Table of contents *

statement of the honorable charlie norwood, acting chairman, subcommittee on oversight and investigations, committee on education and the workforce *

STATEMENT OF KAREN HASTIE WILLIAMS, ESQUIRE, PARTNER, CROWELL & MORING LLP, WASHINGTON, D.C. *

STATEMENT OF RAND L. ALLEN, ESQUIRE, PARTNER, WILEY, REIN & FIELDING, WASHINGTON, D.C. *

STATEMENT OF g. edward deseve, CONTROLLER AND ACTING DEPUTY DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET *

STATEMENT OF PETER K.W. WERT, CHAIRMAN OF THE BOARD, HASKELL LEMON CONSTRUCTION COMPANY, ON BEHALF OF THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA *

STATEMENT OF CORNELIA BLANCHETTE, ASSOCIATE DIRECTOR FOR EDUCATION AND EMPLOYMENT ISSUES, HEALTH, EDUCATION AND HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING OFFICE *

STATEMENT OF GARY HESS, CHAIRMAN, HESS MECHANICAL CORPORATION, UPPER MARLBORO, MARYLAND, ON BEHALF OF THE ASSOCIATED BUILDERS AND CONTRACTORS *

STATEMENT OF WILSIE H. ADAMS, JR., PARTNER, MCKENNA & CUNEO, WASHINGTON D.C., ON BEHALF OF THE NATIONAL DEFENSE INDUSTRIAL ASSOCIATION *

appendix a - WRITTEN statement of the honorable charlie norwood, acting chairman, subcommittee on oversight and investigations, committee on education and the workforce *

appendix b - Written statement of the honorable lane evans, u.s.house of representatives *

appendix C - WRITTEN STATEMENT OF KAREN HASTIE WILLIAMS, ESQUIRE, PARTNER, CROWELL & MORING LLP, WASHINGTON, D.C. *

Appendix D - WRITTEN STATEMENT OF RAND L. ALLEN, ESQUIRE, PARTNER, WILEY, REIN & FIELDING, WASHINGTON, D.C. *

Appendix E - WRITTEN STATEMENT OF g. edward deseve, CONTROLLER AND ACTING DEPUTY DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET *

Tuesday, July 14, 1998

The subcommittee met, pursuant to call, at 1:15 p.m., in Room 2175, Rayburn House Office Building, Hon. Charlie Norwood [acting chairman of the subcommittee] presiding.

Present: Representatives Hoekstra, Norwood, Ballenger, Scott and Kind.

Staff Present: Kevin Talley, Staff Director; Mark Rodgers, Workplace Policy Coordinator; Gary Visscher, Workplace Policy Counsel; Lauren Fuller, Professional Staff Member; Rob Green, Professional Staff Member; Bill McCarthy, Press Secretary; Peter Gunas, Professional Staff Member; Marjorie Wasson, Staff Assistant; John P. Flannery, Minority Project Director and Special Counsel; Peter Rutledge, Senior Legislative Associate; and Brian Compagnone, Staff Assistant.

Acting Chairman Norwood. This hearing will now come to order. Good afternoon, ladies and gentlemen. Thank you very much for being here. I want to thank every one of you for taking the time to attend this important hearing, and a special thanks to each of the witnesses for taking time out of your life to testify.

This hearing actually did not have to take place. It is necessary, though, because the administration has ignored Congress' requests to keep it sufficiently updated on the proposed sweeping changes to rules governing the awarding of Federal contracts. These proposals were announced by Vice President Gore at the AFL-CIO Executive Council's annual winter meeting in February 1997. Considering the context in which the remarks were made, Mr. Gore's comments followed Mr. Gephardt's, and with what the Washington Post called "a beauty contest between two future presidential contenders", it is not too difficult to figure out why the administration wants to greatly advantage organized labor and upset current law governing Federal contracts.

This Committee and others have contacted the administration repeatedly with their concerns and asked to be kept apprised. We have written Steven Kelman, past administrator of the Office of Federal Procurement Policy, and his acting successor, Allan Brown. We have written President Clinton and Vice President Gore. We have written the Office of Management and Budget.

We still don't know for sure what is going on. Maybe there is nothing going on. I personally think nothing should become of these proposals. However, the indications the Committee has gotten from the counsel to the White House Chief of Staff is that we can indeed expect action. Our concern, therefore, remains very high.

Mr. Gore's proposals would deny Federal contracts to businesses that do not have a satisfactory record of employment or labor practices. This would put career procurement officials in the troubling and disturbing position of determining what is "satisfactory". It would effectively create a blacklist to shut out from the yearly pool of approximately $200 billion Federal dollars those contractors that the administration and organized labor want to punish. The proposals would also upset well-settled law concerning the reimbursement of legitimate legal expenses that contractors incur performing their government contracts.

As we will hear today, these proposals are unnecessary because current procurement regulations have extensive suspension and debarment procedures for those the Federal Government considers unworthy of receiving contracts. In fact, the government must certify that a prospective bidder has a satisfactory performance record, that it has a satisfactory record of integrity and business ethics, and that it is otherwise qualified and eligible to receive a contract under applicable laws and regulations.

The proposals also would gut the government's expressed procurement policy of remaining neutral in labor-management disputes, and, most significantly, effectively amend the penalty provisions of every Federal labor and employment law without any consideration by the Congress.

Legislating out of the White House, though, is nothing new. We have seen this administration repeatedly attempting to legislate by royal decree. These proposals amount to a back door attempt to amend the country's employment laws without the approval of Congress.

It is the American taxpayer who will suffer as costs in procurement are increased, and it is the employees who work for the unlucky contractor or subcontractor not selected under these new, arbitrary criteria who will suffer as their jobs are eliminated for lack of work. What disturbs me most about these proposed regulations is that they would cut off Federal contracts without the very important due process protections built into the debarment procedures of the current regulations.

Before I recognize the ranking member, let me say that we have no Members of Congress testifying today because we are having this hearing not to address legislation but to look at the merits and impact of Vice President Gore's proposals. We did receive a request from Representative Lane Evans of Illinois to be a witness on this panel. Representative Evans has a bill which would allow the Secretary of Labor to prevent contractors who violate the NLRA and other employment laws from receiving Federal contracts. While I do not support this bill, let me say that neither did Congress when the two bodies were controlled by the Democrats. I mention this to point out that the Vice President's proposals represent an unwise and discriminatory policy which even the Democrats wouldn't pass when they were calling the shots.

[The statement of Mr. Norwood follows:]

Written statement of the honorable charlie norwood, acting chairman, subcommittee on oversight and investigations, committee on education and the workforce - see appendix a

Acting Chairman Norwood. I now recognize Mr. Scott for his opening statement. Will you act as ranking member today?

Mr. Scott. Mr. Chairman, I am not acting as ranking member today, and in fact I have a hearing I have to attend at 2 o'clock. I would like to ask unanimous consent for the statement of Representative Evans to be entered into the record, since he has legislation addressing this issue and did request to speak today.

Acting Chairman Norwood. So ordered.

[The information follows:]

Written statement of the honorable lane evans, u.s.house of representatives - see appendix b

Mr. Scott. I look forward to the witnesses' testimony.

Acting Chairman Norwood. Mr. Scott, I particularly wanted to give you as much time as possible that you want today because you and I both know that this issue could be very important to the Newport News Shipbuilding in your district, and I know you are going to be as interested in this as I am.

Mr. Scott. And the workers at the shipyard, too.

Acting Chairman Norwood. Absolutely.

Our first witness this afternoon will be Karen Hastie Williams. Ms. Williams is a partner in the Washington law firm of Crowell & Moring. She was President Carter's administrator at the Office of Federal Procurement Policy from 1980 until 1981, and has chaired the American Bar Association's Section on Public Contract Law. She was chief counsel of the Senate Budget Committee in the late 1970s and has served as law clerk to U.S. Supreme Court Justice Thurgood Marshall.

We welcome you, Ms. Williams.

Ms. Williams. Thank you very much, Mr. Chairman. Good afternoon. I very much appreciate the invitation from the Subcommittee to testify at today's hearing. As a result of my service on Capitol Hill and at the White House at the end of the Carter Administration, I have had the privilege to work extensively with both government and private sector representatives on all sides of the political spectrum in developing sound public policy initiatives.

Based on these experiences, I appear before you today to express my deep concern about the administration's proposed regulations to amend parts 9 and 31 of the Federal Acquisition Regulations in a manner inconsistent with and, in my view, diametrically opposed to the procurement reforms advocated by the Congress to make the Federal Government a more effective and a more efficient buyer.

As you know, Mr. Chairman, since 1984 Congress has enacted a series of procurement reform legislative initiatives that have moved the Federal Government closer to the posture of a commercial buyer. In 1984 Congress enacted the Competition in Contracting Act, known popularly as CICA, which focused on the value of marketplace competition. It set up the Federal Acquisition Regulations, the FAR, a government-wide system of regulations to apply to both military and civilian agencies, that would govern all aspects of competitive Federal procurement procedures.

Over the following decade, Congress continued to encourage the Federal agencies to move away from government unique procurement practices, to embrace commercial practices, and to buy more commercial goods and services. In 1994 Congress finally provided the teeth needed for the agencies to act more like commercial buyers with the enactment of the Federal Acquisition Streamlining Act, known as FASA.

In short, FASA reengineered the statutory framework of the Federal procurement process to take advantage of market-driven commercial practices, to the advantage of government and the taxpayers. It eliminated many government unique requirements. Moreover, FASA gave the FAR drafters considerable discretion to fashion waiver procedures for contract clauses and procurement-related laws for the acquisition of commercial products and services.

Both FASA and its 1996 partner, the Clinger-Cohen bill, have provided a strong foundation for comprehensive change in the way the Federal Government procures goods and services. In addition, these bills provided agencies with the authority to minimize government unique requirements that apply to the terms and conditions of the Federal procurement process.

When I first learned of the statements made in February 1997 when the administration announced its proposed regulations that would give a contracting officer the discretionary authority to deny a contract to any company that did not have "a satisfactory record of compliance" on labor and employment law issues, I was quite astonished. As a lawyer who has worked with public policy issues in both the private and public sectors, I was truly concerned and alarmed when I learned of the administration's proposal.

Initially I found the information hard to believe, as it was completely inconsistent with the good work of the National Performance Review, the administration's signature initiative under the leadership of Vice President Gore aimed at restructuring the management of Federal agencies to put them on a firmer business footing. In fact, the NPR laid the groundwork and provided strong impetus for the procurement reform legislation of 1994 and 1996, as well as their implementing regulations. The NPR recommendations highlighted opportunities to reduce and eliminate_let me say that again_reduce and eliminate government unique requirements, not to increase them.

The proposed regulation from the administration would obscure and undermine those limited circumstances in which the Federal procurement process has been used to advance an objective socioeconomic goal. Using the procurement process as a tool to further objective public policy goals is not new; for example, the requirements to contract with small businesses, women-owned businesses. However, the manipulation of the Federal procurement process without defined, objective measures of compliance or any timetable to measure compliance does not fall into the defined socioeconomic classifications I have just described.

Lastly, it was particularly unwise, in my view, and inappropriate for the administration to pursue such a unique government requirement by regulation in the absence of clear statutory authority. I am not aware of any provision in the National Labor Relations Act that authorizes the interference of Federal contracting officials in labor-management relations. Indeed, the FAR expressly requires that the government maintain a neutral position on labor-management issues. The only exceptions are for situations where labor-management differences are likely to impact the ability of the contractor to perform the particular contract under consideration.

