA's procurement budget is one of the largest among
federal civilian agencies, totaling about $13 billion annually in
recent years.  NASA first identified its contract management as
vulnerable to waste and mismanagement in the late 1980s.  Since then,
it has grappled with a variety of contract management problems.  NASA
has made considerable progress in developing ways to better influence
contractors' performance and to improve oversight of field centers'
procurement activities.  It has, for example, established a process
for collecting cost, schedule, and technical information for all
major NASA contracts to assist management in the tracking of
contractor performance, and it also has restructured its policy on
award fees to emphasize contract cost control and the performance of
contractors' end products. 


--------------------
\12 Government Earns Low Marks on Proper Use of Consultants (GAO/FPCD
80-48, June 16, 1980); Civilian Agency Procurement:  Improvements
Needed in Contracting and Contract Administration (GAO/GGD-89-109,
Sept.  5, 1989); and Federal Contracting:  Cost-Effective Contract
Management Requires Sustained Commitment (GAO/T-RCED-93-2, Dec.  3,
1992). 

\13 Department of Energy Contract Management (GAO/HR-97-13 Feb. 
1997). 


------------------------------------------------ Chapter Statement:6.1

In conclusion, Mr.  Chairman, striking a proper balance between the
public- and private-sector provision of goods and services to the
American people is among the most enduring issues in American
politics and public policy.  The Freedom From Government Competition
Act would redirect current policy, which does not now have the weight
of legislative authority and significantly affect the operation and
management of the federal government.  We believe that Congress is
the proper forum to address such fundamental questions, and we hope
that our testimony today has been helpful by raising some issues for
the Subcommittee to consider in its deliberations on the proposed
act. 

That concludes my prepared statement.  I would be pleased to answer
any questions the Subcommittee may have. 


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