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STATEMENT OF G. EDWARD DESEVE ACTING DEPUTY DIRECTOR FOR MANAGEMENT OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE JOINT HOUSE AND SENATEHEARING ON PROPOSED REVISIONS TO
S. 314/H.R. 716, "THE FREEDOM FROM GOVERNMENT COMPETITION ACT"
March 24, 1998
INTRODUCTION
Thank you Chairman Brownback and thank you Chairman Horn. I am here to
discuss proposed
revisions to S. 314, currently being cited as the "Fair Competition Act of
1998," and to H.R. 716,
currently being cited as the "Competition in Commercial Activities Act of
1998."
We share the goal of seeking the most efficient and cost-effective source for the provision of commercial support activities required by the Federal Government. Five years ago this month, the President announced and the Vice President led an effort to fundamentally change the way Government operates.
At the time it seemed almost impossible. Red tape, poor financial and
management systems, rigid
hierarchies, poor performance incentives, a procurement system in desperate
need of repair,
systemic problems in our ability to acquire and integrate information
technology, and senseless
rules and procedures separated Federal employees from managers; separated
managers from their
missions, their responsibilities and their employees; and separated the
taxpayer from their
Government. Today, reinventing Government is the longest running, most
dramatic and most
successful government reform effort in our history. Together, we have
streamlined our
infrastructure, eliminated business lines, created partnerships with our
employees to contribute to
reform, eliminated red tape, changed business practices, eliminated
duplication and, yes, opened
our commercial support activities to significantly expanded levels of
competition. As of the end
of FY 1997, the Administration had cut the civilian Federal workforce by
over 316,000
employees, creating the smallest Federal workforce in 35 years and as a
share of total civilian
employment, the smallest Federal workforce since 1931. Almost all of the
14 Cabinet
Departments have cut their work forces; only the Justice and Commerce work
force is growing.
Through these and other reinvention efforts, the Administration has saved
$137 billion over the
last five years.
We have worked with you to improve our financial and management systems
through the
implementation of the Chief Financial Officers Act. We have worked with
you to improve our
performance standards through the Government Performance and Results Act.
We have worked
with you to reduce the burdens, delay and costs associated with the Federal
procurement system
through the Federal Acquisition Streamlining Act and the Clinger-Cohen Act.
And, we worked
with you to expand the opportunities for public-public and public-private
competition through the
March 1996 OMB Circular A-76 Revised Supplemental Handbook and the
Government
Management Reform Act. We recognize that continued efforts are required in
each of these areas
and have begun initiatives to better integrate budgeting with performance
planning and reporting.
The key to this success has been our ability to overcome the rhetoric
and to work together to
identify needed reforms. In our view, the House and the Senate drafts
contain a number of
important improvements over last year's "Freedom from Government
Competition Act." We
appreciate that the revised bills no longer center on who may or may not be
eligible to perform
Federal work. Nothing is more "unfair" than to limit or otherwise
arbitrarily exclude a viable
offeror (public or private) from the competitive process. Each of us seeks
to expand the level of
competition for both in-house and contracted work in an effort to improve
quality and reduce the
cost of services to the taxpayer. This process works. The differences
that remain are not about
the goals, but rather how to best achieve them.
The process outlined by the March 1996 OMB Circular A-76 Revised
Supplemental Handbook
was developed through more than 40 years of give and take and currently
represents the input of
the agencies, employee groups, large and small businesses and congressional
sources. It was also
developed in conjunction with the other management, budgetary and
procurement improvement
initiatives noted above. In the Department of Defense, over 150,000 FTE
have been scheduled
for competition with the private sector over the next five years. This
would be the largest number
of in-house FTE ever placed under review for competition and we expect that
this number will
grow, both in Defense and within the civilian agencies, over the next few
years.
Any legislation should contribute to this process and move it forward.
We are concerned that
rather than build on what we have, many of the proposed revisions try to
modify and create an
overly simplistic process by creating new rules for what should be
inventoried, creating mandatory
competition schedules, creating new prohibitions regarding agency
competitions for contracted
work, broadly defining new costing requirements, promulgating new rules for
the operation of
interservice support agreements, and imposing significant new levels of
administrative, Inspector
General, Government Accounting Office and even judicial oversight.
FUNDAMENTAL PRINCIPLES
Since we do not have a single bill to react to, let me discuss some of
the fundamental principles
that a final bill should embody, including some aspects that we would hope
could be avoided.
First, the Government must be permitted to choose the alternative --
public or private -- which is
the most cost effective and in the best interest of the taxpayer. In so
doing, the process must be
fair and equitable to all interested parties. The customer agency, the
reimbursable public offeror,
the employees and the private sector should all have access to a level
playing field to compete for
the performance of all Federal commercial support requirements. We do not
care who does the
work! We do care, however, that the decision process is fair, reasoned and
that it results in lower
costs to the taxpayer. Legislation must not restrict the opportunities for
public offerors to
participate in the process or distort the level playing field. Work must
be able to be converted
both from in-house to contract and from contract to in-house performance.