If the administration's proposal were to be adopted, the result would be a double penalty on the contractors you referred to earlier. First, there would be the sanctions from the Department of Labor, and secondly, there would be exclusion from contracting by the contracting officer.

At a time when the Congress and most of the Federal agencies are making good progress into a more competitive business environment, the creation of this new government unique requirement appears to have no statutory basis and is totally unwarranted. With the globalization of our private and public sectors, the administration should be encouraging the broadest participation of companies in the Federal procurement process.

Finally, the proposals are not necessary. FAR Part 9 already provides the tools that a contracting officer needs to establish the present responsibility of a contractor to perform the proposed contract.

Mr. Chairman, I would ask that my full statement be included in the record in its entirety, and I will be happy to answer questions at the conclusion of the discussion. Thank you.

[The statement of Ms. Williams follows:]

WRITTEN STATEMENT OF KAREN HASTIE WILLIAMS, ESQUIRE, PARTNER, CROWELL & MORING LLP, WASHINGTON, D.C. - see apendix c

Acting Chairman Norwood. So ordered, Ms. Williams, well said, and thank you.

Our next witness will be Rand L. Allen. Mr. Allen is a partner and co-chair of the government contracts practice at Wiley, Rein & Fielding here in Washington. He is incoming chair-elect of the American Bar Association Section on Public Contract Law, and teaches government contracts at the National Law Center at George Washington University.

Welcome, Mr. Rand, and we will hear from you now, sir.

Mr. Allen. Thank you, Mr. Chairman. I too would like to ask that my written statement be entered into the record.

Acting Chairman Norwood. So ordered.

Mr. Allen. That statement contains a pretty detailed analysis of the state of the existing law on this issue which I would like to summarize briefly.

Acting Chairman Norwood. All statements in full will be entered into the record, ladies and gentlemen.

Mr. Allen. Thank you.

This concept of responsibility that we are talking about is a determination that has to be made every time a contract is awarded. It is not a determination that gets made by default. The contracting officer must make an affirmative determination on each and every contract that the contractor has the present ability and capacity to perform the contract. The key concept here, I think, is present ability.

The contracting officer under existing law, under the regulations, the FAR, is directed to consider some seven different factors. Among those is the existence of the prior performance history of the contractor, and also the contractor's history of integrity and business ethics. Now, again, those criteria are already in the FAR. The contracting officer, though, must take into account how any past problems or past violations affect, if at all, the existing present capability of that contractor. So it is a judgment call.

Of course if the CO concludes that the contractor is not responsible, then the contractor is not entitled to that contract. If that contractor is a small business, that determination by law must be referred to the Small Business Administration, who then makes a conclusive determination as to that small business's capacity to perform that contract. So these proposed or contemplated regulations will not just implicate the activities of contracting officers, they would also implicate for small businesses the activities of the Small Business Administration.

If the CO makes this determination, as I have said, it is contract-specific. If the CO decides to try to carry this particular finding beyond just one particular contract, that is where the debarment and suspension procedures kick in. The law requires that that may not be done without some pretty elaborate due process protections for the contractor.

These proposed or contemplated regulations, as we understand them, would require or possibly add a criterion to the FAR that would tell contracting officers, for each and every contract they award, that they must consider whether the contractor has a satisfactory record of labor relations or whether that contractor has substantially complied with employment and labor laws.

Again, this is a historical determination, a determination that in most cases the contracting officers are not particularly well equipped to make, particularly when you talk about compliance with the NLRA, which is a very complex statute that has its own separate agency and board established to interpret it and the procedures for making those findings. So it is a tremendous imposition and additional responsibility to add to contracting officers, particularly in this day and age when we are downsizing the procurement workforce as well, and so these contracting officers, there are fewer of them and they have more responsibilities. So for this reason alone, I think this is a very troublesome potential requirement.

As Ms. Williams indicated, it would also inject contracting officers directly into the middle of labor disputes, which the current policy says the government is to remain neutral with respect to those disputes. It would as well just be a situation where contracting officers, as I said, are not well equipped to make this determination of compliance with labor laws. And I think the notion that we are not just talking about labor laws, that we are now talking about all laws, compliance with all laws, just compounds the problem.

Again, remember this determination is an affirmative determination that has to be made every time a contract is awarded. So now if we are imposing on contracting officers this responsibility, they are supposed to investigate a contractor's entire history of compliance with all Federal laws before awarding that contract, you can see that that is going to add time and effort to the process and create the potential for a great deal of litigation, which is not going to be something that is going to enhance the efficiency of the process which we have been trying to do for the last 6 or so years.

I want to comment also on the cost principle issue just briefly, the idea that we are going to make the cost of defending against allegations of unfair labor practices or compliance with laws nonreimbursable or unallowable. Also, the existing regulations address this issue.

Right now a company is entitled to recover as part of its normal business expenses the cost of litigation, with a couple of exceptions. One is if that contractor is found liable in a proceeding which involves a fraud allegation, or if the proceeding doesn't involve a fraud allegation, where there is a monetary penalty that has been assessed.

What we are really doing again is, by this proposal, is expanding the number and type of necessary and ordinary business expenses that the government will not recognize. Again, this creates not only disincentives for commercial companies to do business with the government, it also creates additional recordkeeping requirements. And it also passes on, to the extent that government doesn't reimburse these costs, that just means the contractor's commercial customers are going to have to reimburse an unfair share of these indirect expenses.

That concludes my summary of my testimony, Mr. Chairman. I would be happy to answer any questions.

[The statement of Mr. Allen follows:]

WRITTEN STATEMENT OF RAND L. ALLEN, ESQUIRE, PARTNER, WILEY, REIN & FIELDING, WASHINGTON, D.C. - see appendix d

Acting Chairman Norwood. Thank you very much, Mr. Allen.

Our third witness will be G. Edward DeSeve. Mr. DeSeve is Controller and Acting Deputy Director for Management at the Office of Management and Budget. We are pleased that he has accepted the majority's invitation to tell us today what the administration's plans are with respect to these proposed procurement regulations. Mr. DeSeve.

Mr. DeSeve. Thank you, Mr. Chairman. I am here today to discuss the administration's forthcoming proposal concerning contractor responsibility as well as the reimbursement of certain costs relating to contractor legal proceedings and unionization activities.

First let me say that this proposal is in a preliminary stage in the rulemaking process. We are now talking about the contents of a proposed rule. The proposal would first be acted upon by the Federal Acquisition Regulatory Council, the body responsible for all changes to the underlying regulation at issue here, the Federal Acquisition Regulation, or FAR, and then would be published in the Federal Register and receive full public comment, which would be reviewed before final issuance of a rule.

During the last several years there have been a number of concerns expressed by participants in the contracting process, inside and outside government, that some of the language used to determine whether a contractor is considered to be "responsible" for purposes of receiving a government contract is too vague. Specifically, questions have been raised about a section of the FAR, section FAR 9.104(d), which states that to be considered "responsible", a contractor must "have a satisfactory record of integrity and business ethics."

We have considered this issue and have determined that it may be useful to clarify the existing rule by adding examples of what would constitute an unsatisfactory record of integrity and business ethics for the purposes of implementing this long-standing general standard. At this time, we have no intention of modifying the existing integrity and business ethics standard contained in the FAR. However, we will propose to add examples to this section that will make it clearer, for example, that a prospective contractor's failure to comply with various laws, including criminal laws, tax laws, health and safety laws, and labor and employment laws, constitutes a potential basis for finding that a contractor does not have a satisfactory record of integrity and business ethics for the purpose of being awarded Federal contracts. The purpose of this action is to reduce the overall risk to the government that a contractor will violate laws and contract provisions.

As under the existing rule, the specific facts and circumstances presented will determine whether a contractor is responsible. The examples we are considering adding to the FAR relate to repeated and substantial violations of law by a prospective contractor. The examples of what constitutes an unsatisfactory record of integrity and business ethics relate not just to labor laws, as I have heard many people speculate, but rather to all laws that, when violated, evidence a lack of integrity and business ethics.

Many things have been said about the proposal under consideration. Most pejoratively, the proposal has been referred to as "blacklisting". This is not the case at all. Moreover, the proposal does not change any debarment or suspension rule contained in the FAR. The proposal does not change any procedural due process rights that a prospective contractor currently enjoys with respect to the FAR responsibility criteria. And, most importantly, the proposal does not punish anyone by taking away their Federal contracts. The proposal is intended to protect the public's interest by having greater assurance that the firms that the government deals with are responsible citizens, firms that have a record of compliance with law, and not a record of repeated serious legal violations.

In addition to the clarifications to the "responsible contractor" criteria previously mentioned, two additional changes are under consideration: to disallow legal defense costs in all types of proceedings brought by the Federal Government where the decision is adverse to the contractor, and to disallow costs for activities designed to influence employees either for or against unionization.

That concludes my statement. I will be pleased to answer any questions you may have.

[The statement of Mr. DeSeve follows:]

WRITTEN STATEMENT OF g. edward deseve, CONTROLLER AND ACTING DEPUTY DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET - see appendix e

Acting Chairman Norwood. Thank you, sir.

Our next witness will be Peter Wert. Mr. Wert is chairman of the board of Haskell Lemon Construction Company, based in Oklahoma City, Oklahoma, a family-owned firm specializing in highway, street and airport paving. He is also president of the Associated General Contractors of America and will be testifying on behalf of that group. Mr. Wert.

Mr. Wert. Good afternoon, and thank you, Mr. Chairman, members of the committee. I appreciate the opportunity to testify before you on the proposed blacklisting regulations.

I am Pete Wert, chairman of the board of Haskell Lemon Construction from Oklahoma City, Oklahoma, a highway paving firm. I am also president of AGC of America, the Nation's largest and oldest construction trade association. AGC represents 33,000 firms. Our members build the public and private infrastructure of America.

In February of 1997 Vice President Gore announced to the AFL-CIO executive council that the administration plans to issue an executive order mandating the use of public project labor agreements and making changes to the FAR to prevent the Federal Government from contracting with companies with, quote, unsatisfactory labor records. The effect of the Vice President's statement was to endanger the livelihoods of accused Federal contractors or their employees by imposing subjective litmus tests on Federal procurement without affording any opportunity for adjudication of guilt or innocence in an administrative or judicial forum.

The administration's proposed changes would also substantially upset the balance in the collective bargaining process. As a case in point, AFL-CIO President Sweeney instructed affiliates on March 25, 1997, to gather a list of companies who, quote, are being investigated, sued or prosecuted for such labor violations, even though no final determination has been made, unquote. The clear indication is that employers need only be charged with a violation of any one of the OSHA Federal labor standards, Davis-Bacon, National Labor Relations Act, or any other workplace statute to lose their ability to compete for government work.

I want to make one point absolutely clear. AGC believes that adherence to the law and ethical conduct is a contractor's moral responsibility. For AGC this is not a union versus open shop issue. AGC represents both union and open shop contractors equally. We oppose this change because of the negative impact it will have on labor negotiations, the potential to deprive law-abiding companies of economic opportunities without due process, and because it places contracting officers in charge of labor issues they have little or no expertise in handling.

Senator Durbin and Congressman Evans have introduced legislation mirroring the Gore proposal. S. 1098 and H.R. 1624 suggest that a company can be blacklisted for, quote, suspected criminal, fraudulent or seriously improper conduct, unquote. But Federal regs already provide for the debarment of contractors who are lawbreakers. Debarment and suspension is outlined in FAR 9.4. This section also provides the opportunity to rebut charges a contractor believes to be unfair or false. The accused company does not forfeit the right to due process when our government is deciding whether or not to deprive it of the ability to compete for government contracts.

