2. REQUIRE PUBLIC-PRIVATE COMPETITION: The TRAC Act would prevent agencies from contracting out new work and work performed by federal employees without public-private competition. The Department of Defense (DoD) recently admitted that less than one percent of its contracts are first subjected to public-private competition, despite the fact that, according to GAO, federal employees win 60% of the competitions actually conducted. Non-DoD agencies conduct virtually no public-private competitions. That is, almost all work is contracted out without public-private competition. And that¡s either work federal employees are doing or work federal employees could do. Federal employees deserve to compete in defense of their own jobs and compete for work that they can do. Agencies can do more efficiently in-house much of the work that is currently contracted out without public-private competitions, and save money for the taxpayers.

3. ABOLISH ARBITRARY PERSONNEL CEILINGS: The TRAC Act would allow agencies to hire additional federal employees if they could do the work more efficiently in-house. Agencies continue to manage their federal employees by arbitrary personnel ceilings. Even when they have work, and money to pay for that work, they still contract out that work, often at higher costs, because they can¡t hire the necessary staff. There are already laws prohibiting the management of DoD¡s workforce by arbitrary personnel ceilings that are routinely ignored. Also, the Federal Workforce Restructuring Act of 1994 that reduced the federal workforce by 275,000¢reductions now exceed 400,000¢said that displaced federal employees could not be replaced by contractors, but that safeguard was also regularly violated, as senior Clinton Administration officials openly admitted.

4. CONTRACTING IN: The TRAC Act would require agencies to subject work performed by contractors to the same level of public-private competition as work performed by in-house staff. If public-private competition is good for federal employees, then it should be good for contractors, especially since the contractor workforce is estimated to be twice the size of the federal workforce, and contractors acquired most of their work without public-private competition in the first place. However, agencies compete and convert (give to contractors without public-private competitions) federal employee jobs almost exclusively. From 1995 through 1999, according to GAO, DoD conducted 286 public-private competition reviews. Only 8 of those reviews were for work performed by contractors. Federal employees won 5 out of 8 of those reviews¢and each time federal employees won, they saved money for the taxpayers, as even DoD admitted. Taxpayers could save much more if contractors were forced to defend their work to the same extent as federal employees. The one time during the Clinton Administration contractors were told that their contracts might not be automatically renewed, they magically came up with 15-20% savings. Imagine the savings to taxpayers if contractors were actually required to compete!

5. WAGES AND BENEFITS: Contracting out in the private sector and elsewhere in the public sector is used to undercut workers on their wages and benefits. The same thing is likely happening in the federal sector. The TRAC Act would require the Office of Personnel Management and the Department of Labor to conduct a comparison of federal employee and contractor compensation packages to be sure. GAO says they can¡t get this information without cooperation from the contractors¢who won¡t cough up the necessary data. The Economic Policy Institute recently reported that more than 1 in 10 contractor employees earn less than a living wage ($17,000 annually), the amount necessary to keep a family of four above the poverty line, but said that more research into the human toll from federal service contracting is necessary.

Officials at the Office of Management and Budget (OMB) have committed the Bush Administration to converting to contractor performance without public-private competition or subjecting to public-private competition at least 425,000 federal employee jobs over the next four years. As part of that effort, agencies must convert or compete at least 5% of the jobs listed on their Federal Activities Inventory Reform (FAIR) Act inventories during Fiscal Year 2002 and 10% of the jobs in Fiscal Year 2002. That¡s almost 128,000 federal employee jobs over the next two years alone. OMB is also attempting to pressure agencies to contract out jobs that senior agency managers have always insisted be performed by reliable and experienced federal employees by requiring that agencies publish lists of their inherently governmental jobs.

Please note the thoroughly one-sided nature of this pro-contractor agenda: Not a single contractor job is to be competed or converted. Agencies can fulfill their targets exclusively by direct conversions, i.e., simply giving federal employee jobs away to contractors. Moreover, no effort will be made to learn more about the efficiency and effectiveness of the burgeoning contractor workforce.

