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[H.A.S.C. No. 107–41]









JUNE 26, 2002
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JOEL HEFLEY, Colorado, Chairman
CURT, WELDON, Pennsylvania
WALTER B. JONES, North Carolina
BOB RILEY, Alabama
J.C. WATTS, Jr., Oklahoma
ROB SIMMONS, Connecticut

SOLOMON P. ORTIZ, Texas, Ranking Member
LANE EVANS, Illinois
JAMES H. MALONEY, Connecticut
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MIKE McINTYRE, North Carolina
ROBERT A. BRADY, Pennsylvania
BARON P. HILL, Indiana
SUSAN A. DAVIS, California
RICK LARSEN, Washington

Mary Ellen Fraser, Counsel
Diane W. Bowman, Staff Assistant



    Wednesday, June 26, 2002, OUTSOURCING: Review of the Commercial Activities Panel Report

    Wednesday, June 26, 2002


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    Hefley, Hon. Joel, a Representative from Colorado, Chairman, Military Readiness Subcommittee
    Walker, Hon. David M., Comptroller General and Chairman, Commercial Activities Panel, United States General Accounting Office

    Filteau, Mark, President of Johnson Controls World Services, Inc.
    Harnage, Bobby L., Sr., National President, American Federation of Government Employees, AFL–CIO
    Styles, Angela B., Administrator for Federal Procurement Policy, Office of Management and Budget
    Tobias, Robert M., Distinguished Adjunct Professor, American University
    Wynne, Michael W., Principal Deputy Under Secretary of Defense for Acquisitions, Technology, and Logistics, Department of Defense


Filteau, Mark
Harnage, Bobby L., Sr.
Styles, Angela B.
Tobias, Robert M.
Wynne, Michael W.
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Gary Engebretson, President, Contract Services Association of America
James C. Rucidlo, National Association of Government Employees
Frank J. Stevens, President, Tidewater Virginia Federal Employees Metal Trades Council

[Questions and Answers are pending.]


House of Representatives,
Committee on Armed Services,
Military Readiness Subcommittee,
Washington, DC, Wednesday, June 26, 2002.

    The subcommittee met, pursuant to call, at 2 p.m. in room 2212, Rayburn House Office Building, Hon. Joel Hefley (chairman of the subcommittee) presiding.


    Mr. HEFLEY. The subcommittee will come to order. The hearing will come to order. I apologize that we don't have more Members here right now. Hopefully they will be here before we are through. We have a lot of things going on, including the Republican Conference that was going on just a few moments ago. But we want to proceed with the hearing and we want to get your testimony on record, so we are going to go ahead.
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    This afternoon, the Military Readiness Subcommittee is convened to hear testimony from members of the Commercial Activities Panel, a panel of experts put together by the Comptroller General of the United States, to review the process and procedures associated with the contracting out process. After years of complaints and allegations of unfairness, Congress recognized that something needed to be done, but we didn't know what, so we asked a panel of experts to advise us.

    This panel, referred to as the Commercial Activities Panel, held hearings and meetings around the country, sat through innumerable meetings, after hours of debate, published a report titled ''Improving the Sourcing Decisions of the Government.'' This report is the topic of our hearing today.

    As we all know, contracting out is a very controversial topic. Proponents of contracting out believe that there are large savings to be found which provide the government the ability to pay for other necessary items without increasing its overall budget, without having to reduce services. Critics of contracting out view the process as a back-door device for doing away with federal jobs.

    I would like to hear from the witnesses today whether, after working together for over a year, these perceptions have changed at all. The findings and recommendations of the panel are substantial, especially in light of the fact that 10 basic principles were unanimously agreed to and the remaining recommendations were agreed to upon a supermajority.

    I would like to hear more about these recommendations. Specifically, I would like the witnesses to address whether the recommendations can be implemented without having some of the same problems we face today.
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    One of the recommendations that has received tremendous attention is the concept of best-value contracting. I would like to know in the witnesses' opinion whether this process is in fact less time-consuming than the current A–76 process; whether the government work force is in a position to put together a competitive bid, and whether the accounting principles that apply to the government bid and the private sector allow for true apples-to-apples comparisons.

    Before I offer Mr. Ortiz the opportunity to make an opening statement, I would like to first congratulate each panel member for being part of the process. I recognize the enormous time, effort, and level of commitment each member dedicated in putting together this final report.

    I would like to specifically congratulate Mr. David Walker, the Comptroller General of the United States, who did an outstanding job chairing this panel. Without his personal dedication, I do not know if we would have the quality product that we have today. I would like to congratulate you on the side here. I would like to congratulate you for all still being alive after a year of this process and starting out from where each of you were coming from.

    I would also like to thank Representative Allen for being here today. He is committed, just as many other Members are, to finding the right solution to this quagmire we find ourselves in.

    I would like to now offer Mr. Ortiz the opportunity to make any opening remarks you might like to.
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    [The panel report is available in the Armed Services Committee office.]

    Mr. ORTIZ. Thank you, Mr. Chairman. I join you in welcoming all of our distinguished witnesses to this hearing today. We have been looking forward to this hearing for some time. I want to thank my good friend and Chairman of the Readiness Subcommittee, Chairman Hefley, for scheduling this hearing today. I also want to express my personal appreciation to all of the panel members for all of the time and effort they expended in conducting this study.

    Sourcing, whether it is outsourcing or otherwise, it is a complex matter with potential serious consequences. We can ill afford to continue to conduct sourcing activities in a ''business as usual'' manner.

    We are familiar with the often used phrase, ''If it isn't broken don't fix it.'' the conclusion of this effort acknowledged that the policies and procedures used by the federal government for the transfer of activities from government personnel to contractors need to be fixed. We are also aware that the Defense Department uses a variety of processes for outsourcing. The A–76 process has been used to address only a small portion of the total DOD sourcing effort. But that small portion is very important because of the potential adverse impacts on military readiness, the quality of life of our military forces and their family members, and the long-term stability and productivity of our dedicated civilian employees.

    Like many of my colleagues, I have a special concern about the process used by the Department of Defense for public-private competition using OMB Circular A–76. The process is broken and we need to fix it. That was the explicit message in the Fiscal Year 2001 National Defense Authorization Act. For example, the A–76 process is too costly, takes too long, has long-term adverse implications for readiness, and is most unfair in the treatment of our dedicated civilian personnel. No one likes it, to include industry and the Defense Department.
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    What concerns me the most is that the Defense Department continues to mandate use of the A–76 process as a vehicle for outsourcing while acknowledging that the process is seriously flawed. During the last two sessions, the House Armed Services Committee made two concerted efforts to change the rules of the game for A–76 studies, but were not successful.

    The issue before us today is how will the system be fixed? There is no way that we can rationalize the current A–76 process as being in the best interest of the Department or the taxpayers. That is one of the reasons I look forward to your testimony about the Commercial Activities Panel report today. The various changes and approaches recommended in the report all have costs and provide both opportunities and consequences. We need to understand how the Department intends to react to the report recommendations.

    And I want to thank you for your dedication and your effort and, of course, your presence here. And this is only one aspect that we are talking about. We could go into something else that is called ''bundling,'' which we are not touching today; but that also impacts on communities, it impacts on minorities, it impacts on small businesses when you bundle all these contracts into one. But that is a case for another day. Today is A–76, and I want to thank you for being with us today.

    Thank you, Mr. Chairman.

    Mr. HEFLEY. Thank you Mr. Ortiz.

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    Mr. HEFLEY. Mr. Allen, would you like to make an opening statement?

    Mr. ALLEN. Thank you, Mr. Chairman, I would. And I will be very brief. First of all, I want to thank you for your leadership in holding this hearing. As I look out at our panel members, I am struck by the welcome diversity, and particularly with people who have worked together so long. I mean, I think people back home in Maine think this is what the Congress does all of the time, gather people of divergent views together and try to work through difficult issues.

    This is a challenging area because whenever jobs and businesses and communities have a stake in a particular governmental decision, passions can run high. But Chairman Hefley, in my conversations with him and in simply holding this hearing, I think has shown that the way to approach this problem is to work together, understanding that at the end of the day what we want is to have this government work as effectively and as efficiently as it possibly can.

    While we are conscious of all the various interests and jobs that people have and have some interest in right now, we want a system that is open and fair and the question is, how do we get there and what kind of a system are we looking for?

    And I just thank you again, Mr. Chairman, for your work in this area and for allowing me to be here today, even though I am not a member of the subcommittee. Thank you.

    Mr. HEFLEY. Mr. Underwood, do you have an opening statement?
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    Mr. UNDERWOOD. Not really, Mr. Chairman, but I do want to thank you for holding this hearing and I look forward to the testimony. All the processes that are described herein are something that I think are etched in the memories of certain members of the subcommittee and of the full committee as they underwent the processes that are described herein, and we must always be mindful that we are not just—as we should be mindful of the taxpayers at the end of the day, we should also be mindful of the people who are affected by it and the economies of the communities that are involved.

    Thank you, Mr. Chairman.