In addition, the government's streamlined acquisition process provides that only contractors with the best reputations for quality, service, safety and employee relations be allowed to receive contracts. Implementation of the Gore blacklisting proposal will undoubtedly increase bid protests and create an explosion of litigation, significantly slowing the Federal contracting process and increasing cost.

Another consequence of the blacklisting regulations is substantial. For example, it would be equally unfair and an equal denial of due process to deny unions the right to work on any Federal project based merely upon some alleged unsatisfactory labor record that they have accumulated. Alleged violations of the OSH Act are a major source for potential abuse. A disgruntled worker can punish a contractor by lodging complaints with OSHA based upon the worker's own misconduct. A compliance officer may issue a serious citation for a violation that poses no threat to workers, such as a serious citation issued for a paperwork violation.

General contractors are also cited by OSHA for safety lapses of subcontractors, even though this practice is contrary to section 5 of the OSH Act. As many AGC contractors perform work on multiple projects simultaneously all over the country, a serious citation in one area would debar a contractor in all regions and thereby eliminate full and open competition for Federal contracts. Serious citations alone must not be used to eliminate safe contractors from the marketplace.

In conclusion, the proposed blacklisting regulations are unfair, full of the potential for serious abuse, and also unnecessary. Existing Federal law provides adequate remedial measures for violations. It does not, however, abandon due process and replace it with a presumption of guilt.

Congress has also designed laws relating to labor in Federal contracting to be neutral. The announced changes will upset that field of neutrality in the collective bargaining process and grossly affect the ability of good, safe, ethical contractors to compete for Federal work. AGC urges the rejection of these fatally flawed changes to the FAR and defeat of the companion legislation.

Thank you, Mr. Chairman. I will be glad to answer any questions.

[The statement of Mr. Wert follows:]

WRITTEN STATEMENT OF PETER K.W. WERT, CHAIRMAN OF THE BOARD, HASKELL LEMON CONSTRUCTION COMPANY, ON BEHALF OF THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA - see appendix f

Acting Chairman Norwood. Thank you, Mr. Wert.

Our next witness will be Ms. Cornelia Blanchette. Ms. Blanchette is Associate Director for Education and Employment Issues in the Health, Education and Human Services Division of the U.S. General Accounting Office here in Washington. Welcome, Ms. Blanchette.

Ms. Blanchette. Thank you. Mr. Chairman and members of the subcommittee, I am pleased to be here today to assist the subcommittee in its deliberations.

In 1995 and 1996 we issued reports on Federal contractors' noncompliance with the National Labor Relations Act during fiscal years 1993 and 1994, and with the Occupational Safety and Health Act during fiscal year 1994. My comments today are based on those two reports.

We found that during fiscal year 1993, NLRA violators received over $23 billion from more than 4,400 Federal contracts, about 13 percent of total Federal contract dollars that year. Contract dollars were concentrated among only a few violators, but with six firms receiving about $21 billion. About two-thirds of these dollars went to manufacturing firms. Most of the violators were large firms.

In 35 of 88 cases involving 80 contractors, the National Labor Relations Board required firms to reinstate workers or restore workers to their prior positions as the remedy for violations. In 44 of the 88 cases the Board ordered the firm to pay back wages, and in 28 cases to restore benefits. In 33 cases the board ordered the firm to bargain with the union, in 24 cases to stop threatening employees with the loss of their jobs or the shutdown of the firm, and in 33 cases to stop other kinds of threats, such as interrogating employees and circulating lists of employees associated with the union. To facilitate the bargaining of a contract, the Board ordered firms to provide information to the union in 16 cases.

Two hundred sixty-one Federal contractors were the corporate parents of facilities that have received proposed penalties of $15,000 or more from OSHA for violations of safety and health regulations in fiscal year 1994. These contractors received $38 billion in contract dollars, about 22 percent of the $176 billion in Federal contracts valued at $25,000 or more awarded that year.

Although a majority of the 345 work sites, 56 percent, penalized for safety and health violations were engaged in manufacturing, a significant percentage, 18 percent, were engaged in construction. Many, 68 percent of the work sites, were relatively small, employing 500 or fewer workers.

The 261 Federal contractors were cited for over 5,000 violations. Most of the work sites had at least one violation that OSHA classified as serious. Eighty-eight percent fell in this category. Serious violations were those posing a risk of death or serious physical harm to workers. Sixty-nine percent were deemed willful, that is, situations in which the employer intentionally and knowingly committed a violation. At work sites of 50 Federal contractors, a total of 35 fatalities and 85 injuries occurred.

OSHA assessed a total of $24 million in proposed penalties and $10.9 million in actual penalties. It is important to note, however, that some of the contractors who were assessed significant penalties also operated facilities with exemplary safety and health records, while others participated in OSHA-sanctioned voluntary compliance programs that suggest a proactive approach to workplace safety and health.

In our report on Federal contractors that violate the NLRA, we noted that the NLRB could improve its enforcement efforts by withholding contract payments for Federal contractors that had not complied with Board orders to restore wages or benefits, a collection process known as administrative offset. However, at the time of our report, NLRB did not have a means of identifying violators that had Federal contracts. Since that time, the enactment of the Debt Collection and Improvement Act has permitted NLRB to take advantage of administrative offset through coordination with the Treasury's Financial Management Services Department, which is developing its own comprehensive database on Federal contractors.

In our report on Federal contractors that violated OSHA regulations, we concluded that contracting agencies could use information on a contractor's safety and health record as a vehicle to encourage a contractor to undertake remedial measures to improve workplace conditions. We therefore recommended that OSHA develop and implement policies and procedures for sharing safety and health records with agency contracting officials. Although OSHA has explored possible ways of doing this, it has not yet decided to implement our recommendation.

Mr. Chairman, this concludes my prepared statement. I will be pleased to answer any questions you or members of the subcommittee may have.

[The statement of Ms. Blanchette follows:]

WRITTEN STATEMENT OF CORNELIA BLANCHETTE, ASSOCIATE DIRECTOR FOR EDUCATION AND EMPLOYMENT ISSUES, HEALTH, EDUCATION AND HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING OFFICE - see appendix g

Acting Chairman Norwood. Thank you, Ms. Blanchette.

Our next witness will be Gary Hess. Mr. Hess is chairman of the Hess Mechanical Corporation in Upper Marlboro, Maryland, a full service mechanical and sheet metal operation employing more than 250 people in the District, Maryland and Virginia. He is past national president of the Associated Builders and Contractors, and will be testifying today on behalf of that group as well as Hess Mechanical. Welcome, Mr. Hess.

Mr. Hess. Thank you, Mr. Chairman, members of the Subcommittee on Oversight and Investigations. My name is Gary Hess. I am chairman of Hess Mechanical Corporation, also the 1996 past national president of the Associated Builders and Contractors. I am testifying here this afternoon on behalf of Hess Mechanical Corporation and the Associated Builders and Contractors.

I started Hess Mechanical in 1980. We currently employ more than 50 people in the Baltimore-Washington-Northern Virginia region. We do perform both public and private projects.

The topic of this hearing this morning allows me to speak about three of the top priority issues for ABC and Hess Mechanical. These anticompetitive issues are the proposed blacklisting regulations; salting abuse; and union-only project labor agreements. ABC and Hess Mechanical actively oppose these issues and encourage Congress to combat the administration's planned blacklisting regulations, salting abuse and union-only project labor agreements, to stop the unions from teaming up with Federal agencies to eliminate open shop competitors.

First, blacklisting. On February 18, 1997, Vice President Gore announced in his famous union payback speech to the AFL-CIO that government must ensure union rights. He said the right to organize is a fundamental right that is often violated. Gore announced that the Clinton Administration would propose changes to Federal contracting requirements to ensure contractors have "satisfactory", as yet undefined, labor and employment records. It is clear these regulations are not arising from a need to amend the procurement system. AFL-CIO President John Sweeney indeed made it clear in an internal memo to union leaders that these regulations would, in effect, create a government blacklist, and it appears they are determined to use the regulations as a central part of their national organizing campaign.

The administration's proposed blacklisting regulations are a major effort to gain preferential treatment for unions in government contracting. These blacklisting regulations would be a major circumvention of the current system of full and open competition and its protections against subjectivity in awarding Federal contracts.

This major change in labor law attempted through executive fiat could effectively shut out any contractor who has unfair labor practice charges, OSHA complaints or EEOC charges, regardless of their guilt or innocence. Congress must stop this attempt by the unions and the Clinton Administration to shift power and resources of the Federal Government to benefit big labor political allies.

The Clinton Administration's blacklisting regulations provide unions with an additional tool to harm nonunion companies by filing frivolous labor charges to have employers blacklisted and prevent their employees from working on government contracts. Government contractors have a particular concern because it will give union "salts" more power by allowing them to use the National Labor Relations Board and other Federal agency procedures to set up contractors with labor charges, whether they are guilty or not, and eliminate them from competition for Federal work.

Under salting abuse, the planned blacklisting regulations give organized labor a major incentive to file more frivolous charges. A union salt risks nothing by filing a complaint, since the Federal Government pays the costs to investigate and prosecute charges, and there is no disincentive for filing frivolous charges. Meanwhile, the American taxpayer is funding the defense of unscrupulous, anticompetitive and often extortionist behavior, including the waste of Federal agency resources which could be far better spent at the NLRB, OSHA and EEOC.

Clinton's proposed blacklisting regulation will only perpetuate this flawed system, supported by taxpayer dollars, which allows tens of thousands of meritless cases to be brought against innocent employers each year. These regulations only encourage and promote the unfair and unscrupulous practice of union salting which already runs rampant in the United States.

Hess Mechanical has successfully defended itself against frivolous charges, and many other contractors and companies across the country who work on Federal projects, have Federal contracts, and who also are the victims of salting abuse, will be at the risk of blacklisting under Clinton's proposed regulation.

As a contractor and small business owner, I don't argue with a union member's rights to organize, but that is not what is happening here. Decent, hard-working men and women, who in many instances have spent a lifetime building a business, are being forced to hire individuals whose sole purpose in applying for work is to hurt the company economically. The practice of salting abuse is wrong and deserves to be exposed. It is purely unAmerican. In fact, the U.S. House of Representatives passed the Fairness for Small Business and Employees Act in March to remedy this problem. We urge the Senate to also pass this legislation, so that salting abuse cannot be used to eliminate legitimate companies from contracting with the Federal Government.

Union-only project labor agreements. In the same speech on February 18, 1997, that Vice President Gore announced the pending blacklisting regulations, he promised the unions that President Clinton would issue an executive order encouraging union-only PLAs on Federal construction. Due to massive grassroots and congressional opposition, President Clinton reversed his plan to issue an executive order and issued a presidential memo on union-only agreements instead.

On April 22 of this year Vice President Gore announced in a speech to the Building and Construction Trades Department that the U.S. Department of Transportation was aggressively pursuing linking Federal projects to union construction firms, and DOT Secretary Slater sent a memo to agency heads promoting union-only PLAs for DOT funded and assisted infrastructure projects.

Hess Mechanical and ABC are strongly opposed to union-only project labor agreements on Federal construction projects. These agreements not only drive up the cost of Federal construction by reducing competition, they also exclude nonunion contractors from bidding and their employees from working on projects paid for by their own tax dollars.

Over 80 percent of all construction workers choose not to belong to a union, based on the Bureau of Labor Statistics. Union-only contracts are a special interest set-aside program to funnel work to unionized companies and their workers, which represent less than 20 percent of the industry. Under union-only agreements, employees are forced to join a union in order to perform work on the project. Workers should have a right to decide for themselves whether or not they want to join a union.