Mr. Chairman and members of the subcommittee, on behalf of the 600,000 federal employees across the nation and around the world represented by the American Federation of Government Employees, AFL-CIO, I appreciate this opportunity to impress upon the House Government Reform Subcommittee on Technology and Procurement Policy the importance of quick passage of the Truthfulness, Responsibility, and Accountability in Contracting (TRAC) Act (H.R. 721), legislation which has been cosponsored by 182 House lawmakers, including 20 on the Government Reform Committee.

Despite the legislation¡s widespread support, both last year and this year, both in the House as well as on the Government Reform Committee, this is the first hearing at which this important legislation will be discussed. Needless to say, this opportunity is long overdue.

Mr. Chairman, we were told last year that this hearing would be devoted to the TRAC Act. As it turned out, the TRAC Act was not even mentioned in the two-page letter sent to witnesses scheduled to speak at this hearing.

At the same time, Mr. Chairman, let me express my appreciation for your consistently strong leadership on many issues of concern to federal employees and their families: pay, health care, retirement, and child care in particular. I understand the conflict you feel on the controversial issue of federal service contracting. However, I think the more you study the TRAC Act the more you will find it addresses the many serious problems and inequities in the federal service contracting process.

Mr. Chairman, we speak and act in the long and looming shadow of the Bush Administration¡s scheme to throw up for grabs the jobs of at least 425,000 federal employees over the next four years, either through direct conversions to contractor performance (i.e., giving work to contractors without public-private competitions) or public-private competitions. Not since the "spoils system" at its very worst have the American people seen an incoming Administration attempt on such a massive scale to gut the civil service, replacing the working and middle class Americans in the federal workforce with their political supporters in the business community.

As AFL-CIO President John Sweeney pointed out recently to the General Accounting Office¡s (GAO) Commercial Activities Panel:

"After abuses too infamous to ignore, the nation as a matter of law and policy rejected a `spoils system¡ that allowed new presidents to replace their predecessors¡ workforces with cronies and political supporters. We adopted, instead, a civil service system to ensure that the American people would always be served by women and men who chose to devote their lives to public good rather than private gain.

 

"Rank-and-file federal employees provide the continuity, attention to details, and institutional memory necessary to ensure that the American people continue to be the best governed in the world. Because they are not political appointees, these civil servants can do their job of serving the public without fear or favor. And because civil servants are part of the enduring fabric of government, the American people can always count upon them for service, regardless of a President¡s political affiliation or ideological bent.

 

"The idea that as much as one-fourth of the federal government¡s executive branch workforce could be outsourced over the next four years raises grave concerns that, under the banner of `efficiency,¡ the nation could well return to a latter day `spoils system.¡"

 

Ironically, the much more limited use of OMB Circular A-76, the public-private conversion / competition process, by the Clinton Administration was a loss for taxpayers. In fact, A-76, after all of these years, is still a money-loser. According to GAO¡s DoD Competitive Sourcing: Some Progress, but Continuing Challenges Remain in Meeting Program Goals (NSIAD-00-106) report from last year:

Bush Administration officials appear to have learned little from their predecessors¡ mistakes. Not only are they dramatically expanding the scope of the process, they are extending its reach into every single agency.

Although I will devote the bulk of my statement to H.R. 721, I do want to express AFGE¡s support for the Federal Living Wage Responsibility Act (H.R. 917), legislation introduced by Representative Luis Gutierrez (D-IL) that has racked up almost 80 cosponsors, including several on the House Government Reform Committee.

This legislation would, as AFL-CIO President John Sweeney described at the hearing held earlier this month by the GAO Panel, "enable hardworking contractor employees to lift themselves and their families out of poverty." Of course, H.R. 917 would ensure that federal agencies also pay their direct employees at least a "living wage," i.e., the amount of money necessary to keep a family of four above the poverty line. Finally, this legislation would boost the benefits of low-income contractor and federal employees.