    Mr. HEFLEY. Thank you. Mr. Maloney, do you have anything you would like to say at the outset?

    Mr. MALONEY. Not at this time. Thank you, Mr. Chairman.

    Mr. HEFLEY. Thank you very much.

    We are going to call on Mr. David Walker, who is the Comptroller General of the United States, to open. And you can make an opening statement, or not, as you choose. We would like for you to stay as near five minutes as you can. Without objection, I would propose that your entire statement would be made a part of the record. And we will have a clock, and you see those little lights in front of you.

    Mr. HEFLEY. Mr. Walker, the time is yours.
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    Mr. WALKER. Thank you, Mr. Chairman, Mr. Ortiz, other Members present. Thank you for the opportunity to participate today to talk about the Commercial Activities Panel report. The panel's work was a result of the provision, as you know, contained in the Fiscal Year 2001 Defense Authorization Act which called for the panel's creation and which called for myself, as Comptroller General of the United States, to convene a panel to address this complex and controversial issue.

    Importantly, this is an issue of sourcing, not an issue of outsourcing. It is trying to make sure that the right sourcing decisions are made, which in some cases could involve outsourcing, in some cases could involve insourcing, in some cases could involve cosourcing such as public-private partnerships, et cetera.

    Because of the importance of the issues to be addressed, I chose to personally chair the panel rather than to delegate it as permitted under the legislation. And let me say that I and every panel member dedicated a tremendous number of hours and a significant amount of time to try to take this very seriously and to try to do this to the best of our ability. And at the outset, I would like to thank each and every panel member for their time and their effort to try to work together in a constructive fashion, which I think for the most part we were able to.

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    In establishing the panel, a number of steps were taken to ensure fair representation of all major stakeholders, as well as to assure a fair and balanced process. This began with my selection of the panel members, which, as you know, there were certain parties who by law had to be represented. The Congress made that decision, and then I had discretion to be able to select other panel members. I believe that we selected a group of outstanding individuals who are representative of the diverse interest groups involving both the public and the private sectors, labor unions, academia, and members with direct experience in dealing with these issues, including at the local government level.

    Once convened, the panel as a group took a number of steps from the outset to guide our deliberations to assure a fair and balanced consideration of the issues. The first step was an adoption of the mission statement. We also agreed that all of our findings and recommendations would require agreement of at least a two-thirds supermajority of the panel in order to be adopted by the panel. The panel further decided that each member of the panel should have an opportunity to include a brief statement in the final panel report, articulating their views, and every member of the panel took advantage of that opportunity.

    We convened over 11 meetings during the one-year period of time, including three public hearings, one in Washington and two outside of Washington. We also received extensive comments through not only those hearings, but an e-mail application where people could comment at any time to GAO's Website dedicated to this particular issue—a portion of which was dedicated to this issue.

    During its meeting the panel considered a range of principles to guide sourcing decisions. These principles were unanimously adopted by the entire 12 members of the panel, nothing less than a minor miracle, given the diversity of the views contained on this panel. The principles and their accompanying narrative comments were adopted as a package and then used as a basis to come up with additional recommendations. The panel's principles supplied a strong conceptual framework and specific criteria against which to measure any proposals for changes in the government's competitive sourcing policies, either administratively by OMB or legislatively, hopefully, by the Congress.
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    In addition to the principles, the panel adopted a package of additional recommendations that it believed would improve significantly the government's policies and procedures for making sourcing decisions. It is important to emphasize that the panel decided to consider and adopt these later recommendations as a package, recognizing the diverse interests represented on the panel, and recognizing the need to give and take in order to come up with a supermajority consensus.

    Those three basic recommendations were to conduct public-private competitions under a framework of an integrated FAR-based process (Federal Acquisition Regulation), to make limited changes to the existing A–76 process, and to encourage the development of high-performing organizations throughout the government.

    Although a minority of the panel did not support the package with the three additional recommendations noted above, some of them indicated in their personal statements that they supported one or more elements of the package. Importantly, there was a good-faith effort, even up to the last minute of the report being sent to the printer, to maximize agreement, to minimize differences between the panelists. In fact, changes were made to the panel report in some cases, even though it was clear that it was highly unlikely that the member who sought the change would vote for the package of recommendations.

    This was done for two reasons: one, in a good-faith attempt to try to reach a compromise and to achieve a quality product; and second, to minimize the number of differences between those who voted yes and those who voted no. In my opinion, Members, it is very important to recognize that in addition to agreement, unanimous agreement on the principles, that the differences on the other three recommendations in reality are few in number and philosophical in nature.
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    In my opinion, the two primary differences are as follows:

    First, the recommendation as to whether or not cost should be the driver for all competitive sourcing decisions. Cost is important, but cost is not everything.

    And, second, the number of times that Congress should be required to act in order to deal with this issue. Many of the panel's recommendations can be accomplished administratively. Others may take changes in law. We hope that OMB and the Congress will use the unanimously agreed principles as a basis for any related decisions.

    In summary, I, as Comptroller General of the United States, supported the set of principles and the panel report as a package. I believe that the findings and recommendations contained in the panel's report represent a reasoned, reasonable, fair, and balanced approach to addressing this important, complex, and controversial area. I hope that the Congress and Administration will use this report and act in an appropriate manner.

    One thing I can tell you for sure: The A–76 process does not meet the principles agreed to by the panel. It does not meet it. We believe a supermajority of the panel believes that the new proposed approach would. Reasonable people can disagree, but we shouldn't be disagreeable.
    Thank you, Mr. Chairman.

    [The prepared statement of Mr. Walker can be found in the Appendix on page ?.]
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    Mr. HEFLEY. I apologize to the panel. As you see, a vote has gone off. Some genius over there has decided it is good for America for us to have a vote on adjournment in the middle of the day. So we are going to run over there and vote right quick, and I hope come right back as quickly as we can. So we will stand in recess for just a few minutes.


    Mr. HEFLEY. The committee will come back to order. Angela Styles, Director, Office of Federal Procurement Policy, would you like to make an opening statement or not?


    Ms. STYLES. Just a couple of brief sentences in the interest of maintaining a voice to answer questions.

    I would like to thank you, Mr. Chairman, for holding this hearing, and I would particularly like to thank David Walker for doing a tremendous job of putting together this panel with very diverse groups and very diverse ideas. The Administration, I think, was a bit reluctant in the beginning to participate in the panel because we really wanted to make some immediate changes to the A–76 process itself. But I think after several months on the panel, we realized the benefits of working with this group and working with David Walker, and we fully support the recommendations of the panel and are looking forward to moving forward expeditiously in implementing the recommendations. In fact, I have a draft version of a new OMB Circular A–76, implementing a significant majority of the recommendations on my desk right now. So we are looking forward to moving forward very rapidly with this process.
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    Thank you.

    Mr. HEFLEY. Thank you very much.

    [The prepared statement of Ms. Styles can be found in the Appendix on page ?.]

    Mr. HEFLEY. Mr. Michael Wynne, Deputy Under Secretary of Defense for Acquisition Technology and Logistics. Mr. Wynne.


    Mr. WYNNE. Chairman Hefley and members of the committee, I am pleased to have this opportunity to appear before you today to discuss these recommendations of the Commercial Activities Panel. Developing recommendations to approve the process used to source federal functions was by no means an easy task. My compliments to the chairman. The panel discussions were open and constructive. All sides of this difficult issue were brought to the table and taken into consideration.

    The Department fully supports the objectives of the panel's report recommendations, especially the set of fundamental principles which should be inherent in any public-private partnership and public-private competitions. We should keep in mind these principles are a package. No individual principle should be addressed alone. The emphasis on speed, fairness, and innovation to this competitive process is very welcome.
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    The process is not easy. It is often lengthy, complex, and frustrating for everyone. That frustration is an outgrowth of a process which has evolved over time to address legitimate concerns for establishing a level playing field to protect the interests of all the participants, be they government employees, the private sector competitors, management and the taxpayer. The panel's integrated competition process is a promising method to improve fairness and reduce the lengthy time currently required, and is consistent with the framework provided by these principles adopted by the panel.

    The Department is engaged currently in a working group sponsored by OMB to develop such an integrated process. We are committed to improving efficiency and ensuring resources are allocated to support our highest-priority activities. The Department's Business Initiative Council, or the BIC, is charged with changing our business process to improve the mission effectiveness and reduce cost. This Business Improvement Council is currently reviewing all of our missions to identify what is non-core, to allow us to pursue a number of tools including competitive sourcing, reengineering, divestiture, privatization, public-private competition, and public-private partnerships, in addition to our A–76 competitions.

    The principles identified by the Commercial Activities Panel are relevant and applicable to all of this review. We have by far the most A–76 experience in the federal government. We now have a considerable number of A–76 competitions, not only started but also complete. Whereas budget estimates were based on programmatic assumptions, we now have collected data in our Commercial Activities Management Information System, or CAMIS, telling us the actual results of these A–76 competitions. The completed A–76 competitions have resulted in either a contract or in-house decision that will generate over $5 billion in savings over the life of those contracts. This power of competition can be expected to be duplicated when the remainder of our in-progress A–76 competitions are completed.
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    A–76 competitions take an average of two years to complete. This includes all of the normal procurement requirements. The additional steps required in an A–76 process competition are performed concurrently with these procurement requirements in an attempt to level the playing field before selecting contractor or government performance team.