Hess Mechanical and ABC support the Open Competition Act, H.R. 1378, introduced by Representative Hayworth, and Senate bill 606 introduced by Senator Hutchinson. This legislation would amend the NLRA to make it unlawful for any Federal agency to discriminate on the basis of labor affiliation by requiring any contractor to become a signatory to a collective bargaining agreement, or any employee to become a member of a union, as a condition of performing Federal work. This issue will be voted on by the Senate during debate on the Transportation appropriations bill in the next few weeks.

In conclusion, the proposed regulations will mean the loss of thousands of jobs in communities where Federal contractors are targets for blacklisting. The regulations would provide another incentive to file frivolous charges against targeted companies. There are already thousands of frivolous unfair labor practice charges on the books because of salting abuses. These charges cost companies significant time, money, and resources to defend themselves against these meritless complaints, which prevents employers from hiring more employees, investing in better equipment, and securing more work for the growth of their company.

Blacklisting regulations would be a coercive tool to victimize responsible contractors who are unfairly targeted by competitors, unions, plaintiffs, disgruntled former employees or anyone else who would benefit from wielding the threat of blacklisting the company. For the construction industry in particular, the regulations would serve as a significant incentive to exacerbate salting abuses.

ABC and Hess Mechanical oppose these three issues I have talked about today. We feel they are anticompetitive and again encourage Congress to combat the administration's blacklisting regulations, salting abuse, and union-only project labor agreements to stop the Federal Government from discriminating against and trying to eliminate open shop companies and their employees.

Thank you very much for the opportunity to address the subcommittee today.

[The statement of Mr. Hess follows:]

WRITTEN STATEMENT OF GARY HESS, CHAIRMAN, HESS MECHANICAL CORPORATION, UPPER MARLBORO, MARYLAND, ON BEHALF OF THE ASSOCIATED BUILDERS AND CONTRACTORS - see appenix h

Acting Chairman Norwood. Mr. Hess, I appreciate your candid remarks. I hope you will tell us what you really think when we have our question period.

Mr. Hess. I will be happy to, sir.

Acting Chairman Norwood. I think you will, too.

Our final witness will be Wilsie H. Adams, Jr. Mr. Adams is a partner in McKenna & Cuneo's Washington law offices. He has practiced government contract law for more than 30 years. He is past Chair of the National Security Industrial Association's Procurement Planning Committee, and will be testifying today on behalf of the National Defense Industrial Association, a group consisting of more than 900 companies which perform Federal contracts with virtually every agency of the Federal Government. Mr. Adams.

Mr. Adams. Thank you very much, Mr. Chairman, members of the committee. I wish that I could have just had a copy of your introduction so I wouldn't have to summarize quite so heavily.

Basically what I am here to say is that the National Defense Industrial Association does not believe that any additional regulations are necessary regarding the role of labor relations history in the selection of Federal contractors. The present FAR Part 9 deals specifically with the qualifications of contractors. There is a bit of a distinction to be made between the denial of a contract as a form of punishment or as a sanction for misconduct, and the denial of a contract as the result of a determination of current responsibility.

We see in FAR Part 9 the already existing implementation of regulations to enforce those laws passed by this Congress which have already established debarment as a proper sanction for labor misconduct. Thus, when we looked at the Davis-Bacon Act and some of the other statutes that provide for debarment as a sanction when you don't pay the minimum wages and so forth, those decisions being made in the Labor Department as required by the statutes are implemented in the regulations today.

But it is the area of the regulations that goes beyond those areas where Congress has determined that this is the proper sanction that we are really talking about. We are really talking about, as I said before, a determination of current responsibility.

I would take umbrage with one phrase to describe that that was used by an earlier witness when he talked about determination of a responsible citizen. That is not what the responsibility determination is about. The responsibility determination is about the question of whether the contractor, or the proposed contractor, or the potential contractor, has the physical capabilities to perform the job. Does he have a factory, does he have employees, does he have a drill press, does he have a bulldozer, does he have access to the means necessary to perform the contract?

Once you have made the determination that, yes, he does physically have the means to perform the contract, then you go one step further and you ask the question, is this company one of such honesty and integrity that I can count on them, once I give them the contract, to see the job through? That is what we are talking about when we talk about integrity and honesty as an indication of present responsibility. Is this a company who has such a record of honesty that I am willing to do business with them?

We don't want to look at records of 1993 and 1994. We want to know today, because the people responsible for violations of anything several years ago may no longer work for the company, and that is exactly the way the debarment procedures are set up in the regulation. You look at current responsibility: Has the contractor taken the appropriate action to rectify past situations, and is he currently a contractor on whom I am able to rely?

That is the distinction between a determination of responsibility and the implementation of a punishment. We believe that the current regulations have adequate examples and adequately describe the distinctions that I have been referring to, to permit the proper implementation of the decision-making process as to who should get the contract. If it is proposed that examples be added that would make violations of other labor laws a grounds for debarment, other than those determined previously by the Congress, then I think we are in that gray area where there is a question as to whether or not there is legislation going on in the executive branch.

It is only, we believe, those areas where the conduct described is of such a question of moral turpitude as to really raise the question of honesty and integrity today as a basis for saying, "I can't trust you to see the job through." That is really what we are talking about. We don't think we need any more regulations.

When you jump over into the area of the allowability of costs of defending allegations, we believe that the regulations today are also adequate in that area. We don't need to deny the contractor the recovery of any more costs, especially the costs of defending against any allegation.

The current regulations provide essentially, as I indicated in my written statement, that costs of defending against any allegation are going to be allowable unless the result of the allegation is one that the contractor is found to have been guilty of such egregious misconduct that it really is not appropriate for the taxpayers to recognize that cost. In fact, the regulations take up several pages just to read the one paragraph. It is that kind of egregious misconduct that we are talking about, guilty of a crime, conviction of fraud, et cetera. If those are the situations, then the costs of defending the allegation are allowable if you are not guilty, but disallowed only upon a finding of clear violations.

We think those regulations are adequate. We do not believe that you have to add any more examples or provide any more disincentives to defend the company against the incurrence of normal costs of doing business.

I appreciate the opportunity to summarize our comments and I will be happy to answer any questions.

[The statement of Mr. Adams follows:]

WRITTEN STATEMENT OF WILSIE H. ADAMS, JR., PARTNER, MCKENNA & CUNEO, WASHINGTON D.C., ON BEHALF OF THE NATIONAL DEFENSE INDUSTRIAL ASSOCIATION - see appendix i

Acting Chairman Norwood. Thank you very much, Mr. Adams. Mr. Kind, I will start with 5 minutes, and then we will alternate back and forth.

Ms. Williams, I heard Mr. DeSeve's testimony, and it seemed clear to me the administration seems to want to go around Congress and substantially overhaul the procurement law. It also sounds like the changes could keep contractors from receiving Federal contracts without the due process protections of current law. As a procurement expert, did you hear the same thing in that?

Ms. Williams. Yes, Mr. Chairman, I did hear the same thing. I believe that the proposal, even as Mr. DeSeve has described it, would require a change in law which by my last reading of the Constitution still has to occur here on Capitol Hill. I think to the extent, and there may be a case to be made for a change in the law, but I think you cannot do this by regulation.

The reference to simply clarifying existing law I think is equally unfounded, because it is not simply clarifying existing law. Even if you add examples to the regulation, you are changing the regulation, and in fact you are saying that there isn't any due process by which this determination is going to be made. If this is your example, then you lose the contract.

Acting Chairman Norwood. Mr. DeSeve, is that right? If there is an allegation you can lose a contract?

Mr. DeSeve. No, sir, I believe my testimony has said repeated substantial violations of law. I think that is what my testimony said.

Acting Chairman Norwood. What does "substantial" mean?

Mr. DeSeve. I am not a lawyer, I can't interpret that for you. I think what we are saying_

Acting Chairman Norwood. Well, if lawyers can't interpret the word "shall." How are we going to decide what the word "substantial" means?

Mr. DeSeve. I think the words "repeated" and "substantial" when read together try to give the contracting officer_and I am not sure those are in the actual language_but they are trying to give the contracting officer a sense that minor violations or violations of a kind that are not substantial shouldn't be considered.

Acting Chairman Norwood. Ms. Williams, do we have contracting officers that are lawyers, that can determine what "substantial" means?

Ms. Williams. Not all contracting officers are lawyers. Some of them are, but I think they are not steeped in labor law. That is clearly a specialty in the law. That is why the Department of Labor has been charged with the responsibility of looking at these issues.

The Department of Labor has the authority to suspend and debar individuals for substantial violations of law, and being on that suspension and debarment list is an objective criteria that the contracting officer can look at and make the determination that being on that list constitutes not being presently responsible. So we already have a mechanism in the law to address those issues.

Acting Chairman Norwood. Well, Mr. Adams said that he really felt like that we didn't need any more regulations, that we have got pretty good law now and it is working fairly well. How do you feel about that?

Ms. Williams. I think that is correct.

Acting Chairman Norwood. So the contracting officer is not a person who necessarily is trained in understanding "substantial". Mr. DeSeve, how are we to decide what "substantial" means?

Mr. DeSeve. I think what I would do is, if I had a question about that, I would talk with my general counsel. Some elements of "substantial" and "repeated" might be easy on their face. Others might be_

Acting Chairman Norwood. Is your general counsel here?

Mr. DeSeve. I am sorry. If I were a contracting officer and was faced with that question, I would refer that question to my general counsel. I don't believe anyone from my general counsel's office is here.

Acting Chairman Norwood. But they basically are not hired to make such determinations; they are hired as a contracting officer in procurement mechanisms. That is their expertise. Yet we have in the Labor Department perhaps people who can understand what "substantial" is. Why don't we let them decide that and go with the law we have now?

Mr. DeSeve. That is a good question. I think what we do with our contracting officers is, we give them discretion to interpret the ethics and integrity of various contractors as they come forward. We require them now to do that. The question is, shall we provide them more clarification of the things to be taken into account?

Acting Chairman Norwood. Are they coming to you asking for clarification?

Mr. DeSeve. We have had contracting officers come to us and say, "We're not sure what these provisions of integrity and ethics mean." Others outside have asked the same questions.

Acting Chairman Norwood. Hadn't they ought to come to Congress and ask that question?

Mr. DeSeve. Well, we write the regulations and the regulations spell out integrity and ethics. What we are trying to do here is to clarify those regulations by pointing to particular substantial and repeated violations of law.

Acting Chairman Norwood. Can your writing of the regulations change the intent of Congress?

Mr. DeSeve. No, sir, it cannot.

Acting Chairman Norwood. I am delighted to hear that. I am very concerned that we are getting in an area that is very, very unfair to many people. I am not sure you don't disagree with me. I am going to during the course of the afternoon try to find out if you agree with me or not, and so I will keep coming back to you from time to time to find out if what we are doing is right or wrong.

Mr. Allen, you also heard Mr. DeSeve's testimony. Do you agree with him that the administration only seeks to clarify existing law?

Mr. Allen. Mr. Chairman, I think in his written testimony he talks about the concern that this phrase "a satisfactory history of business ethics and integrity" is vague. I don't think it is vague. I think that it has held up pretty well over the years. That is the same phrase that has been in the regulations for probably 20 or 30 years. It was the same phrase that was used, for example, during the height of the procurement scandals in the 1980s in the Department of Defense, to make determinations about whether contractors were presently responsible to continue performing contracts. I certainly have not had the experience of hearing any kind of groundswell of concern about any ambiguity in that phrase or need for additional guidance in terms of what it means.

