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G. Edward Deseve - August 6, 1998

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AUGUST 6, 1998

Mr. Chairman and Members of the Subcommittee:

I am before you today to discuss H.R. 4244. I would like to address three matters in particular: (1) performance measurement and acquisition workforce training; (2) the Government's acquisition of commercial support services; and (3) the proposed moratorium on the application of the CAS to FEHBP contracts.

Performance Measurement and Acquisition Workforce Training

Let me begin by addressing the provisions on performance measurement and acquisition workforce training. While the Administration shares the Committee's goal of ensuring the quality and professionalism of the Government's acquisition workforce and measuring the performance of procurement operations, the Administration opposes those sections of H.R. 4244 that would establish a new statutory basis for measuring progress in procurement performance and would require reporting by agencies that allocate greater than 50 percent of their budget to procurement programs. Section 6 of the Office of Federal Procurement Policy (OFPP) Act already assigns the development of government wide procurement system standards to OFPP. Working with OFPP, the President's Management Council commissioned the Procurement Executives' Working Group to develop agency procurement system performance measures. A menu of 54 measures was established. Agencies selected measures from the list based on their individual missions, organizational structures, types of procurement, and availability of data collection systems. OMB has made increased use of performance based service contracting a priority management objective requiring regular progress reports from the 20 agencies that award the most service contracts. OMB also is committed to working with the agencies to determine whether other core performance measures should be required. In addition, certain agencies submit specific performance measurement information as part of their annual performance plans under the Government Performance and Results Act (GPRA).

Thus, we believe that the performance measurement sections of proposed H.R. 4244 would duplicate existing requirements for the establishment of government wide procurement system standards already contained in both the OFPP Act and GPRA, and would impose potentially burdensome and duplicative reporting requirements.

The Administration also opposes those sections of H.R. 4244 which address the Government's acquisition workforce. The Administration shares the goal of ensuring the quality and professionalism of the Government's acquisition workforce. Rather than reflecting an emphasis on the goals of flexibility and streamlining of personnel policies, these sections would instead impose rigid and inflexible personnel, training, and associated budgetary policies upon agencies. This would detract, rather than enhance, their ability to manage and train their acquisition workforce. These sections would also drain limited training funds from the various agencies in order to enhance the budget of the Federal Acquisition Institute (FAI), a small subdivision of the General Services Administration. Proposals to increase funding for FAI should instead be addressed through the regular budget process. The bill would also assign to OFPP, an operational role in the funding and direction of FAI. This is not an appropriate role for an office whose primary mission is to develop and oversee broad procurement policies. The Administration believes that the issues raised in the acquisition workforce sections of H.R. 4244 are better handled by administrative action tailored to each agency's specific needs, rather than through inflexible statutory requirements.

In addition to these basic concerns about the acquisition workforce provisions of H.R. 4244, the Administration also notes that neither FAI nor the Federal Acquisition Regulatory Council has the expertise to determine functional training requirements for members of the Government's acquisition workforce beyond contracting personnel. H.R. 4244 would also upset many of the Administration's recent initiatives designed to improve the education and training of the Government's contracting workforce, including activities sponsored by the Department of Defense, the Office of Personnel Management (OPM) and OFPP.

The Federal Activities Inventory Reform Act

I would now like to discuss the provisions of Title II of H.R. 4244, entitled the "Federal Activities Inventory Reform Act of 1998" or the "FAIR Act." As you know, the Government's acquisition of commercial support services has been the topic of extensive discussions involving the House and the Senate, the Administration, the private sector and the unions who represent Federal employees. The Administration has urged the Congress to ensure that any legislative initiative in this area contributes to the process of expanding opportunities for public-private competitions.

As a part of these discussion, we developed a set of fundamental principles for the development of legislation in this area. First, the legislation needs to promote competition to achieve the best deal for the taxpayer - not simply to outsource. Second, the legislation needs to establish the principle that it would not increase the level of judicial involvement in the Government's management decisions as to whether or not to outsource or how that comparison is conducted. Third, the legislation must recognize that current and extensive OMB Circular A-76 guidance to promote a level playing field is already in place. Any changes to the management documentation, employee participation, costing and source selection rules for the competitions must be well understood so as to be enforceable and remain impartial. Fourth, the legislation must recognize the complexities of public-public and public-private competitions. Fifth, the legislation must be fair and equitable to all interested parties. One-way competition is unacceptable. Sixth, the legislation must view public-public and public-private competition in the context of our larger reinvention effort. Outsourcing is only one management tool to reinvent and improve Government performance. We must not treat competition as a variable independent from our other reinvention and management improvement efforts. And finally, it would be inappropriate and may, in fact, be detrimental, if the legislation were to require the head of each agency to undertake competitions in accordance with a schedule mandated in law. Such schedules are likely to be extremely administratively burdensome and may preclude a mix of reinvention, re-engineering, consolidation, privatization, and cost comparison efforts.

The FAIR Act provisions do not violate these principles. In our view, the FAIR Act provisions serve to reinforce ongoing efforts to improve the identification and review of support activities that are commercial or subject to contract. Agencies are already reviewing which support activities are: (1) inherently governmental and cannot be contracted out any time, any place or for any reason; (2) commercial and subject to contract, but are specifically exempt from the cost comparison requirements of the Circular A-76 for reasons of, for example, the national defense, patient care, or other specified reasons; (3) commercial and which should be competed with public and private sector offerors on the basis of quality and cost; and (4) commercial, but must be retained in-house -- for now -- for reasons that need to be explained by the agency, including the involvement of that function in a larger re-engineering, reinvention, consolidation or privatization review.

In essence, the FAIR Act preserves our ability to increase opportunities for public-private competitions and permits us to achieve the quality improvements and cost reductions we all seek in the acquisition of commercial support activities. Accordingly, the Administration would not object to passage of the FAIR Act provisions.

Proposed Moratorium on the Application of CAS to FEHBP Contracts

Turning to the third issue, the Administration opposes those provisions of H.R. 4244 that would preclude the application of Cost Accounting Standards (CAS) to experience rated contracts awarded under the Federal Employees Health Benefits Program (FEHBP). Various provisions of CAS have applied to FEHBP contracts since the 1980s. Recently, the Blue Cross and Blue Shield Association has sought to stem application of certain CAS provisions to their FEHBP contracts. CAS, and its underlying cost accounting principles, are applied to all contractors (including FEHBP contractors) that perform under negotiated, cost-based pricing arrangements with the Federal Government in order to ensure that costs are properly allocated to the Federal Government, and, in the case of the FEHBP, to the Federal employees and annuitants who pay more than one-quarter of the premium costs.

Congress has already provided in statute for a formal waiver process that appropriately considers circumstances that are so unique as to make the application of CAS inappropriate. For this reason, the Administration would also oppose any language imposing a temporary moratorium on application of CAS to FEHBP carriers pending future action to be taken by the CAS Board Review Panel. CAS waivers and exemptions should only be granted upon a thorough investigation and evaluation of the factual and technical merits of a specific accounting situation by the CAS Board. The proposed statutory CAS exemption for FEHBP contractors does not meet this important criterion.

Mr. Chairman, this concludes my remarks. I will be pleased to answer any questions that you or the other Subcommittee Members may have.

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