    The entire process is frustrating for all concerned: government employees who are in limbo about their jobs; contractors who have tied up considerable bid and proposal investments; and the government activity managing the process while simultaneously performing their everyday mission.

    The recommendations made by the Commercial Activities Panel report should begin to address the need to simplify as well as expedite the process. The Office of the Secretary of Defense has made considerable progress, providing consistent guidance across the Department of Defense to supplement the circular.

    We have agreed and are willing to assist the Office of Management and Budget (OMB) when they go and modify the Circular A–76 to address the recommendations that have been made by this panel to improve the current framework in process, and we are pleased to see it be expedited. I agree these changes are needed so they reflect a balance among the taxpayer interests, government needs, employer rights, and contractor concerns.

    As we identify systemic problems, we have been proactive in streamlining our implementation procedures for A–76. While the A–76 process is far from perfect, it does provide the government with a standardized process necessary to determine when DOD should outsource functions performed by Department of Defense employees, or, in fact, insource contracted activities. When problems arise, processes are in place to address disputes between these interested parties.
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    While the Department is still pursuing a number of A–76 competitions, we believe our future interests are best served by employing a wide range of business tools, A–76 competitions being just one. Our preferred approach, as discussed in the Quadrennial Defense Review, involves emphasizing divestitures in non-core missions, regardless of who is performing them. Resulting savings would be available to invest in higher-priority programs within the Department. The high-performing organization concept recommended by the panel is right in line with our own Business Initiatives Council effort for internal reengineering.

    However, it would be premature to discuss any specific DOD procedure at this time. Success will rest with allowing each agency to develop their agency's implementation based on what works best for that agency, rather than dictating a ''one size fits all'' approach.

    My recommendation is based on our history of developing implementation policies and procedures for various programs over the 25 DOD components, four military services, 16 defense agencies, and seven defense field activities. We will need Congressional assistance in removing the barriers we presently have in place in order to implement some of the Commercial Activities Panel recommendations. We are, as well, very cautious where proposals not only add competition cost, but also adversely affect mission effectiveness by possibly delaying contract award, with little likelihood of achieving the positive results which are seen in our current program.

    We appreciate Congressional support to allow our competitive efforts to proceed. I support and look forward to an improved public-private competitive process as a result of the panel's finding. I strongly urge Congress to allow these changes to be implemented without further legislative constraints levied upon the Department of Defense.
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    I would like to repeat: The A–76 process is cumbersome, as it has been a very—though it has been a very beneficial contributor to the Department of Defense. I would like to see the improvements made in as expeditious a manner as possible, and I stand ready to answer any questions you may have.

    Mr. HEFLEY. Thank you, Mr. Wynne.

    [The prepared statement of Mr. Wynne can be found in the Appendix on page ?.]

    Mr. HEFLEY. Mr. Bobby Harnage, National President of the American Federation of Government Employees.


    Mr. HARNAGE. On behalf of the 600,000 Federal and D.C. Government employees represented by American Federation of Government Employees (AFGE), who serves the American people across the Nation and around the world, I thank you, Mr. Chairman, for the opportunity to discuss our concerns about the ongoing crisis in DOD service contracting with you, Ranking Member Ortiz, and other distinguished members of the committee.

    DOD fails to adequately track the cost of the billions and billions of dollars it spends on service contracting. Competition is widely touted as saving money, yet much work is contracted out without any public-private competition. Using the OMB outsourcing quotas as cover, DOD is fulfilling their arbitrary targets with direct conversions of federal employees' jobs. In fact, the Pentagon intends to turn tens of thousands of jobs over to contractors, with no public-private competition, under a controversial process known as divestiture.
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    DOD officials continue to starve their work force of possibilities for performing new work. Indeed, a senior Pentagon official insists that as federal employees retire, they will simply be replaced by contractors. And contractors, despite acquiring and retaining their work with almost no public-private competition and all too infrequent private-private competition, are almost never subject to the competitive scrutiny experienced by federal employees.

    Fortunately, there is the Allen-Andrews Amendment, legislation that would require DOD to establish a reliable and comprehensive system for tracking the cost and size of the contractor work force, guarantee public-private competition before work is given to contractors, and ensure that contractors are subject to the same public-private competition scrutiny as that experienced by federal employees. In short, the Allen-Andrews amendment would allow DOD to reverse the disastrous consequences of years and years of thoughtless so-called downsizing and indiscriminate contracting out that have culminated in the Department's human capital crisis.

    No one is surprised with the outcome of a bunch of contractors and their friends and the Administration getting together and coming up with a recommendation for making the service contracting process even more biased in favor of contractors. The Commercial Activities Panel, with a solid majority of pro-contractor representatives, quite naturally served up a recommendation that would benefit contractors, not taxpayers, switching from an objective cost-based public-private competition process to an explicit subjective one known as ''best value.''

    I would not have agreed to serve on the committee had Senate Armed Services Committee Chairman Carl Levin not assured me that his committee would not take up any recommendation from the panel that did not represent a consensus of views. True to his words, Chairman Levin has already declared his opposition to the panel's recommendation. I am confident that all fair-minded lawmakers would emulate his example.
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    Important public policy issues should not be decided on simply easy access to the public trough, particularly when one faction is given an unfair advantage at the polling booth. This was supposed to be about the best interest of the taxpayers. In my written testimony, I pointed out how the contractor faction was unable to make a case for junking OMB Circular A–76, let alone for replacing it with a controversial, unproven, and subjective FAR-based ''best value'' public-private competition process.

    My written testimony also points out that the so-called sourcing principles, although supported unanimously, were in many instances not incorporated by the panel's contractor faction in the CAPS' recommendation. In several instances, the contractor faction either crafted a recommendation, they contradicted the principles, or significantly changed the principles in incorporating them in the recommendation, in order to disadvantage federal employees. In still another instance, the Bush Administration has defined the principles ostensibly supported by its own representatives on the panel.

    Let's not be distracted from the real reason for the big contractor faction ramming through its FAR-based ''best value'' recommendation. Big contractors can't compete on the basis of cost. Contractors are confounded that despite all of their advantages, they lose 60 percent of all public-private competition. Contractors simply can't win regularly enough when they compete on the basis of cost, the standard that is best for the taxpayers. Rather than improve their efficiency and acknowledge that federal employees are high performers also, contractors have decided they must change the rules of the game. They cry foul and say rules are unfair, yet they are the only ones that can appeal the decision to GAO or to the courts.

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    Decisions that make district conversions or contract out go unchallenged, while decisions to do neither are challenged by both the contractors and the Administration. In the name of fairness, they want to replace the current system with one that increases the load of bias and politics. This effort has been repeatedly rejected by both Republican and Democratic administrations over the last 50 years. Thanks to the vigilance of successive Congresses, Title X is replete with requirements that ensure the government service decisions are cost-based.

    A FAR-based best value process is not needed to take into account quality. It undermines the integrity of the sourcing process by introducing bias and subjectivity in a way that cannot be corrected by the appellate process, and it undermines the taxpayers' interest.

    Thank you very much for this opportunity to appear at today's hearing. I look forward to answering your questions.

    Mr. HEFLEY. Thank you, Mr. Harnage.

    [The prepared statement of Mr. Harnage can be found in the Appendix on page ?.]

    Mr. HEFLEY. Mr. Mark Filteau, President, Johnson Controls World Services, Incorporated.


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    Mr. FILTEAU. Thank you, Mr. Chairman and members of the subcommittee. In addition to being responsible for Johnson Controls' federal business, I had the privilege to serve on the Commercial Activities Panel as one of two industry representatives.

    Let me take a moment to give you some background on my company. Johnson Controls is a 117-year-old company that provides facilities management, energy management, building automation systems, and security systems to all the military services. We also provide services to the Department of Energy, NASA, and the FAA. On the commercial side of our business, which, incidentally, is much larger than our federal business, our customers include global companies like IBM, CSC, Hoffman-LaRoche, Novartis, and most of the world's major auto manufacturers.

    I have been involved in more than a dozen large A–76 competitions. Consequently, I am very familiar with the process, including the problems associated with work force transition from public to private sector employment.

    The panel started with the premise that whatever we ultimately recommended, it must support federal agency mission objectives while being fair to all stakeholders, including government employees, contractors, and the taxpayers. Fairness is crucial. If the process isn't deemed fair, then the private sector won't participate.