Acting Chairman Norwood. In your opinion, can we depend upon contractors today to certify that a bidder is an ethical business and one that the taxpayers can trust to do a good job? Can we do that today?

Mr. Allen. I think that the contracting officer historically has been required to exercise some judgment about that. That is what the regulations have required for years; that is what contracting officers have been doing for years. But, again, the key thing to remember here is that that determination really has to relate to the specific contract at issue. Is there something in the history? And we went back in preparing for this testimony and researched all the cases that have been decided, that may have been relevant to this issue, and there aren't a whole lot of them.

The only time historically that contracting officers have relied upon any kind of violations of labor laws to find a contractor irresponsible are really two types of cases. One is where there was a violation of a labor law that was specifically related to a government contract, the Davis-Bacon Act or the Service Contract Act, where the Department of Labor as the anointed entity to make these determinations had made a determination that there had been a violation and it was directly related to performance of a government contract. The contractor may have even been on the suspension and debarment list by virtue of that determination by DOL. That is one situation and that is an easy one, basically, relatively speaking.

The other type of situation is where as part of a continued pattern, a historical pattern of bad performance, that labor law violations were one element of that and the contracting officer, in looking at the whole picture, identified the past labor violations as one element of many that evidenced bad performance, that evidenced a concern that, as Mr. Adams put it, "I am just not sure I can rely upon this contractor to get the job done and to follow through."

Acting Chairman Norwood. And the reason they looked at these particular two things is because that is what the law said to look at?

Mr. Allen. That is right.

Acting Chairman Norwood. And so we are talking about maybe changing the law here so we can look at some other things?

Mr. Allen. I think that is what is effectively being done here.

Acting Chairman Norwood. What it sounds like?

Mr. Allen. We were adding criteria, express criteria that the contracting officer must consider. In fact, in that sense we are removing a little discretion from the contracting officer. We are adding another layer of criteria they must consider in making this determination.

Acting Chairman Norwood. Mr. Kind, thank you very much for being here. You have 5 minutes.

Mr. Kind. Thank you very much, Mr. Chairman. I appreciate it. Thanks for yielding some time.

I want to thank the witnesses for coming here and testifying today, although I think it may be a little premature, since really what we are talking about is dealing in the esoteric abstract right now, since no regulations have even been proposed. I really don't understand the Chicken Little testimony that we are hearing here today until we get something in writing that we can actually scrutinize and analyze.

I am sorry to say that chances are that if those regulations do occur, you will all probably be called to come up here again to offer testimony. But maybe this hearing is a good primer that is going to have to happen at some point, once we do have some actual language to start taking a look at and to analyze and to start dealing in concrete terms as far as how this is going to impact the Federal procurement process and Federal contractors throughout the country.

But I for one fail to see the real evil behind the Vice President's proposition, that being that if there is a Federal contractor that has been shown to have substantial and repeated violations of known Federal law, labor and health and safety law, well, then, the American taxpayers aren't going to do business with them anymore. I don't think that is an overly outrageous statement to make under any circumstances, and I would hope that none of the witnesses here would feel that a known violator would be allowed to continue to have contractual relationships with the American people through the Federal Government. I hope that is not the testimony of anyone here today.

It doesn't sound as if an isolated instance of a violation would be enough to disqualify or disbar a Federal contractor from entering into contracts with the Federal Government. Perhaps I am wrong.

Mr. DeSeve, maybe you can clarify that for me, but have you known of any instance where a single violation which has been found was the basis for disqualifying a contractor?

Mr. DeSeve. I know of none, sir. That is not to say there weren't some. I don't know of any. We are indicating that they should be substantial and repeated, including tax violations, for example.

Mr. Kind. Mr. DeSeve, staying with you for a second, perhaps you can educate me a little bit more. The regulations as they already exist, especially with the general terminology that we are dealing with, without the specifics being out there, are officers of the Federal Government, the ones awarding these contracts, are they disqualifying contractors based on known violations, substantial and repeated, on a regular basis, or is this something that is seldom done?

Mr. DeSeve. They have the ability to do so now under the integrity and ethics portion of the FAR. They could do so now. I haven't taken a survey to see whether they are or not, but they certainly have the ability to do that. However, that ability is uneven and unclear to many of them, and so what we are trying to do is to clarify that tax laws, safety laws, wage and hour laws, collective bargaining laws are the kinds of things that would cause them, on a repeated and substantial basis, to invoke their judgment.

Mr. Kind. Ms. Blanchette, have you had an opportunity to review current practice in the awarding of contracts and how disqualification takes place? Is this something that is being regularly done or is it seldom used?

Ms. Blanchette. As I said, my statements were based on work that we completed in 1995 and 1996 on actions from 1993 and 1994. That is as current as I can be. We did state in our reports that although there are various tools available to contracting officers to take actions based on violations of law, we did not see very many instances of this or believe that there were very many instances of this, and we believe that to be because contracting officers had no way of knowing that a contractor or potential contractor had violated any aspects of NLRA or OSHA.

Mr. Kind. If they had a way of knowing, and it sounds as if there are some steps being taken in order to better coordinate the NLRB and OSHA and violations in terms of forwarding that on to the various Federal agencies, under the current general regulations as they exist, do you think contracting line officers would still be reluctant to invoke these general guidelines as a basis for disqualifying?

Ms. Blanchette. I have no basis for answering that question.

Mr. Kind. Mr. DeSeve, just so I am clear, what is being contemplated right now more or less would be the addition of specific examples that procurement attorneys, contracting attorneys and the contractors themselves could take a look at in the regulations, so they would have a better understanding of what the actual definition is applied to these terms that already exist in regulations?

Mr. DeSeve. That is correct. Again, you have made the point earlier that this is a very preliminary stage. The proposed change has not even been sent over to the FAR Council and certainly has not been put in the Federal Register for comment. We appreciate the comments here today. It will help to guide us.

Mr. Kind. Mr. DeSeve, do you have any reason to believe that, even at this preliminary stage, that the regulations that may or may not be proposed in the future are going to impose some type of subjective litmus test on contractors?

Mr. DeSeve. No, sir, we do not believe so.

Mr. Kind. I thank you, Mr. Chairman. That is all I have right now.

Acting Chairman Norwood. Thank you, Mr. Kind. Mr. Hoekstra.

Chairman Hoekstra. Thank you, Mr. Norwood.

Mr. DeSeve, I have just got a few minutes and I think I am going to spend most of them with you. Is that all right?

Mr. DeSeve. Yes, sir. I do feel a bit like a canary at a cat convention but I am happy to be here.

Chairman Hoekstra. You are the one who has all the information. It is my understanding that this proposal came out, perhaps rumblings came out as much as 18 months ago. I think members of this Committee, of the full Committee and of the Subcommittee, have asked the administration for specifics in those type of things and it has been very difficult to get them. I think that is why it is probably very appropriate to do a hearing, because it appears to be the only way to get any information on this.

I think the Acting Chairman for today and myself actually probably agree that some of the things that you may be proposing may be going in the right direction, I think, but I need a little bit of clarity on some of this stuff. We have been involved in a process, in substantial, and what are the words you are using, "substantial" and "repeated" or something like that?

Mr. DeSeve. Actually in the testimony I think it says repeated and substantial violations.

Chairman Hoekstra. All right. We have been involved with the Teamsters, signed a consent decree in 1989 because of massive mob influence and mob control throughout the Teamsters, repeated violations over the last number of years, a pattern that will come out of the IRB, the Independent Review Board, showing a pattern of mob influence and these types of things within the Teamsters. The 1996 Teamsters election where the winning candidate, the election has been overturned, the taxpayers have paid $20 million. Under the proposed regulations, would this now mean that the Teamsters would be ineligible for any Federal contracts?

Mr. DeSeve. No, sir.

Chairman Hoekstra. No? Why?

Mr. DeSeve. It would mean that the contracting officer, in making an individual judgment about a particular contract for the Teamsters, would look at the record of things that you just talked about and take that into account in making his or her overall judgment.

Chairman Hoekstra. Would this kind of look like repeated and substantial to you?

Mr. DeSeve. I would have to look at the facts. You certainly have given us a litany that we would have to look at.

Chairman Hoekstra. Okay. In a case like that, I think for the Mr. Norwood and myself, it might be fairly clear-cut, but it wouldn't be for you?

Mr. DeSeve. Sir, what we have to do, using our discretion, is to take all of the evidence and the kind of contract the Teamsters were seeking. If they were seeking to do one thing where these things were very much germane, that would be clearer.

Chairman Hoekstra. You are talking about criminal law and tax law here. A lot of times that is not all that germane.

Mr. DeSeve. You and I are in agreement on that.

Chairman Hoekstra. The regulations would apply if you find a union or another organization like them with massive patterns of illegal activities, they will be barred from Federal contracts?

Mr. DeSeve. No, sir. Let me be very clear. Each contract is determined by a contracting officer on an individual basis. There will be no blanket debarment here. What will happen is an individual contracting officer will determine in that specific situation whether the entire record, including violations of law, is of a sufficient weight to, for that contract, prevent the individual contractor or proposed contractor_

Chairman Hoekstra. I am trying to figure out the rationale for why the administration is doing this, and if the rationale is right and if it works for contracting through the executive agencies, maybe it is the rationale and the mind set that we ought to bring to Congress as we appropriate dollars.

So using the thinking of the administration, we maybe then should bar those organizations from getting Federal dollars. I have got another one: National Council of Senior Citizens. They receive a lot of Federal dollars. They have been implicated in the Teamsters money laundering scheme.

Would the logic of the administration, if it carried over to Congress and we supported what you are trying to do in the executive branch, would that then transfer over to the legislative branch, where we would then say people like the National Council of Senior Citizens who have been implicated in doing illegal activities, should now be debarred from any future Federal contracts?

Mr. DeSeve. I can't make the connection. You are beyond me in making that connection. What I came here to talk about was contracting, not the discretion of Congress.

Chairman Hoekstra. I am just trying to figure it all out. You are saying if people break the law_

Mr. DeSeve. I can't make the same connection you are making.

Chairman Hoekstra. Let's make it a little simpler. I am a contractor. I am trying to sell to you. I break the law. You are going to say, no contract. Okay?

Mr. DeSeve. Repeated and substantial violations, I am going to say no contract.

Chairman Hoekstra. All right.

Mr. DeSeve. I may say no contract. I am a contracting officer who takes that into account.

Chairman Hoekstra. You want to have good people selling to the Federal Government.

Mr. DeSeve. Correct.

Chairman Hoekstra. That is a logic that says I want to do business only "what we define as responsible people".

Mr. DeSeve. The statute talks about ethics and integrity.

Chairman Hoekstra. That might be good logic. I am trying to figure out, if we took your logic and applied it to Congress, we might go to people like the National Council of Senior Citizens and say, "You have been implicated in illegal activities. Perhaps we don't want to give you any more contracts. That is what they are doing over in the executive branch."

Mr. DeSeve. We would be happy to consider your proposal.

Chairman Hoekstra. Thank you. Disallow defense costs on all types_

Acting Chairman Norwood. Would the Chairman yield just a minute?

Chairman Hoekstra. Yes.

Acting Chairman Norwood. Let me see if I have got this right. Who would consider this proposal?

Mr. DeSeve. I think what Mr. Hoekstra is suggesting is that in taking appropriations actions, the Congress might limit appropriations to certain groups who do or do not comply with certain Federal laws.

Acting Chairman Norwood. So what you mean is we might consider his proposals?