As the legislation progresses, AFGE will work with the sponsor to perfect the provision that boosts benefits for low-income federal employees to make it compatible with H.R. 1307, Representative Steny Hoyer¡s bill to increase to 80%, on average, the federal government¡s contribution towards health insurance premiums for federal employees.

There¡s a lot of talk about treating more humanely those federal employees victimized by the service contracting process, although such rhetoric is often used to advance proposals intended to make more palatable the direct conversion of jobs to the private sector without any public-private competition. However, if any lawmaker really wants to deal with the human toll of federal service contracting, they should support the prompt passage of the Federal Living Wage Responsibility Act.

As a former contractor lawyer, Mr. Chairman, I am sure you appreciate this obvious inequity: contractors¢and only contractors¢can take agencies to Federal Claims Court and GAO in the event of arbitrary service contracting decisions. This isn¡t just another instance of the service contracting process being stacked against federal employees. The failure to afford federal employees legal standing makes the process even more unaccountable. Decision-makers know that they can be held responsible only by contractors. This can¡t help but bias the process against federal employees, who are left with no recourse.

Over the past year, AFGE has taken five cases to court¢providing documented irregularities with the service contracting process totaling tens of millions of dollars¢only to be left with rulings that neither AFGE nor federal employees has legal standing.

Fortunately, Representative Charlie Gonzalez (D-TX) has begun the process of righting this historic wrong with the introduction of H.R. 2227, legislation that would give federal employees the same rights as contractors. H.R. 2227 would amend Title 10 U.S.C., to give appeal rights to DoD employees with respect to actions or determinations made under OMB Circular A-76.

Of course, Representative Gonzalez¡s legislation is just the beginning. Non-DoD employees should have the same rights as DoD employees. Moreover, much service contracting takes place outside of OMB Circular A-76. Federal employees should have legal standing in all service contracting situations in order to defend their rights. Finally, it may well be necessary to provide DoD employees with standing to enforce longstanding prohibitions against the management of DoD¡s civilian workforce by personnel ceilings. DoD is instead charged with managing its civilian workforce by workloads and budgets, not arbitrary numbers. However, these prohibitions have been broken, again and again. Given the failure of the Congress to prevent the practice of management by personnel ceilings from being perpetrated, that burden may have to be assumed by DoD¡s civilian employees.

The Government Reform Committee was one of three House committees to which H.R. 2227 was referred. It is imperative, Mr. Chairman, that you use your influence to waive this committee¡s jurisdiction and ensure that Representative Gonzalez¡s important legislation is included in this year¡s defense authorization bill. Moreover, Mr. Chairman, you should ensure that comprehensive, government-wide standing legislation is sent to the House floor for approval on an emergency-basis, alongside the TRAC Act. It is unconscionable that the Bush Administration would throw up for grabs the jobs of at least 425,000 federal employees, knowing that, as a result of an historical inequity, they have no appeal rights.

Over the last several months, we have heard a lot of talk about the GAO¡s Commercial Activities Panel. Specifically, contractors have told me that I should direct AFGE members to stop lobbying in support of the TRAC Act until the panel has submitted its recommendations to the Congress by May of next year.

I think that message is disingenuous. The Bush Administration is not waiting for the panel¡s recommendations. Officials at the Office of Management and Budget (OMB) have committed the Bush Administration to converting to contractor performance without public-private competition or subjecting to public-private competition at least 425,000 federal employee jobs over the next four years. As part of that scheme, agencies must convert or compete at least 5% of the jobs (42,500) listed on their Federal Activities Inventory Reform (FAIR) Act inventories during Fiscal Year 2002. During the next year, the quota will be 10% of the jobs (85,000). OMB is also attempting to pressure agencies to contract out jobs that senior agency managers have always insisted be performed by reliable and experienced federal employees by requiring that agencies publish lists of their inherently governmental jobs. This would, of course, constitute a unilateral expansion of the FAIR Act beyond its carefully delineated boundaries¢and one that would clearly require the enactment of additional legislation.