    Fairness is also vital when it comes to the treatment of the incumbent work force, no matter who wins the competition. If my company or any other responsible contractor wins a public-private competition for a base operations support contract, we want to hire as many of the existing workers as possible. Our experience is that government workers are good people who have a lot to contribute. But if the public sector employees are dragged through a long process filled with misinformation and uncertainty, many workers will find jobs elsewhere before the competition is even decided. It is not in anyone's interest to abuse loyal government workers in this way.
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    Similarly, we need a process that encourages the private sector to compete. Currently, many good government contractors don't want to spend their scarce bid and proposal resources on A–76, because the process is too long, uncertain, and costly. At my own company, we pass up on many more A–76 opportunities than we bid.

    The guiding principles adopted by the panel led to a logical recommendation: Shift as rapidly as possible to a FAR—Federal Acquisition Regulation-type process under which all parties compete under the same set of rules. The Federal Acquisition Regulation embodies a fair process with clear rules. The FAR also has the confidence of both government and industry. This high level of confidence, combined with a fair, time-tested process, is the key to encouraging high-quality competitive proposals from both the private and the public sector.

    Shifting to the FAR-based process also addresses several other key issues. The FAR provides flexibility. You can award based on best value or low cost, as needs dictate. There are many examples of this. The FAR also embodies a high degree of accountability for all parties, both public and private, with provisions for third party audits by agencies such as the Defense Contract Audit Agency, that track cost and performance. A FAR process would also allow the public sector to participate in competitions for work currently performed by contractors as well as the work currently performed in-house. And since the public sector would be competing under the same process and would be treated as a true bidder, they would have the right to protest, just like a contractor.

    Moving to a FAR-based process is neither a radical idea nor one which the government lacks experience in. The FAR is used successfully every day by the government to make thousands of purchase decisions between commercial competitors. We can and should make it work fairly for competitions involving public sector bids.
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    In conclusion, the contractor community is not afraid of competition or accountability. We are subject to intense competition on FAR-type procurements every day. We are also subject to routine audits of our performance and cost. The panel's recommendation to shift to a FAR-based process embodies the concepts of fairness, accountability, and competition, an approach under which all parties compete under the same set of time-tested rules.

    Thank you, Mr. Chairman.

    Mr. HEFLEY. Thank you very much.

    [The prepared statement of Mr. Filteau can be found in the Appendix on page ?.]

    Mr. HEFLEY. Mr. Robert Tobias, Professor, American University.


    Mr. TOBIAS. Thank you very much, Mr. Chairman. I am pleased to be here. And I was extremely pleased to be asked by Comptroller General Walker to serve on the Commercial Activities Panel because I think it is extremely important for the federal government to deliver the best product at the least cost to the American public. And the process we use for determining what will work, what work will be outsourced, is particularly important because the 109 billion services contracting industry is larger now than the combined salaries paid to the existing 1.8 million federal employee work force.
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    I would like to spend my time focusing on the one area of disagreement among the members of the panel. I believe Congress has an obligation to use data to determine whether the modified A–76 process, unanimously recommended by the panel, or a newly-created FAR type process will produce the best product at the least cost.

    Now, eight of my colleagues on the panel are so certain that OMB can merge A–76 into the FAR to create a brand-new process that will create fair competition and a result that will be beneficial to the public, that they recommend immediate implementation by OMB in the civilian agencies and changes in the existing legislation in DOD so it can be immediately implemented there.

    Now, I happen to believe that the modified A–76 process will do a better job; but I hope Congress—I sincerely hope Congress rejects both of our beliefs and both of our assumptions and demands data, not speculation and best guesses.

    I recommend that Congress enact streamlined demonstration project authority, giving OMB the responsibility to conduct experiments that actually compare the modified A–76 process with a FAR-type process to actually, rather than speculatively, determine which produces better results.

    Now, in addition to the absence of data, the report's recommendation that a FAR-type process be immediately implemented should be rejected for several additional reasons:

    One, increased discretion does not guarantee better decision-making. Now, one doesn't have to look further than today's business section in the Washington Post to see how risky it is to predicate a business plan on this kind of assumption. There is unlimited discretion in the private sector, and many large failures. The allure of a FAR-type process is that it will give decision-makers more discretion, enable them to better make decisions. Giving the decision-maker the authority to make decisions on factors other than cost does not guarantee better decisions. And once the work is erroneously contracted to the private sector, the federal government is unable to take the work back. When federal government work is contracted out, the federal work force is redistributed or eliminated, and the federal agency no longer has a viable alternative to the private sector. As a result, the federal government may pay more than is necessary forever.
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    Second, the discipline of cost should be the determinative fact in determining public-private competition. The A–76 process, notwithstanding the unfounded criticism leveled at it, does provide for a comparison between public and private bidders on the basis of quality, innovation, flexibility and reliability. The difference between the A–76 process and the proposed FAR-type process is that a specific cost must be assigned to quality, innovation, flexibility, and reliability in the A–76 process. There is no similar requirement in the FAR-type process. In the FAR process whether to require specific costs for these elements is at the discretion of the decision-maker.

    I don't believe it is old-fashioned to be concerned with cost. The report points out that the private sector does not use external/internal cost comparisons as apparent justification for moving away from required cost comparisons. But the significant difference is that the private sector decisions are subject to the discipline of the market. Private sector businesses that make bad decisions go out of business. There is no analogous discipline in the public sector. Unnecessary costs may continue indefinitely unless they are discovered by a Congressional oversight committee, an Inspector General, or reported by a whistle-blower. Cost, including the cost of quality, innovation, flexibility, and reliability should be calculated and compared to ensure discipline in the decision-making in the federal government.

    Three, the FAR-type process will not speed up decision-making and in fact may slow it down. Currently, the A–76 and FAR processes take approximately the same time to complete, about seven months, once the work statement is issued. This piece of hard data is contrary to the unverified assertions of many critics of the A–76 process that it takes significantly longer than the FAR process. In this case, data debunked the myth. I think the unanimous CAP recommendations to modify A–76 will make it even faster.
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    Four, the recommended FAR-type process could effectively eliminate public-private competition. In the FAR-type process, points can be awarded based on past performance. When an MEO creates a new process, points might not be awarded for the new process that is created by a federal employee; and as a result, they will not be part of the final decision-making process. So the existing and modified A–76 process preserves the option of a public offeror for consideration by the decision-maker.

    Now, I accept the idea that competition should determine outcomes. If that is true, Congress should authorize the Office of Management and Budget to construct a competition between the modified A–76 process and the FAR-type process that will prove which is the better process. Now, if assumptions were to control the outcome, we would never need to play the game. If assumptions controlled, Tiger Woods would not have to compete in the British Open, he would be awarded the third leg of the Grand Slam before the competition begins; but, based on past performance, the U.S. soccer team would never have made it out the challenge round.

    I urge that Congress direct that competition be conducted before decisions are made. Give OMB the statutory authority to design the competition, gather data, and report the results to Congress. I suggest let the competition begin.

    Thank you very much, Mr. Chairman.

    Mr. HEFLEY. Thank you very much, sir.

    [The prepared statement of Mr. Tobias can be found in the Appendix on page ?.]
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    Mr. HEFLEY. There seem to be areas of agreement and areas of disagreement among the panel as to the final product; but by and large the panel seems to feel, if I am interpreting correctly, that it was a fair process.

    Mr. Harnage, I had a little difficulty telling whether you think it is a fair process or not. Did you think the process was fair, the year you spent with this?

    Mr. HARNAGE. No, I didn't.

    Mr. HEFLEY. And why is that?

    Mr. HARNAGE. Well, if you look at the numbers, you know, one side was represented by eight, and the other side was represented by three, possibly four. The supermajority was eight. You know, it took, assuming that the other four was of the same philosophy, they had to get four of the other people to agree in order to reach that majority. Yet, only one of the eight had to disagree to kill something. I didn't see that as fair.

    Mr. HEFLEY. Yes.

    Mr. WALKER. Mr. Chairman, let me just suggest that I like Bobby, he is a friend, we share the same common birthday; but I think his comment here is inaccurate and unfair. The fact of the matter is that the statute called for that DOD had to be represented, that OMB had to be represented, that the Comptroller General of the United States had to be represented on the panel. And then it provided for discretion to the Comptroller General to be able to select other parties that represented a fair balancing of various interests.
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    Let me just read who was selected and you can make your own judgment as to whether it was fair: first, Bobby Harnage, President, National Treasury Employees Union (NTEU), AFGE; second, Colleen Kelly, President, NTEU; third, Bob Tobias, former President, NTEU; fourth, Senator David Pryor, very much pro-employee, pro-union when he was a Senator. In addition, others that were selected: Steve Goldsmith, who is former Mayor of Indianapolis who has got first-hand experience, including favorable experience doing public-private partnerships at the local government level; Mark Filteau, President of Johnson Controls; Frank Rand, the Senior Analyst of Rand; Kay Coles James, who is the Chief Human Capital Officer of the United States; and I am a Certified Public Accountant.

    And I would like to know who the eight were who were automatically stacked, who were going to vote one way. That would have to assume that I was going to vote one way, and I can assure you that there is no way that anybody had my vote in advance.