Mr. DeSeve. You might consider it, and if it was then put forth to the administration, the President would certainly have to consider it in the context of appropriations. That is how we would consider it.

Chairman Hoekstra. We would like this President to have some consistency through his administration, that if you guys are going to stop doing business with bad people, maybe we should, too.

Just another question for you. "Disallow defense costs on all types of proceedings brought by the Federal Government", does that mean that where the government loses, you are going to reimburse, or not?

Mr. DeSeve. No, sir. What it means is that if you have a cost for defending yourself in a proceeding against the Federal Government and you win, you may put that cost into your base. We don't reimburse you. If a tenth of a percent_

Chairman Hoekstra. Currently you can deduct those costs whether you win or lose?

Mr. DeSeve. Currently the contractor may put those costs into his cost base. If he has a legal bill of $100,000 for the year, he may put that pro rata into his contract price to us.

Chairman Hoekstra. Designed to influence employees either for or against unionization. That is a structural business decision, correct, made by management employees?

Mr. DeSeve. That is correct. What we want to do is maintain a level playing field. We don't want an employer, for example, to take out an ad in favor of unionization or an ad against unionization of employees and charge that cost to the Federal Government. That would be violating the long-held premise that Ms. Williams and others talked about.

Chairman Hoekstra. How do you select unionization as one business strategy that is going to be excluded?

Mr. DeSeve. That has been an historical pattern. I would have to go back and give you the exact reference; I don't have it in mind. We have tried to maintain neutrality in union disputes. Therefore, charging a cost to the Federal Government for either promoting unionization or promoting nonunionization is something we simply say is inappropriate, within the context of_

Chairman Hoekstra. But it is currently allowed?

Mr. DeSeve. It is my understanding that is the reason that we are trying to not allow it is that it is currently allowed.

Chairman Hoekstra. I yield back, but I am staying.

Acting Chairman Norwood. There will be another opportunity, Mr. Chairman.

Mr. Ballenger. Five minutes, sir.

Mr. Ballenger. Thank you, Mr. Chairman. I was kind of figuring I had a little time to put all this together. I am sorry I showed up late and missed some of the discussion here.

Ms. Blanchette, the basic thing that I understand that you are listing here for the GAO, errors, and I have got a listing of the ones you read off, it appears to me that the most common mistake, I guess, that any of these contractors made was the fact that they refused to bargain in good faith. That is the statement you just made on each one of these things. Looked like just about every one of them refused to bargain in good faith.

I am curious to know if you understand in fact that once the National Labor Relations Board rules, the only shot you have got at finding yourself innocent of something like that is to refuse to bargain so that you can go into court. Is my understanding correct?

Ms. Blanchette. I am not an attorney, sir, and I do not know the National Labor Relations Act well enough to answer your question.

Mr. Ballenger. I see the gentleman down on the end there shaking his head yes. I think he is a lawyer and backs that up.

Mr. Adams. I believe you are right, sir, but that is not why I was nodding my head.

Mr. Ballenger. Oh, excuse me.

It just so happens that one of the things you have got here, and I am reading also from Mr. DeSeve's statement, that the proposal is intended to protect the public's interest by having greater assurance that firms the government deals with are responsible citizens, in terms of a record of compliance with the law and not a record of repeated serious violations.

Then I switch back over here to one of the things that was listed in your GAO report. It happens to be Duke University, which really, being a Carolina supporter, I don't stand 100 percent behind Duke, but I do think they have a record for being fairly competent, fairly honest in dealing. They had a $14,954,000 AIDS contract in trying to examine and find a cure for AIDS.

They were nailed because they did not recognize and engage in collective bargaining with the union. And the specific action there, it was only a technical refusal to bargain because they found out that was the only way that they could get under the National Labor Relations Act, which an employer can test the validity of a union representative election and so forth. The sad part about it is, what I consider and I think what almost anybody would consider a fairly legitimate organization who has a government contract, and the only way that they have to get around a ruling by the National Labor Relations Board is to appeal it to court. It just blows my mind that this is the only shot you have got.

Then you back off and you say, one of the very large contractors, this is a $321 million contract, again in your report, with Chevron. They supposedly refused to deal with the union. In that specific case, Chevron paid its workers, but this is the dispute that the union threw at them: first of all, they paid their workers by mailing paychecks to their homes, and the union wanted the company to hand out the paychecks at work. So when Chevron wouldn't hand out the paychecks at work, the union went to the National Labor Relations Board and said that they were refusing to negotiate. That refusal, whether you mailed the checks or deliver them by hand, I think maybe they trusted the mails a little bit more than they did the post office, which is understandable.

So with that, an administrative law judge ruled they were wrong. They put a $321 million contract in jeopardy because of an administrative law judge. It wasn't even a Board decision that was made, yet it is in your report as some serious violation here.

Ms. Blanchette. Sir, all of the cases that we list are cases that did have a Board decision.

Mr. Ballenger. This one did not. Chevron USA Products was ruled on by an administrative law judge. In fact my notes here say it was ruled on by an administrative law judge and not the Board itself.

Ms. Blanchette. The procedure is that an administrative law judge will make the initial determination. The decisions of the administrative law judges are then submitted to the Board and ratified or not. In order for the case to be closed, the Board has to come to some resolution. The cases we looked at were cases that were closed in 1993 or 1994.

Mr. Ballenger. Mr. DeSeve, can you rationalize why they would be ruled against just because they wanted to mail the checks in and the union wanted them to hand deliver them?

Mr. DeSeve. No, sir.

Mr. Ballenger. That doesn't make any sense at all to me.

Mr. DeSeve. I don't have any of the facts in the case. I couldn't comment on it.

Mr. Ballenger. I don't think a comment is necessary. I am trying to prove how idiotic it was, since it was your government that did it. I don't want to put a black mark against you.

Mr. DeSeve. Sir, I think it is our government, under the Constitution.

Mr. Ballenger. There are times where we feel that way, but not very often.

Ms. Blanchette, you discussed the GAO study with contractors and the National Labor Relations Board demonstrates a strong concern about proposed blacklisting regulations. The sixth largest contractor you cited in your report was Fluor Corporation. Your report cited that the company was a serious violator because over 20 applicants were denied employment during a union salting campaign. Your conclusions about the company were based on an adverse decision by the National Labor Relations Board, what you just said, but did you know that the National Labor Relations Board lost their case on appeal and yet you still have it in your report here?

Ms. Blanchette. The information in our report was based on decisions of closed cases in the period_in the case of the National Labor Relations Act it was for 1993 and 1994. If there was a subsequent appeal, it would not be reflected in our report.

Mr. Ballenger. What, it is 5 years later and your records aren't any better than that? Y2K is going to kill you.

Ms. Blanchette. Our report was issued in 1995 based on cases closed, meaning cases where the Board made a final decision, in 1993 or 1994. If subsequent to 1994 up to the time the report was issued there had been an appeal, it would not be reflected in our report because it would not have occurred within the period we were looking at.

Mr. Ballenger. The ones I am reading here, every one of them says "refused to bargain" which means they all went to court. Is it possible that each one of these that said they refused to bargain, then went to court, it could have been reversed?

Ms. Blanchette. Well, it is certainly possible.

Mr. Ballenger. In other words, the report itself could be useless.

Ms. Blanchette. It is possible that those cases were appealed, but it is not likely that all of them were by any means.

Mr. Ballenger. I was just reading one page out of the report. I didn't mean to say the whole report. Just one page isn't correct.

Ms. Blanchette. I understand.

Mr. Ballenger. Thank you, Mr. Chairman.

Acting Chairman Norwood. Thank you, Mr. Ballenger.

Mr. DeSeve, if you wanted to write some new regulations, might it be a good idea that people found not guilty on appeal, that that is reported? There is a good idea. I mean, how in the world can you put out documents saying people are guilty, never change them after they have gone through the appeals process and been found not guilty?

Ms. Blanchette. Sir, I don't know who you are addressing.

Acting Chairman Norwood. I am trying to Mr. DeSeve write a good regulation. I am trying to get you to answer that. Why in the world would you not have that in the report saying, look, these folks are not guilty?

Ms. Blanchette. We did not update the information in those reports. The reports were issued as a result of a congressional request. The report on NLRA violations was issued in October 1995. The report on OSHA was issued in August of 1996. We have not updated either of those reports. That is why in my statement, and as I have said here this morning, we can't be any more current than the information we had available for the particular years we were looking at.

Acting Chairman Norwood. You want to read that note?

Ms. Blanchette. My colleague is explaining that any cases that had been appealed during the time period we were looking at, we would have had that information. If the appeal had occurred subsequent to 1994, we would not have.

Acting Chairman Norwood. But you would keep the records that say they are guilty?

Ms. Blanchette. I am not sure I understand your statement. We have not updated our report.

Acting Chairman Norwood. You ought to be very careful with that, because it harms people greatly, I think, when you don't keep those updated on a timely basis.

Let's you and I talk about another thing or two. GAO has expressed some concern over the reliability of OSHA's Integrated Management Information System database. OSHA doesn't do very well with its records. It can't keep them straight, it seems, and it seems that these proposed regulations Mr. DeSeve is suggesting would penalize people unjustly because OSHA can't keep their records straight. Now, what sort of confidence does GAO have in the IMIS at this point in time? How do you feel about them?

Ms. Blanchette. We have not recently looked at the quality of the data in the IMIS system. The issue that we had with the system was in the way that information from appeals, for example, was not recorded, I guess was really the issue.

Subsequent to issuance of our reports, it came to our attention that in several instances there had been appeals or there had been settlements or there had been some action that would have modified. In one case or a couple of cases there actually had been actions during the time period we were looking at, but the information was not reported in IMIS, OSHA's information system.

We made a recommendation to the Secretary of Labor that the Secretary direct the head of OSHA to actually modify IMIS, to update it with these various subsequent appeals and settlement agreements.

Acting Chairman Norwood. When OSHA made its revisions, did you revise your study after that?

Ms. Blanchette. I don't know, sir, that OSHA has made the revisions. At the time the comment from the Department of Labor was that IMIS is working satisfactorily for what it was intended for, which is an internal information system, and that OSHA would look into the possibility of updating the system with settlement agreements and so forth. But we have not gone back to review the system, so I don't know whether that has been done. And if it has been done, has it been done adequately? I do not know the answer to that.

Acting Chairman Norwood. Mr. DeSeve, if a company had five OSHA violations_

Chairman Hoekstra. Will the Chairman yield just a minute?

Acting Chairman Norwood. Yes, I will yield.

Chairman Hoekstra. I just want to follow on your question on OSHA. Is there a Federal database that would be able to give a contracting officer some kind of score card on NLRB action, environmental laws, tax law, OSHA?

Ms. Blanchette. No. OSHA's database would provide information only on OSHA.

Chairman Hoekstra. Only on OSHA and that one is questionable.

Ms. Blanchette. It was questionable to the extent that settlement agreements and actions subsequent to an actual penalty or finding of a violation were not recorded. But it only pertained to OSHA violations.

Chairman Hoekstra. Is there a system in place right now where what we are talking about trying to do here_

Ms. Blanchette. The NLRB has its database_

Chairman Hoekstra. I am talking about one database. Would a contracting officer have to go to 32 different databases? He can't go to one to get this kind of information?

Ms. Blanchette. I am not aware of any one database.

Chairman Hoekstra. He would have to go to a whole bunch of them, some of which are better than others, because we have heard about them here in this Committee.

Ms. Blanchette. In terms of what we were proposing, we wanted a way of getting information to the contracting officer.

Chairman Hoekstra. This is just for OSHA, is that right?