Second, any legislation should avoid judicial involvement in the
management decision regarding
whether or not to outsource. This includes avoiding giving jurisdiction to
the United States Court
of Federal Claims to render judgement on omissions from the list of
commercial activities. In
addition to raising a number of questions regarding the authority to
determine what is inherently
governmental, we believe that the proposal will result in a large number of
legal filings and delays
to the development of inventories, schedules, and existing and prospective
competitions. While
we do not think it appropriate to provide for judicial review of omissions
from, or inclusion on,
commercial inventories, it certainly would be inappropriate to allow
contractors to challenge
omissions while not allowing employees to challenge the inclusion of their
work on the list. No
legislation should allow the courts to enter into a review of the
managerial, cost accounting and
procedural aspects of an agency's implementation procedures.
Third, the management documentation, employee participation, costing and
source selection rules
for the competition must be well understood so as to be enforceable and
impartial. Generalities in
these areas are not helpful. In addition, the cost comparison process
itself should be efficient.
For example, public-private competitions should not require the
inclusion of all "direct and
indirect costs" in the public offer. There are many overhead costs that
will not change regardless
of whether the work is performed by in-house or contract employees. Where
various costs would
not be affected by a conversion to or from in-house or contract
performance, they should be
excluded from the cost comparison. Detailed, consistent and balanced
managerial and costing
guidance is already provided by Circular A-76. In our view, the inclusion
of "all direct and
indirect" costs biases the decision to result in a conversion to contract,
without any savings to the
taxpayer and may result in higher overall costs. Competitions should be
based on the inclusion of
all "comparable direct and indirect costs." Cost is not
the only issue here. Nevertheless, leaving
the detailed management restructuring, costing and administrative review
procedures up to each
individual agency or to the courts is not recommended.
Fourth, source selection processes must permit efficient and effective competitions between public and private offerors for work presently being performed by the Government or by a private contractor. We will continue to make available to agencies techniques -- including best value competitions -- that are impartial and build on the important acquisition reforms which your Committees have helped to bring about. We would have concerns about including internal management issues in the Federal Acquisition Regulation, such as documentation requirements, internal employee participation, and the development of the Government's most efficient organization. In addition, employees must be assured that they can fully compete to keep their jobs. We would have concerns with any legislation that excludes Federal offers.
Fifth, when an activity currently being performed in-house is converted
to performance by
contract (including contracts awarded by another Federal agency) the
in-house employees must be
afforded the opportunity to compete to retain the work. Permitting
conversion without
competition reduces the number of viable competitors, may adversely affect
small business,
creates new and inappropriate incentives on reimbursable activities to
outsource, and restricts an
agency's ability to select the most effective source.
Finally, we must acknowledge the other reinvention and management improvement initiatives that are ongoing and not must delay or cause unnecessary administrative burdens upon the agencies. For example, the exemptions from the competition requirements should be comparable to those currently provided in Circular A-76. Exemptions do not exist in the drafts to permit the conversion of work to preference eligibles without a competition, nor do grant agreements or other non-profits appear to be excluded, as a matter of law. We would also have concerns with legislation that required the head of
each agency to undertake
competitions in accordance with a schedule mandated in law. We are
concerned that such
schedules could be unduly burdensome and may preclude agencies from
considering a mix of
reinvention, re-engineering, consolidation, privatization, and cost
comparison efforts. For those
agencies which may have large inventories of commercial activities
performed by Federal
employees, such as DOD, VA, USDA, and Interior, compliance with the
schedule requirements of
the House and Senate bills will require additional staffing and contract
resources. As agencies
seek lower costs and best value support service offerors, they will test
and improve their in-house,
contract, and franchise (cross-servicing) support mix. Rather than
mandating cost comparison
schedules, we recommend that we allow the forces of declining budgets and
the market to require
that these competitions are conducted. This approach too is reflected in
the current Circular A-76.
CONCLUSION
In conclusion, I have tried to point to some of the principles that we
would all want to draw on.
We do not believe that the proposed revisions to S. 314 and H.R. 716 will
achieve the quality
improvement or cost reduction goals that I know you are seeking. In our
view, we should not
treat competition as a variable independent from our other reinvention and
management
improvement efforts. Any legislation addressing the provision of
commercial support activities
through public-private competitions must build on our accomplishments to
date (including the
important acquisition reforms that we have achieved with your help) and
help us to develop long-term incentives to keep the agencies reinventing
themselves and searching for more effective
service providers. Proposed legislation that would establish a new model
of Federal management,
must not be so general as to be meaningless to Federal managers or so
specific as to be inflexible
and result in additional administrative burdens and delays. That will be a
very difficult thing for
legislation to achieve in this area.
Federal employees are some of our nation's most highly trained and
dedicated employees. They
operate within a complex system of rules, regulations and laws. They
respond to a vast array of
missions, public concerns and operational requirements. They deserve, as
does the private sector,
the opportunity to compete for their jobs on a fair and level playing
field. This means that the
managerial complexities of a public-public and a public-private competition
be recognized. We do
not believe that this legislation meets that requirement and we are
concerned that the proposed
revisions could result in higher costs for the taxpayer.
Chairman Brownback, Chairman Horn that concludes my prepared statement. I would be happy to address any questions that you might have.
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