    Mr. HEFLEY. It appears to me, from the ones that I saw here—and that is why I was a little surprised, Mr. Harnage, at your statement—that there were quite a number of people that had no dog in this fight, that just wanted to see a better process or determine that this is the perfect process. So I guess I would question that.

    Let me ask also, I couldn't quite tell, I was a little surprised, it sounded like you were arguing for the A–76 process at one point. Are you in favor of the A–76 process or not in favor of the A–76 process?

    Mr. HARNAGE. I am in favor of the A–76 process over the FAR ''best value'' based process, yes. We don't disagree that there are some areas that could be improved, and we would hope that we would try to improve the A–76 rather than just throwing it out for an untested, untried process.
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    Mr. HEFLEY. You are not too keen on it, but it is better than the one that is being suggested.

    Mr. HARNAGE. In our opinion, yes.

    Mr. HEFLEY. All right, thank you. Mr. Ortiz.

    Mr. ORTIZ. I have a question for Ms. Styles. It is my understanding that during the Commercial Activities Panel discussion that there were certain provisions in the core proposal offered by the AFGE and NTEU with which you agreed. Can you elaborate on those provisions?

    Ms. STYLES. Certainly. I would be glad to elaborate. I would like to say that the AFGE and NTEU during the panel discussions participated fully, even to the extent of offering several of their own proposals, and I think all of us worked very hard to implement those proposals within the Commercial Activities Panel's final report in a fair manner.

    One of the provisions that I think I agreed with wholeheartedly had to do with accountability, particularly accountability in the contracting process. As we have moved to an age where we are relying on services, where we are buying services from the private sector to a greater extent than we are buying products, I think we are facing some unique problems with accountability. You can have the large defense contractors like the Lockheed Martins and the Raytheons of the world, who have a tremendous number of Defense Contract Audit Agency (DCAA) auditors onsite. But there a lot of commercial companies that are providing services to us that don't have that type of oversight. And the concerns that they express with the accountability, on both sides, the accountability for a public sector entity that wins a competition as well as contractors in the service area, I think, were well taken on my part. And that is not an indictment of the contractors. I think that it means that we need to do a better job in the federal government of managing our contracts, knowing what they are, and knowing what contractors are doing to help us perform our mission.
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    And we also need to do a better job of ensuring that our vehicles for contracting are ones that ensure accountability and performance on the part of contractors. And in my mind, that means making sure that they are the right type of contracts; that if they are for commercial services that they affirm fixed price to the maximum extent that we can make them, and that we are not relying on contracting types for time, material, labor hours contracts when we are talking about a commercial service.

    Mr. ORTIZ. This was something that you did not find in the present system or the present A–76 that we have now.

    Ms. STYLES. I think it is a problem that we find in private-private competition on the FAR-based system. What we are doing is essentially taking a private-private system for competition and imposing it on a public-private system. There needs to be some recognition that there are problems in the private-private system for competition in FAR-based competitions.

    It is not a perfect system, and we may be exacerbating some of the problems when we try to apply the FAR-based system to private-private competition to public-private competition.

    Mr. ORTIZ. I have a question for Mr. Walker. A great source of frustration with outsourcing starts with the determination of what is inherently governmental; and, second, for the assignments of the mandatory quotas for outsourcing without regard to merit. Will you discuss the panel's recommendation regarding these two issues, and are these—are there recommendations regarding the need to clarify the definition of ''inherently governmental,'' and provide the specific context for that definition?
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    Mr. WALKER. Well, first, we didn't make a specific recommendation on defining ''inherently governmental.'' And I have had an opportunity to speed-read Mr. Harnage's—Bobby's statement. And I would just point out on page 15, one of the comments that he makes about—he pulls a couple of quotes out of a couple of articles or a couple of things out of a couple of articles that are attributed to me. Let me note that with regard to this, they are noting that at the outset, before the panel first met, that there was one of the issues that I thought might be on the table. I thought the issue of ''inherently governmental'' might be on the table, and at that point in time I said that might be an issue that the panel will end up looking at, and I was willing to look at it.

    As it turns out, a supermajority of the panel was not interested in spending a whole lot of time on that, and noted that in the statutory legislation we were supposed to be focusing primarily on the A–76 process. As it was, we ended up covering not only that, but a variety of other areas that were pretty amazing, given the fact that we only had one year in order to be able to report back to the Congress. So with regard to ''inherently governmental,'' we didn't make a specific recommendation on how to define that or how to redefine that.

    However, with regard to quotas, one of the principles that was adopted is there should not be arbitrary numerical or other quotas. There shouldn't be arbitrary numerical percentage quotas, either for outsourcing or for insourcing. And any proposals that would recommend that would be inconsistent with the principles and presumably would be opposed by every member on the panel.

    Mr. ORTIZ. Thank you. I have other questions, but I am going to yield to the other Members so that they have a chance to ask questions. I would like to yield to my good friend, Congressman Allen.
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    Mr. ALLEN. Thank you very much. And thank you all for being here.

    Mr. Wynne, I want to pursue a couple of questions with you, if I could. The panel, in principle No. 7, endorsed the establishment of a process for competing work that was currently contracted to the private sector, and new work as well as contracting out.

    Ms. Stiles testified before this committee back this March, we, quote, ''We want to provide the encouragement, where appropriate, for public sector entities to be able to compete for work, even if it has already been contracted out, work that is in-house and new work.''

    And Mr. Walker spoke to the same point, and you even did as well, Mr. Wynne. And yet in your testimony, which echoes Secretary Rumsfeld's letter to the Chairman of the Armed Services Committee, you claim that the Allen-Andrews proposal would, and I quote, ''would increase Department cost by requiring public-private competitions for new functions and for previously contracted work already subject to market competition.''

    Now, you cite increased costs to the Department as the sufficient reason to forego on contractor work and new work; but you also talked about the savings from the A–76 process as being in the neighborhood of $5 billion.

    So, two questions. One, does DOD support or not support the concept endorsed by OMB and the CAP of competing work already contracted out and new work, number one? And number two, how do you justify, when objecting to the Allen-Andrews proposal that competitions along those lines would increase costs, when you are also saying generally they reduce cost?
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    Mr. WYNNE. Well, there have been, I think, three instances where a process that had been contracted out was, in fact, contracted back in.

    Mr. ALLEN. In DOD.

    Mr. WYNNE. Within DOD; yes, sir. And so in those kind of instances where the performance of the contractor has in fact fallen down, there have been instances of it. But for the most part, the construction of an MEO where there is no MEO, the construction of a capability where there is no capability, is a costly process. It would be detrimental to any instance of new work that would be performed by the U.S. in support of our soldiers, sailors, and airmen and may delay the receipt of critical goods.

    Mr. ALLEN. So your testimony is you do not support contracting in. That is what I understood you just to say.

    Mr. WYNNE. I just said that when DOD has, in fact, contracted in on several occasions where the outsourced work was in fact—did not perform well. And so we do, in fact, perform insourced work.

    However, on new work, where there is no capability within the United States employee group, and there is no MEO, and it would take an investment, we have no capability to do that without constructing, if you will, an arbitrary basis for competition that seems inherently unfair, ever since the Eisenhower years, when the government should not arbitrarily and capriciously take over commercially performed tasks. I still support that.
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    Mr. ALLEN. You also indicated earlier that DOD is pursuing a number of tools to divest non-core functions, including a variety of things. But do you agree that divestiture and privatization, whatever words you want to use, in essence mean direct conversion of performance by the public sector to the private sector without competition; and do any of the recommendations of the Commercial Activities Panel endorse direct conversion in this manner? That is one question.

    And given all the testimony today about the benefits from competition, can you tell this committee why DOD would transfer non-core functions to the private sector without some sort of public-private competition? I am really probing the Department's position on this.

    Mr. WYNNE. Well, generally speaking, the A–76 process currently allows for a direct conversion for up to 10 employees in a location. And other than that, we have to go through the A–76 process, even in the concept where we would divest ourselves, if you will, of the task that would be better performed in the private sector, and at that time we can hold on—we would adhere to the rules of the road. But in some cases where there is, in fact, a larger process to be accomplished, and one piece of our non-core operation would in fact be a part of that, it becomes the larger bid. And in that regard, I would tell you that, here again, there is no government MEO that is capable of performing the larger function. And when that is the case of where major investment is required, as where the National Security Agency (NSA) outsourced its entire information technology (IT) function and significant savings resulted from that, there was a case where there were some non-core functions that were in fact in there; and I think they did the right thing. And I would support that and endorse that.

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    Mr. ALLEN. I see my time is up, so—.

    Mr. HEFLEY. Mr. Underwood.

    Mr. ALLEN. Thank you.

    Mr. UNDERWOOD. Thank you, Mr. Chairman, and thank you for your testimonies. I guess, for myself, the issue that we are trying to—that I am trying to grapple with in terms of the Readiness Subcommittee is the readiness angle to all of this. I know Mr. Ortiz asked the question about ''inherently governmental,'' and the panel decided not to take that issue on, yet it seems somehow very crucial to the issues that normally come up in the work of the subcommittee, because the angle that I think a lot of Members want to understand and to balance is what exactly is a core function. What exactly is something that can only be done in-house; or do you wait for something—you know, I am thinking that at the airports we have these screeners which, up until last year, we never thought of as being inherently governmental. Now we all think of them as somehow to be inherently governmental.