Ms. Blanchette. We did two separate studies. One had to do with violations of the National Labor Relations Act. The other had to do with violations of occupational safety and health regulations.

Chairman Hoekstra. But we are talking in these proposed regulations of doing those as well as environmental law, tax law?

Ms. Blanchette. That is my understanding, but I have not seen the proposals.

Chairman Hoekstra. Is that correct, that we would be taking a look at that whole list, including criminal law?

Mr. DeSeve. Right. We have testified to that, yes.

Chairman Hoekstra. How would you collect that information?

Mr. DeSeve. I don't know. That is a good question. That is one of the things that we hope during the time that the regulation is put out for public comment that we can discuss with agencies, discuss with contractors, discuss with contracting officers and the general public. I have my own ideas how it might be done. The Internal Revenue Service has some very excellent ways of giving access to people for their data. OSHA may have to clean up its database. I am not familiar with the NLRB database. There would be a necessity to try to figure out how to do that.

Chairman Hoekstra. If you are a small contractor today to the Federal Government, this contracting officer might have access to your IRS records and all of those types of things?

Mr. DeSeve. No, sir, just to know whether or not you were in violation, not to your records.

Chairman Hoekstra. Is that available to my competitors?

Mr. DeSeve. To your competitors?

Chairman Hoekstra. If I am bidding for a project?

Mr. DeSeve. No, not unless it is public record.

Chairman Hoekstra. If I lose a bid, I might want to know why I lost and somebody else won. I yield back.

Acting Chairman Norwood. Mr. Hess, could you expand on your personal experiences you have had with your company being subjected to salting abuses, and what these proposed regulations could mean as far as leverage it would give unions to damage companies?

Mr. Hess. Yes, sir. I never had any problem the first 10 or 15 years we were in business until we became, I guess, of a significant size to become an organizing target by the unions. At that point we were flooded with a series of unfair labor practice charges for allegedly discharging employees for union activities, and went through a series of informal interviews with an NLRB case attorney and ended up going to an administrative law judge review. And he had it worded so strongly, I assume lawyers don't say people are lying, but their testimony was totally without credit. That is about as far towards saying that they are lying as you can, and it was such a strongly worded statement that we decided that we would file under Equal Access to Justice.

In this case I think the NLRB ended up, besides losing, reimbursing us for legal fees, so I felt good about that. But, the whole process is so egregious. It allowed five of my workers file charges that I discharged them, three of which were always in my employment. It seems obvious that the unions had them trump up charges, and when that was known, they let them withdraw that charge and refile with the two who were let go for cause.

It is a situation that is occurring throughout the United States, and we feel when the leaders of our administration say that the government must ensure unions rights and your agenda is our agenda, we don't have a real warm fuzzy feeling. Everybody says it is called the National Labor Management Relations Board for a reason, and I don't have a problem with a slight bias toward labor, but I would like to have a fair playing field as a business person and not have unfair, frivolous charges trumped up against me.

And the real world of the contracting business is that most of the DOD and GAO contracts are being awarded today, instead of under the old the read-them-and-weep type of low bid process, some type of best value to the government. The first wedge on the Pentagon is being done that way, and they want to know how you would approach their project and what the best value determination is going to be, how they are going to award that project.

And what if somebody wanted to come after you and file a bunch of frivolous labor charges, what is that contracting officer going to feel if you have 25 or 30 frivolous labor charges filed against you? He is going to have to think that there is a problem here. Whether right or wrong, it is not the correct way to do it.

Acting Chairman Norwood. So if you were negotiating, for example, with a union, or the union was negotiating with you trying to unionize you, and you didn't want to do that or apparently it wasn't working out, the union could then file frivolous charges with the hopes that they could stop you from receiving Federal contracts, which would make you probably negotiate a little differently, wouldn't it?

Mr. Hess. Absolutely. It doesn't even have to be that cut and dried. We have never had enough people even interested to call for a vote in all of the 19 years we have been in business. We feel like we treat our employees exceptionally well, and so they have never wanted to join the union.

But that doesn't sit too well with some of the organizer people, so they plant salts within the organization. Whenever you hire somebody, they put somebody in who is a union organizer to work for them and try to do some internal organizing. That is fine. By the NLRB and every law in the United States, we are supposed to hire them whether they are a union organizer or not, but that doesn't mean that our people have to listen to them.

Acting Chairman Norwood. I understand.

Mr. DeSeve, if you had five OSHA violations, could you have a contract taken away?

Mr. DeSeve. We are not taking the contracts away. The question is in awarding a contract_

Acting Chairman Norwood. All right, you wouldn't award a contract?

Mr. DeSeve. Would you examine the record of the safety and health of the individual? Yes, you would. Is it 5, 10? Is it 1 major? Is it a big fire in the plant where employees couldn't get out that caused that violation, or was it a series of violations that were of lesser significance?

Contracting officers have to exercise their discretion in these matters. There is no numerical standard.

Acting Chairman Norwood. Would five be repeated?

Mr. DeSeve. There is no numerical standard. What you have to look at is the substantial nature and the repeated nature of those violations and how they occurred, if that is important to this particular contract.

Acting Chairman Norwood. Well, since you are here to learn because we have so-called written these regulations, if you include OSHA, I am going to do everything I can to beat you, and I am going to do everything I can on the floor of the House to beat you. OSHA doesn't know just like the right hand doesn't know what the left hand is doing. There are frivolous violations charged across this country every day, and they are a political outfit. One thing that I know something about is that organization, and if you include them in this, I think you have got a real problem on your hands because OSHA is no place to allow the unions to be able to beat up on companies and keep them from getting Federal contracts.

I hope you will remember that when you go back and decide what these new laws are that you are going to write over at the White House.

Mr. DeSeve. Sir, we will certainly remember it in the regulatory process. We don't write laws at the White House, we just sign them.

Acting Chairman Norwood. Well, we are getting confused about that. We are trying to understand who is the legislative and who is the executive. It seems to me that there is a case where we have had some royal decrees going on that make us wonder is that writing a law. That is what this hearing is about.

Chairman Hoekstra. Would the Chairman yield?

Acting Chairman Norwood. I would yield.

Chairman Hoekstra. Speaking of royalty, do you have an idea as to what the cost and time will be for the rule-making process? How long it is going to take you, man-hours that are going to be involved, the costs that you are going to incur in developing these regulations?

Mr. DeSeve. I don't know the answer to that question. Again, we would be sending something to the FAR counsel and they would put it out for comment.

Chairman Hoekstra. I understand the process. Is it going to take 80 hours meeting with 90 procurement officers over 3 months to develop these regulations?

Mr. DeSeve. The regulations will, I think, be fairly easy to finalize. We have been working on them and talking about them, just as we are talking to you here today. I don't know the answer to the time question. Once they go to the FAR counsel, it depends on the number of comments that we receive how long it will take. We have people here I expect who will comment and I expect there will be others, so it will be a function of the number of comments and the length of time that it will take to review them.

Chairman Hoekstra. You must have some kind of an estimate.

Mr. DeSeve. I just don't know the answer to that question. I will be happy to take a look at it and see if I can figure it out.

Chairman Hoekstra. On the second page, "The purpose of this action is to reduce the overall risk to the government that a contractor will violate laws and contract provisions."

Have we identified or quantified the risk that the government is currently absorbing or_

Mr. DeSeve. I think you have a sense from Ms. Blanchette's testimony, from GAO, the nature of violations which have historically been found, and the risk that that creates is that there is a continuation of that pattern.

Chairman Hoekstra. But the risk is that the government is not going to get what it contractually procures, isn't that correct?

Mr. DeSeve. Correct.

Chairman Hoekstra. Do we have an idea of the risk that we are assuming every year today?

Mr. DeSeve. I can't quantify other than in the testimony that GAO has given about the nature of violations that currently exist and the amount of the contracts that have those violations associated with them.

Chairman Hoekstra. You don't quantify what goods or services we did not receive as a result of violations; is that correct?

Ms. Blanchette. That is correct.

Chairman Hoekstra. So you are saying that companies that have procured with us, some have been found in small violations, perhaps small violations, perhaps significant violations in the amount of business that they have done for the U.S. government?

Ms. Blanchette. That is correct.

Chairman Hoekstra. You don't identify the risk?

Ms. Blanchette. We do not. If I may go to a previous point_

Chairman Hoekstra. First, Mr. DeSeve, have you identified risk?

Mr. DeSeve. Whenever you worry about risk, you worry about a series of factors. If I were worrying about my health risk, I would worry about my age, the genetic makeup of my family, and my overweight status and so on in determining risk.

An indication of risk is whether or not a contractor in the past has been guilty of violations. So when we talk about risk_

Chairman Hoekstra. Is that the only indication that you have?

Mr. DeSeve. No, it is one of a series of indications.

Chairman Hoekstra. What are other elements of risk that we are trying to minimize?

Mr. DeSeve. Past performance is certainly something in the FAR that we have recognized as a way of determining the riskiness of a contractor's ability. The capacity of the contractor. Someone else talked about whether he has a drill press. So there are a series of factors in an evaluation, one of which would be the compliance with the laws and regulations.

Chairman Hoekstra. Right. What I am trying to figure out is the problem that you are trying to solve. Are we losing 10 cents on every dollar today because of ineffective, poor government contractors? Are we losing a quarter? Are we losing 40 cents?

Regarding the current rules and regulations that you have in place, are they overall giving us a good set of vendors and suppliers or are they giving us where it is kind only half of the time a Federal contractor who meets our standards, and the other half of the time the man or woman didn't deliver? What is our current exposure?

Mr. DeSeve. We are trying to reduce whatever our exposure is.

Chairman Hoekstra. I am trying to figure out how much it is.

Mr. DeSeve. We are trying to prevent any exposure to the extent that we can. There will always be some.

Chairman Hoekstra. And you get to decreasing marginal returns. If you don't know how much risk we are exposed to today, then I have a question as to why you are going through and developing a whole new set of regulations?

Mr. DeSeve. Our observation is that any contractor having the kinds of violations of law that are repeated and substantial will impose some level of risk on the government. That is the observation.

You are asking me to quantify that, and I am saying that I haven't done a study to do so.

Chairman Hoekstra. Would you do that? And would you do it before_I mean, I am trying to figure out what problem you want to solve.

Mr. DeSeve. I am trying to answer.

Chairman Hoekstra. I don't know what problem you are trying to solve.

Mr. DeSeve. We are trying to solve a problem of integrity and ethics of a contractor who has repeated violations of law. We know that it imposes a risk on the Federal Government.

Chairman Hoekstra. How?

Mr. DeSeve. How do we know, or how does it impose a risk?

Chairman Hoekstra. I think I understand how potentially it imposes risk. I am not positive that it does because GAO hasn't done a study that says people who have this pattern, and we are not sure whether they are significant or not, but we don't know, if they have this pattern or not, whether they actually performed their contractual duties.

Mr. DeSeve. That is where we use our judgment. If you and I were doing personal business with someone and we found out that individual had a substantial and repeated history of particular legal violations, we would probably choose to avoid him. I certainly would, without quantifying how much risk I would be entering into in dealing with him, and that is exactly the same standard we are applying here. It is a common sense standard based on our judgment.

Acting Chairman Norwood. Would you yield a minute?

Chairman Hoekstra. Yes.

Acting Chairman Norwood. Does a common sense standard mean that it is not political?

Mr. DeSeve. The contracting officers in question are not political. They are career civil servants, I have to say, in the overwhelming majority of the cases. I don't have contracting officers per se who are political appointees. There may be some. The large majority are not.

Acting Chairman Norwood. Do you believe, Ms. Williams, that the contracting officers are nonpolitical and don't very much care for this new thought?

Ms. Williams. The majority of the contracting officers are career public service officers, as Mr. DeSeve said. I think that they, when looking at the kinds of things as we discussed under current law, look at the whole range of issues to make a determination. And if a determination is made that a contractor is not presently responsible, we have a mechanism in current law to address that, for the contractor to respond to that.

If I may, I would just comment on the question that Mr. Hoekstra asked. I think if you look at the GAO report, I haven't seen anything in that report that comes to the conclusion that these contractors who are identified as having had violations of labor laws in any way failed to perform their contractual responsibility or failed to deliver the goods or services that were required under the contract. And so there does seem to be an absence of a problem to be addressed by these proposed regulations.

Chairman Hoekstra. Will the Chairman yield?

Acting Chairman Norwood. Yes.

Chairman Hoekstra. I think the reason we are doing the hearing is that we don't know anything on this proposal. It does appear to be very political to us. We have asked the administration for input. We have asked them if there is a real problem out there, and if so, then let's work together on solving it. But at the same time, we see an executive agency that is willing to talk to certain groups about this in pretty great detail, but not to outline or work with Congress on solving this problem, and that is unacceptable.

I am going to join my colleague, Mr. Norwood. I don't think that necessarily you have got the latitude to do this, and you don't have the latitude to do it if you can't identify or quantify the problem for us. I am really wondering why we are spending this kind of money on it, and we don't know how much, but the problem with this is it doesn't seem to me look like you are solving a real problem. To me it looks like you are creating a political issue, and that is why you have the controversy surrounding it. You haven't outlined the problem for us and you haven't outlined much of a solution for us, and that is kind of disappointing, especially after 18 months of working on this.

Acting Chairman Norwood. I wouldn't say that we don't know anything. We know that this announcement was made by the Vice President in a political speech to the AFL-CIO. That makes one tend to believe politics is pretty well involved in it.

Mr. DeSeve, you don't like the term "blacklist," but isn't it a blacklist when the AFL-CIO solicits its members for a list of companies to be used to support these regulations with the administration? I will refer to Mr. Sweeney's memo where he says, "In order to secure final issuance of the procurement regulations," as if we needed to work with the executive to do that, "and to defeat the campaign that is coalescing against them and the proposed executive order, it is imperative that the AFL-CIO affiliates bolster the case in support of these changes with specific information and examples of corporate lawbreaking or bad practices that justify these regulations, and successful experiences with project labor agreements in both the private and public sectors," and I will add that memo to the record.

Doesn't that have the scent of being able to blacklist people who don't do right?

Mr. DeSeve. We totally reject the idea of blacklisting. We have indicated the purpose of the clarifications is to give the contracting officer an ability to use information and make a determination. We are totally against blacklisting, and I think that any comment that we are in favor of blacklisting is just wrong.

Acting Chairman Norwood. Isn't it blacklisting when unions write the administration to say a particular company with whom they are negotiating should be declared ineligible for government contracts based on the proposed regulations? And I will submit to the record a letter from the IUE in which they say, "To that end, it would benefit all parties if the Clinton-Gore Administration would make known its intentions of enforcing the spirit and the letter of the new policy initiative you announced in Los Angeles" at that non-political meeting.

Now, doesn't that give you the sense, maybe you don't think that it is blacklisting, but somebody seems to think that it might be a good way to blacklist?

Mr. DeSeve. We are protected by our Constitution and the right of free speech, and any more than the web site of the National Alliance Against Blacklisting where we have a statement that says in government, bureaucrats, plaintiffs lawyers, competitors, disgruntled former employees and otherwise can victimize, and so on.

The union is entitled to say whatever they want. We are entitled to reject any notion of blacklisting.

Acting Chairman Norwood. Well, I agree. Thank God for the Constitution. It separates the branches of government. Maybe we can keep them that way.

You mentioned that the administration is thinking of applying its proposals to various laws and not just the labor and employment laws. This is the first I think any of us have heard of this, and it is certainly not what the Vice President reportedly told the AFL-CIO. You also spoke of how you are thinking of adding some examples of what would constitute an unsatisfactory record of integrity and business ethics.

Where did Mr. Sweeney of the AFL-CIO get the idea, as he sets out with as much detail in his March 25, 1997 memo that I referred to and just put into the record, that these would be amendments that expressly provide that a satisfactory record of employment practices is a component of the regulation? Where would he come up with_

Mr. DeSeve. I don't know, sir.

Acting Chairman Norwood. I had a hunch_

Chairman Hoekstra. Would the Chairman yield?

Acting Chairman Norwood. Yes.

Chairman Hoekstra. Who is the point person in the administration on this?

Mr. DeSeve. What we try to do is have a committee be the point person. That is a terrible answer for you. The Office of Federal_

Chairman Hoekstra. I kind of expected it, but go ahead.

Mr. DeSeve. The Office of Federal Procurement Policy's administrator will be the person who sends the proposal to the FAR counsel. So in that case the administrator is the responsible Federal official for transmitting that information.

Chairman Hoekstra. So who would have briefed the Vice President on the parameters of what these proposed regulations might be prior to his speech?

Mr. DeSeve. I don't know the answer to that.

Chairman Hoekstra. Have you read the briefing that he got?

Mr. DeSeve. I have not, and I wasn't there to brief him. I didn't have the responsibility to brief him at that time. I don't know the answer.

Chairman Hoekstra. Is there a file of records of how this thing has evolved over the last 18 months from where you were to where you are today announcing it is going to be a number of different laws?

Mr. DeSeve. I don't know. There may be such a file.

Chairman Hoekstra. Do you have a file?

Mr. DeSeve. The only file I have is recent information. We all have files in our offices.

Chairman Hoekstra. Is there a committee meeting on this on a regular basis?

Mr. DeSeve. No, sir, not that I know of.

Chairman Hoekstra. There is not a committee meeting? No wonder you don't know the cost or the time. I mean, I am trying to figure out_

Mr. DeSeve. It is just one of a number of issues that we deal with. There are certainly working groups that have worked on this over time. There is no formal council or committee that meets on this issue.

Chairman Hoekstra. Who is drafting this stuff, then, the new rules?

Mr. DeSeve. It has been done within the Office of Federal Procurement Policy.

Acting Chairman Norwood. Who reports what you are drafting to whom? Who makes the final decision these will be our new regulations?

Mr. DeSeve. It will be a decision that the administrator of the Office of Federal Procurement Policy makes, in consultation with his colleagues within OMB and the rest of the executive branch, and we will expose those to the FAR counsel and they will then be put in the Federal Record.

Acting Chairman Norwood. Does Erskine Bowles have any say-so on this?

Mr. DeSeve. I have not consulted him on it. He certainly has a say-so about virtually everything that happens within the administration.

Acting Chairman Norwood. So he will have to sign off on the regulations?

Mr. DeSeve. I don't know if there is any final sign-off procedure that involves Mr. Erskine Bowles or the President.

Acting Chairman Norwood. I wouldn't put my name on it either.

Mr. DeSeve. That wouldn't be the course of normal action within the Office of Management and Budget.

Chairman Hoekstra. Say the Chairman and I wanted to get some more information, where we would go and who would we talk to?

Mr. DeSeve. Within the administration?

Chairman Hoekstra. Yes.

Mr. DeSeve. You would talk to me and you would talk to the administrator of the Office of Federal Procurement Policy, the acting administrator. We would be happy to talk to you about it.

Chairman Hoekstra. He could tell us who is drafting it and when we might see something?

Mr. DeSeve. It is being drafted within the Office of Federal Procurement Policy, and we have been working on this thing for a while and it is going to take a little longer, and I wish I could be more specific than that. Then I could have given it to you today and I wouldn't have to testify in a speculative way.

We always run a collegial, consultative process with our friends in the White House, and we are continuing to do that.

Chairman Hoekstra. But you can't tell us who all those people are and when you get together?

Mr. DeSeve. There is a working group and they come and go. Sometimes we will have folks from Counsel's Office, and we have folks from the Domestic Policy Office and others. There is no structured group, as far as I know. I have never been in a meeting of a structured group.

Chairman Hoekstra. Do they keep minutes?

Mr. DeSeve. I have no idea. I don't know.

Chairman Hoekstra. It may be a while before we see anything.

Acting Chairman Norwood. Mr. DeSeve, since these comments are to guide you a little bit, if you will take back to the committee that if you happen to issue these regulations after November 4, Mr. Hoekstra and I are both going to be here next January and we will bring this up again. If you are going to issue the regulations, you really ought to do it before Congress adjourns so we can get a shot at it.

Let me ask you a question. These blacklisting regulations are only going to be examples in the Federal Acquisition Regulation. What would be the legal status of an example? Do examples in the regulations rise to the level of the law? What is the point of just having examples?

Mr. DeSeve. We are trying to assist contracting officers in understanding how to interpret the current provisions in terms of integrity and ethics.

Acting Chairman Norwood. So you are just being helpful, it is not really a regulation that then in turn is actually a law? You are just giving them some notes to help them?

Mr. DeSeve. We are not trying to make any fundamental changes in the Federal Acquisition Regulation. We are simply trying to provide additional guidance to contracting officers.

Chairman Hoekstra. I think one of these days we are going to have a hearing on the process within the executive branch and how they develop this stuff. That would be fascinating.

Acting Chairman Norwood. Let me_

Chairman Hoekstra. But I would like to thank the witnesses for coming in. And I mean that in all seriousness. This thing has been around for 18 months, and for you to tell us you don't know who the committee is, that they come and go and they don't have minutes so we can't track how this stuff has evolved, it is an unbelievable business practice.

The first thing you ought to do is identify the problem that you are trying to solve, identify how serious that problem is, put together a team to solve and address the problem, give a deadline and a schedule and then there would be a record as to how it derived from the start to what we are going to see.

It really is an unbelievable process. If that is the executive branch and how it is working and how it is working on these regulations, you know, it is a problem.

Mr. DeSeve. Let me be very clear that the regulations are developed within the Office of Federal Procurement Policy. They are the responsibility for issuance of the administrator, and he consults in various ways with other individuals within the executive branch, without a formal committee. I believe that is what I testified to.

Chairman Hoekstra. And there are no minutes or a record of how they evolved, or not one that you are aware of?

Mr. DeSeve. Not one that I am aware of.

Chairman Hoekstra. Okay.

Acting Chairman Norwood. Let me conclude and wrap this up. I would like for all of you to understand that those of us who love the Constitution may be a little jittery about the blacklisting proposal because we are hearing about a good guys, bad guys list, and bureaucrats closed up in a room somewhere on Pennsylvania Avenue deciding who in this country gets to participate in the whole effect, and we are nervous that this is part of it.

Mr. DeSeve, I appreciate what you said, that this hearing and the comments here will serve to help guide you and whoever is putting together this magical list. And I have some last thoughts before we adjourn and they are very brief, and I am going to read it very slowly so I can say it correctly, and I hope that you will take this back.

I get the strong impression that the White House doesn't like what the legislative branch is doing or not doing, so now the executive branch is trying to legislate by royal decree. It also seems to me that the executive branch does not believe that the judicial branch is doing enough to punish those who break the law, so now the executive is going to punish by royal decree.

So I ask you to take this message back to the White House. The American people have not elected a king nor do they want a king. You can tell Mr. Gore that until the American people decide that they want a king, we are going to fight these royal decrees every way that we know how.

Thank you all for participating in this hearing. You have been very kind and patient.

[Whereupon, at 3:15 p.m., the subcommittee was adjourned.]