    Are we awaiting a crisis of some sort in order to make that determination? Or if, for example, there was something that even in the example you gave, Mr. Wynne, with NSA, if there was something that ran amiss in that outsource contract, would we all of a sudden go back and think and reanalyze that? I think the nub of the issue still has to be what is it, and what kind of decision-making process can you recommend? Or do you see that the Readiness Subcommittee should be involved to help make that determination to balance the readiness concerns? Because readiness can be expensive. And deciding what jobs, what positions have to be held by the government can be expensive. But at the end of the day, you just make that call. And somehow or other, you know, I am a little disappointed that that wasn't addressed here. Mr. Walker.
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    Mr. WALKER. Let me mention, if I can, principle three says, ''Recognize that inherently governmental and certain other functions should be performed by federal workers;'' and it has certain commentary on that. What we did not do is we did not end up engaging in an exhaustive debate to try to come up with our own definition of what should be inherently governmental.

    Clearly I think, though, that there is some guidance that is in here. I mean, issues when you are dealing with law enforcement, when you are dealing with the issue of making policy, when you are dealing with issues of, you know, armed conflict, when—there are certain kinds of activities that you wouldn't even think about competing; but there are also circumstances in which you might end up having some public-private partnerships where there may be some type of competition, but you need to have a public employee component or a reserve component, which we recognize in this guideline.

    So we didn't spend a lot of time on it, as I mentioned before, for the reasons that I articulated previously. Candidly, the Congress asked us to do a lot in a very limited amount of time, and I think, frankly, we accomplished quite a bit given what we were asked to do and the amount of time we were given to do it.

    Mr. UNDERWOOD. Well, obviously, short of warfighting, almost everything else can be kind of a judgment call. I mean, armed conflict is one thing. I don't think anyone would argue that we should have mercenaries or contract that out. But even security in military bases certainly looks different today, and I remember a struggle in the committee about that a couple of years ago when we were struggling with security, because there were people that were arguing that we should just outsource it all. Now, that sentiment went away real quickly, and to some extent we—for those of us who were struggling with that—were very happy that we were able to get that in and we didn't have to retrace those steps.
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    So it is, you know, at the end of the day, it still obviously falls to the subcommittee and to the full committee and to Congress as a whole to make that determination.

    Mr. ORTIZ. But those judgment calls are really key to assessing the overall readiness for which I think the subcommittee is responsible. And given all the other dimensions, you know, I would have to say that for some of us the A–76 was very painful. FAR would be probably, you know, even more painful. But even taking away those specific issues, the readiness piece here still leaves a lot to—a lot of analysis left. Thank you.

    Mr. WALKER. Can I add one thing, Mr. Chairman, to sum it up?

    Mr. HEFLEY. Sure.

    Mr. WALKER. If we want to keep—it is a very complex, controversial issue, and it can be emotional. Of the principles that were agreed to by the 12 panel members unanimously, A–76 does not meet those principles, flat out. And so, therefore, presumably we would all agree that we need to do something different. Reasonable people can differ on how.

    And the other thing I think is we recommended, the panel recommended, super majority and GAO volunteered to be part of the process whereby OMB would report twice during this two-year period of time; and GAO would report twice during this two-year period of time as to whether or not this new integrated FAR-based process accomplished what the super majority of the panel believed that it would accomplish. And if, for some reason, it turns out that it doesn't, then I am sure Congress has the ability and willingness to act if it feels that it needs to.
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    However, our view was this is a very difficult issue, and Congress has had difficulty dealing with it even once, much less requiring Congress to deal with it on multiple occasions.

    So we think there are mechanisms in place to get the facts out there, to test the assumptions, and it puts Congress in an ability to be able to act again if it so chooses to do so.

    Mr. ORTIZ. Thank you.

    Mr. HEFLEY. Thank you. Mrs. Davis?

    Mrs. DAVIS. Thank you, Mr. Chairman.

    I wanted to ask a question, and it is really general, about fraud. I mean, are there—under these different processes, can you give me a sense of where you see that occurring the most? And of the processes that we have talked about, how would you quantify in any way that problem? Maybe it is not a problem at all. I honestly don't know. But I am just wondering, if you look at the processes and how—I am concerned about the trade-off issue, and does that enter into it? How do you see it? How would you describe it?

    Mr. TOBIAS. Well, I think that the trade-off between the two processes, the modified A–76 process that was recommended by the panel and the FAR-type process, the assertion for the FAR-type process is that it is more discretion and, therefore, better decisions will be made. The essential difference is that under A–76, cost determines outcome. And quality is included as part of cost, but it has to be costed and then a final decision is made.
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    So the question is, which will yield the better product at the least cost? And eight believe that this FAR-type process can be developed—I disagree with that—and implemented—I disagree with that—in a way that would yield better product and less cost. And I have suggested to this panel, to this subcommittee, that the outcome is not predetermined. And I disagree with Mr. Walker that Congress shouldn't look at this twice. I think Congress has looked at it every session of Congress in the past; I think it will look at it at every session in the future.

    The question is, are you going to make a final decision here without data? I believe that OMB ought to collect the data, compare the two processes and, based on that, Congress makes a decision. Then you don't have speculation, then you don't have assumptions; you have data, and then you make a decision.

    Mrs. DAVIS. Do you see that as an issue at all?

    Mr. TOBIAS. I see it was rejected, so it is an issue.

    Mrs. DAVIS. Okay.

    Mr. TOBIAS. And it is one that you will have to resolve. You will either accept a FAR-type process by amending the language so that DOD can apply it, or you won't. OMB can issue new regulations in the civilian side, but can't for the Department of Defense. So you will either accept the super majority recommendation or you won't. So you also have a decision to make.
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    Ms. STYLES. If I can add from the OMB perspective, and the direction we are moving with this process, we are essentially revamping the circular to discuss the policy issues; what is the policy when the federal government deals in commercial activities, and then giving two processes for competition, one, the modified A–76, and the other this new FAR-based approach. And I think we are approaching it with a good deal of caution, without the assumption that it necessarily will work well. I think we are kind of starting off on a level playing field. Let us go forth with appropriate types of services with the new FAR-based process, see how it works, compare those to how it has worked under the A–76 process, the old A–76 process, the modified process, and make some decisions as we move forward.

    I don't think you should see this from an OMB perspective as a whole-hearted trashing of the old circular or the old process. I think we recognize that there needs to be caution and thoughtfulness as we move forward; but I think we are very hopeful that this process will work well, will reduce the time, and will result in better services for our citizens in the end.

    Mrs. DAVIS. Does anybody else want to respond? Can you close the loop on accountability for me, then? How do you see that following through?

    Ms. STYLES. In the circular itself, we are moving up the accountability within the Department for both the MEO, the public sector side, as well as trying to ensure on the private sector side that we are ensuring that we get the performance that we originally signed up for. We are still working through some of the details in the circular; and some of them are problems, quite frankly, that we face on the private-private competition side that are taking us a while to work through.
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    Mr. WALKER. Accountability is a problem on both sides; and the panel recommended that, and one of the principles talks about the need for enhanced focus on cost and additional accountability. It is a problem no matter who wins. More needs to be done in that regard.

    Mrs. DAVIS. I think what we would certainly hope for was a process that is very transparent so that one can easily determine the extent to which there is a problem. Sometimes I think that stuff is buried, and it is really difficult to determine the extent to which we have a problem. And I think that is partly the issue I am looking for, and I don't know whether, you know, one process or another—let us just say—you know, both can have it, but I think what we are trying to do is minimize it so that we get the best deal and have the best representation on that issue.

    Mr. FILTEAU. Could I respond to that? Regardless of which process you go through—and neither A–76 nor FAR is perfect, both parties, whether MEO wins or whether a contractor wins, provide enormous amounts of data at the working level on performance; because the performance work statement calls for the delivery of all kinds of technical performance metrics as well as cost metrics. I believe the problem from the Congressional perspective is there isn't the mechanism in place to aggregate that information in a way that is meaningful to you. It is, to me, as a contractor providing the unbelievable amounts of data we provide on a daily basis and having DCAA live with us in our building every day and look at our timesheets and all that sort of thing, to me, it is ludicrous that you can't get that data aggregated, and to me that speaks more to a breakdown in government accounting systems than it does to the actual provision of the data by either the MEO or the contractors.
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    The data is out there. It is just not aggregated and reported in a comparable fashion.

    Mr. WYNNE. Could I—I would like to add to that. We have responded to the criticism of old that you cannot tell, if you will, that the savings are real and they are not auditable, et cetera. Most of the probable was not actually with the private sector but with the public sector where we had—we didn't really go in and try to capture the performance data. We have corrected that now. And in our Commercial Activities Management Information System, we have in fact over the past five years collected the information. And I will tell you, we aggregated. And when we state that we have saved $5 billion, we are actually following up through that CAMIS system and we would be, frankly, happy to have the GAO or anyone else come and take a look at it and trace the data back to the competitions that have taken place. We are not uncomfortable any longer. We were very uncomfortable a few years ago, frankly, but we are not uncomfortable at this moment.

    Mr. HEFLEY. The gentlelady's time has expired. But Mr. Walker, do you want to respond?

    Mr. WALKER. Two quick comments. First, as you know, DOD'S financial management has been on GAO's high-risk list for a number of years; and it is likely to stay on it for a number of more years, unfortunately. But some progress has been made in this area.

    Second, we believe in ''show me,'' and the panel recommended that not only OMB but GAO would have to report the results over a two-year period. And I can assure you that GAO's report will be professional, objective, fact-based, and fair and balanced. We don't have a dog in this fight. We want the best deal for all parties concerned. And I can assure you, that is what you will get from us.
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    Mr. HEFLEY. Mr. Andrews and Mr. Abercrombie have joined the committee because of their particular interests in this subject.

    Mr. Andrews, do you have questions?

    Mr. ANDREWS. I do. I thank the chairman for his graciousness in giving me the opportunity to participate here today, and I thank the panelists for outstanding testimony and their commitment to this issue.

    Mr. Wynne, in your testimony, you make reference to the proposal that Mr. Allen and I have pursued, Senator Kennedy has pursued, and you assert that our proposals would increase Department costs by requiring public-private competitions for new functions, and for previously contracted work already subject to extensive market competition.

    Could you tell us what your estimate is as the scope of that work that is the basis of your conclusion? How many dollars are we talking about?

    Mr. WYNNE. I think we base it, sir, on the demands for quotas that you had included in the Allen-Andrews bill of 40 percent, I think, and growing, and 40 percent of the outstanding new work that we presume. And my estimate on that would be, I would say, given the savings we have achieved over—I can only forecast based on a model because I have no actual information. But we have saved over $5 billion in the last several years.

    Mr. ANDREWS. But the question is—.
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    Mr. WYNNE. I would say—.

    Mr. ANDREWS. - what is the dollar volume of the work that we are talking about, roughly, in your estimate?

    Mr. WYNNE. Sir, I have no way to judge that.

    Mr. ANDREWS. I wonder if you can tell us for the record, and you can supplement the record later on. I am sure the Chairman would agree to that.

    [The information referred to can be found in the Appendix beginning on page ?.]

    Mr. ANDREWS. If you can tell us within that dollar volume how many—you make reference to extensive market competition. I wonder how many contracts we are talking about have one vendor out of that extensive market competition and how many have multiple vendors competing for the same job. Do you know?

    Mr. WYNNE. The industrial base is getting smaller. I agree with that. However, there is a requirement to compete, I think, on service contracts once every five years, no matter. The private competition occurs, I believe, every two years. But I would have to be cautioned in my comment. But there is, in fact, more extensive private competition, if you will, than there is against the public entities.

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    Now, I would tell you that one of the things we are encouraging here is we are encouraging public-private partnering, because there is a real need for continued investment and, frankly, a continued skill-raising amongst our public employees so that they are not surprised, if you will, by trends in the marketplace that they don't have the investment decisions over.

    Mr. ANDREWS. I appreciate that that is your conclusion. What I would ask you to tell us to supplement the record is, of the contracts that are let that fit the description of your conclusion, how many of them, in fact, have more than one vendor competing and how many have multiple vendors? That is what I would like to know.

    I come from a State that has an unfortunate—this question is directed to Mr. Walker. But let me say how much I admire the work of the GAO in so many areas, and I affirm the fact that any report that you issue would be balanced and fair. I completely embrace that, and appreciate the work that you and your colleagues do.

    I come from a state that has a terribly unfortunate history of a pay-to-play culture. I was in county government before I came here, and we have a word for best-value contracting in the New Jersey local politics. It's called patronage. And what tends to happen is that when you want to award a bond law contract or an insurance brokerage contract or other local government services contract, you can always find a way to differentiate legitimate quality factors to pick the vendor that you want to pick.

    What kind of safeguards does the law presently have with respect to preventing that kind of unfortunate phenomenon here, if we were to go to best-value contracts?
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    Mr. WALKER. Well, first, if you look at the recommendations that we are talking about, I would come back and say that transparency is the key. I mean, if you want to minimize the possibility of abuse, you have got to have clearly-defined criteria that are set out up front; you have got to have a process that everybody knows what the rules of the ballgame are before you get started, including what the weighting is going to be on various factors, and you need to have appropriate appeals processes to qualified independent third parties who don't have a vested interest in the result.

    Now, the panel recommendation in conjunction with the integrated FAR-based process, among other things, would say that since federal employees would be competing heads up with private sector entities, that they should have—not only know what the rules are up front, know what the criteria is up front, they should have the right to appeal to GAO if for some reason they believe that they have been harmed. We are a qualified independent third party. They don't have that right, right now.

    Mr. ANDREWS. I see my time is up. I will just ask one more question, and ask that it be supplemented in writing. I would be interested on your views on a revolving-door problem. I make no accusations here, by the way. But there is a sorry history on other levels on government of people in a position to award public contracts who have no conflict of interest when they make the award, but who then wind up economically associated with a party to whom they made the award. What kind of safeguards are in place and would be needed?

    Mr. WALKER. Well, I would be happy to do that. I mean, there are some similar issues have been raised with regard to recent deals with Enron, et cetera, where you have had a revolving door dealing with some financial management players. And so I think that is an issue that has application in a wide variety of spectrums, and we would be happy to do that.
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    [The information referred to can be found in the Appendix beginning on page ?.]

    Mr. TOBIAS. You know, one thing. You put your finger right on the distinction between the two processes. And so long as there is discretion to be exercised, it is very, very difficult to challenge that discretion on appeal, because the decision-maker says, well, it is in my area of discretion, it is not outrageous, it's not outlandish.

    Mr. ANDREWS. Mr. Chairman, if I may just very briefly respond.

    I agree with you. One of the first things you learn in law school is how to collect your fee, frankly. But the second thing you learn in law school is that decisions on appeal that are questions of fact, you don't win. If you are going to the appellate court and say, well, the trial judge exercised poor discretion here, you don't win. And that is the concern that I would have.

    Mr. WALKER. And I think it is very important to get on the record, there is discretion in every process including A–76. There is discretion in determining what the bar is, what the standards of performance are that have to be met. There is discretion in every process, and there always will be.

    Mr. ANDREWS. The issue is, how much discretion.

    Mr. WALKER. Correct. And whether or not there are checks and balances in order to minimize the possibility of abuse. Absolutely.
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    Mr. HEFLEY. Mr. Abercrombie.

    Mr. ABERCROMBIE. Thank you very much, Mr. Chairman, and thank you for the opportunity to be here with you and your committee deliberations once again.

    I want to go back to Mr. Tobias' invocation of Tiger Woods. You said Tiger Woods, you know, he needn't play—if this was true, he needn't play the British Open, we would just award it to him.

    What bothers me in this whole process is, is that if he played the British Open and won and he was working for the logistics department of the 25th Division of Schofield Barracks, they would change the rules after he won and then make him play all over again, and see to it that he lost. That is what the problem is here, is this discretion that you mention, Mr. Walker. But it sounds almost like a benign—you know, the invisible hand in the market or something there. It is quite visible. The problem here in many instances is that the people doing the choosing, who are making the decisions here, are unlikely to be going to work for the treasury union after they retire. They are not unlikely to be—they are more likely to be going to work for this steadily diminishing number of contractors that is out there that comes in with targets of opportunity. I think that is what bothers me.

    I am sitting out there in the Pacific—I gave you a specific example. And I mean, it can be dismissed, Mr. Chairman, as anecdotal, but I think it is typical. You take the logistics people at the 25th—and it is serious business. You are talking about deploying people. They compete, they win. The—and I am hoping that—the reason I am going through this is I am hoping this is one of the reasons the panel says the A–76 doesn't work any more. They win; there is an appeal made by the private contractor.
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    Now, if they lost, the employees don't get to make an appeal. The contractor just gets to go ahead. They change the rules and they get rid of him.

    Now, here is people with an average of 20 years experience. They are out the door. Out in Honolulu right now, I can bring you the paper, the company that won the contract is now advertising for people. They are calling up people—in another instance where we lost the contract out, they are calling up the people who lost to try and get them to consult with them to figure out what they are going to do. Now, I think that this is probably going on, and the reason you get Congress looking at it, and I think Mr. Tobias or someone said time after time after time it is going to come up in the Congress is because we are the ones that have to deal with this. We retail our politics in the House of Representatives. And retailing means that we deal with our customers. Believe me, there is transparency. When I go on—you know, in Honolulu, I can't hide. And so we have to deal with this right now.

    So, in that context, then, I think that unless something can be devised—and I don't see it in your recommendations. I went through on page 102 through 108 here the—you know, the criteria that you have for outsourcing practices and sourcing decisions. Unless you take into account what Mr. Andrews brought up about who is going to be doing the choosing, maybe we need a recommendation in there about you can't go to work for a private contractor if you are in the public sector making these decisions for a number of years, or something like that.

    Mr. WALKER. You may well want to consider whether or not there should be a cooling-off period for individuals who are decision-makers. Now, at the same point in time, if a private sector winner is thinking, then presumably one of the first sources of employees they are going to be looking for are the people who have proven that they can do the work and they have proven it year in, year out; and if they are not, you have got to wonder what they are doing. But—but your point about to what extent might there be a decision-maker who could potentially benefit, based on their decision, should there be some cooling off, I think deserves serious—you know, a serious look.
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    Mr. ABERCROMBIE. And on that point, some of it can just be psychological. I am not saying that people are out there looking to put money in their pocket or anything else. Like we have to struggle—again, I have to relate to my own circumstance—where our local—even local contractors then, how are you going to compete against these guys on the mainland? Because they get chosen in the Pentagon and in the Navy, in the Army, wherever it is. They are on the mainland. They deal with these guys all the time. The big outfits come in and bury you. And it is very, very difficult for us to struggle for local control in that sense.

    Now, given that context, I am interested in about the OMB position, because I put an amendment before—which Mr. Wynne knows very well—the Department of Defense saw as just about as important on the war on terror, which said that you ought to be able to contract in the work and contract new work in.

    Now, my understanding, Ms. Styles, is, if I remember your testimony correctly from March of this year, that you agree with that principle. Is that right? That federal employees could compete for contracting work in and for new work?

    Ms. STYLES. I don't believe that we should have barriers to them contracting in. As I clarified then and I will clarify again now, the key distinction for me is that we have more than 800,000 people in the public sector performing commercial activities, from hanging drywall to mowing the lawn, and they have never been subject to competition.

    The work that is in the private sector right now undergoes competition every three to five years. Now, you did raise some good questions—or Mr. Andrews did raise some good questions in terms of how many of those are sole source, how many of those are really competitive. But I know that at least once they have been competed, and we do try to recompete them every three to five years, whereas the ones in the public sector have never undergone competition. And that is why our focus is on making sure that we infuse the public sector with the same type of competition that we undergo in the private sector.
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    Mr. ABERCROMBIE. Fine. And I will take that—I will take your point there, but I want from—so you know where I stand, I want to exempt the DOD from that, because, I will tell you, who cuts the lawn? I know—for some reason, people who cut lawns are treated with a measure of contempt. Having cut lawns myself, I am not so sure that that is deserved. But one of the things I have learned about Armed Services Committee is that part of the reason for tradition and custom in the armed services is, is that over a period of time when you have a hierarchy of authority, the things that they do, the way they do them are for good reasons. More often than not, it is for good reasons, and you have got to have very, very good reasons to upset that or change that.

    I believe everybody working on a base should be working for the commander of that base, civilian and military. That is my fundamental position. As Mr. Wynne knows, I have had that position before I knew what A–76 was. And I think it is very, very important from both a morale point of view and from an experience point of view, because we are dealing with life-and-death issues. We are not arguing about whether we are going to save five cents on the dollar or something like that. And if you have commanders that aren't commanding, well, then maybe you have got to think about getting new commanders rather than new employees. I have always believed employees reflect the leadership, not vice versa.

    So can we do that with DOD? That's what I want to finish up with, Mr. Chairman. Is OMB then saying to DOD now that the—as far as you are concerned, the rule will be along the lines of what I choose to call in my lighter moments the Abercrombie amendment?

    Ms. STYLES. No. Your amendment was asking for a one-for-one quota, essentially, and our focus is on competing what is on the inside that has never been competed. That is not to say that at the Department of Defense or every other agency that we look at that they are not appropriate places for bringing work back in when contractors aren't performing well or otherwise, or giving in-house public employees the opportunity to compete. But we certainly don't agree with the one-for-one quota.
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    Mr. ABERCROMBIE. Okay. Just give me 30 seconds more. I presume then you are getting rid of your 15 percent quota, too, inasmuch as you are against quotas.

    Ms. STYLES. We have a 15 percent aggregate government-wide goal.

    Mr. ABERCROMBIE. Quota.

    Ms. STYLES. No. There is a distinction here, I think, between a goal and a quota. We have a lot of goals.

    Mr. ABERCROMBIE. Okay. I have got a one-to-one goal.

    Ms. STYLES. You know, we have a government-wide 15 percent goal. Each department and agency comes in to us. Some of them are significantly lower with what they are trying to meet with their plans; some of them are significantly higher than 15 percent. It is a presumption, I think, when an agency competes 15 percent that they have built an infrastructure for public-private competition. It goes both ways.

    Mr. ABERCROMBIE. Last thing, then, Mr. Chairman.

    With regard to that bringing them back in. Employees don't go in a freezer. You can't bring them out when you have decided that the meal that you got really isn't edible, and so you go get them. They have real lives. They pay bills, they have lives to lead. And, believe me, and if they are out on a place like Hawaii, they don't get to jump in a car and go to the next county to take a job somewhere else.
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    I think that we would be—we would advance what you want to try to accomplish if we can get some rules into place here based on the principles you folks can agree on, which are a considerable number of things, if we get into the point about competing in, contracting work in, and then sticking with some decision on what value is that takes into account that you have employees in place with high morale, experience, and credibility. And that just to simply remove them, as you would taking a peg out of a hole, is not something that we should be doing either from the point of view of the human dimension, or from the point of view of the efficiency of the Department of Defense.

    Thank you, Mr. Chairman.

    Mr. HEFLEY. Thank you. In your deliberations—and we are about out of time here. But in your deliberations, when you talked about best value, did each of you have a concept of what that meant in your own minds? Or did you discuss best value and come up with a set of principles? I mean, you have got costs; that is part of best value. But what else would be part of best value?

    Mr. WALKER. Well, first, while the press has called this best value and while others have called it best value after we came out in the panel report—I personally never called it best value. The issue was, we wanted to come up with something that was consistent with these principles that recognized that cost was important but cost is not everything.

    I would argue that if you have got a group of dedicated workers who are flexible, that that is a value that somehow should be considered. And that is something that is above and beyond cost. I think you should consider issues like, for example, the ability to utilize people and to get them to do things in certain situations that you may or may not be able to get contractors to do as quickly or as readily. I think that is something that could be considered. Quality, obviously. Reliability. You know, a number of different factors deal with value.
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    Now, FAR-based has the ability to conduct cost-based competitions, also has the ability to conduct what has been referred to as best value, where you give a weighting, where cost is weighted, but other things are weighted, too.
    I think one of the things we have to keep in mind is, is to the extent that you are going to make the decisions primarily based on cost, it is almost treating it like a commodity. I mean, how many things nowadays should be based solely on cost? You ultimately determine the commodity that you want, and you compete it on cost. And so what the panel is saying is, cost is important, cost is not everything. You have got to have this transparent process, you have got to have clearly-defined criteria, you have got to be fair, and you have got to have independent appeal rights to a GAO to make it fair.

    Mr. TOBIAS. Mr. Chairman, I think that the issue about best value is whether or not best value, the cost of providing that value will be calculated, will be required to be calculated or not. The A–76 process allows for the inclusion of quality and reliability that requires that that be costed and included as part of the comparison. The difference is, with the FAR process, that is not required, it can be merely weighted. So, the A–76 process does not exclude value; it merely requires that it be calculated.

    Mr. HEFLEY. Any other comments?

    Mr. FILTEAU. Yeah. I think it is important to note that in the FAR process, there are multiple options. And it is quite common to have what is called a technically acceptable low cost type of criteria which, you know, if you get through the technical gate, then the low-cost provider wins. It is very common in local government and it is very common in a lot of federal government procurements.
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    When we first came up with the notion of using the FAR, it was not for—our discussions were not focused on best value; it was focused on providing a clear and transparent and well-understood process with lots of options. And the FAR provides that, multiple ways to procure. It doesn't have to be a best value procurement.

    Mr. HEFLEY. I want to thank the panel. I think your testimony and your responses to questions were absolutely excellent. And, again, I want to thank you for spending this year together and wrestling with this very knotty problem. And as you see from the questions that were asked, it is a knotty problem for us as well. And we will continue to wrestle with it, but I think you gave us a good base of understanding to move forward.

    Mr. Harnage?

    Mr. HARNAGE. Just to add a little humor as you wind this up, Senator Proxmire posed to the panel a story about when the Congress at one time was considering the tax code and to simplify it and make it smaller and people would better understand it, that the end product wound up being twice as big after Congress finished with it than when they started. And this panel kind of took that seriously.

    This is A–76. This is FAR. And you have got to add about half of this to that in order to do what the panel came up with. Thank you.

    Mr. HEFLEY. Thank you very much. The committee stands adjourned.
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    [Whereupon, at 4:00 p.m., the subcommittee was adjourned.]