Please note the thoroughly one-sided nature of this pro-contractor agenda: Not a single contractor job is to be competed. Agencies can fulfill their targets exclusively by direct conversions, i.e., simply giving federal employee jobs to contractors. Moreover, no effort will be made to learn more about the efficiency and effectiveness of the burgeoning contractor workforce.

OMB is also preparing legislation behind-the-scenes to "require agencies to account for the full costs of their programs" in order to promote more contracting out, according to a May 15 article on the GovExec.com website. Interestingly, the contractors have waged an aggressive campaign over the last several years to weaken and even eliminate the cost accounting standards that agencies use to prevent contractors from passing on unallocable costs to taxpayers through the ever-popular cost-reimbursement and other flexibly priced contracts. Although contractors insist on transparency and disclosure with respect to federal employee costs, they strenuously fight any effort to ensure they comply with the same requirements. As part of its "true costs" legislation, will the Administration ensure even-handedness by defending and strengthening the cost accounting standards necessary to keep contractors honest¢or will it instead impose "true costs" only on federal employees and allow contractors to hide their actual costs to taxpayers?

In addition, the Administration, according to the Administrator of the Office of Federal Procurement Policy, in her pre-confirmation submission to the Senate Governmental Affairs Committee, is

"considering the cancellation of the existing Interservice Support Agreements Grandfather Clause found at Part 1, Chapter 2, paragraph A.5 of OMB Circular A-76. As currently written, reimbursable agreements that existed before October 1, 1997, can be continued and renewed without competition. Only new reimbursable agreements or expansions are subject to the competition requirements of the Circular. I believe competition for reimbursable work should be expanded to all reimbursable activities."

 

The requirement for competition for all interservice support agreements, when one agency performs a service for another service, is, obviously, a significant change of policy. Interestingly, Administration officials have criticized the TRAC Act for requiring public-private competition before new work is given to contractors. OMB Circular A-76 already requires that agencies¡ new interservice support agreements be subjected to competition. However, OMB, according to the OFPP Administrator, is on the brink of requiring that all interservice support agreements, both past and future arrangements, be subject to competition, which goes well beyond the TRAC Act¡s public-private competition requirement.

Due to the comprehensive nature of the Administration¡s pro-contractor agenda, it is disingenuous for contractors to demand that federal employees stop lobbying in support of the TRAC Act until the GAO Panel has finished with its deliberations. Given that the Administration and contractors are working hand-in-hand to sell off much of the federal government over the next four years, it would constitute unilateral surrender for federal employees to sit back and wait patiently for the panel¡s recommendations.

And, Mr. Chairman, I know that you are not waiting for the panel before attempting to move federal service contracting-related legislation. At the subcommittee¡s May 22 hearing, you revealed your determination to seek quick passage of a Services Acquisition Reform Act that will include, among other things, broadly expansive authority for agencies to enter into controversial share-in-savings contracts. Consequently, AFGE members know that the "wait-for-the-panel" excuse is one that will carry no weight in this subcommittee¡s deliberations.

As for the panel itself, we appreciate the hard work and attention to detail of Comptroller General David Walker and his staff. At the same time, we note that Mr. Walker, in his selection of the panel¡s members, was forced to labor under the constraint of the statute that established the panel. That means the twelve-member panel has a solid pro-contractor majority of four Bush Administration officials, two contractors, and one pro-contractor academic. National Treasury Employees Union (NTEU) National President Colleen Kelley and I represent the interests of federal employees and taxpayers. The three independent panelists are Comptroller General Walker, an academic from American University who served previously as NTEU¡s National President, and an academic from Harvard University.

AFGE was urging the Congress to require agencies to carefully track the costs of contractors, ensure that federal employees have opportunities to compete for work they are doing as well as for new work, abolish the use of arbitrary in-house personnel ceilings that prevent federal employees from competing for work, ensure that agencies emphasize contracting in to the same extent as contracting out, develop a better understanding of the human toll from service contracting, and provide federal employees with the same legal rights as contractors before the GAO Panel was established because those principles promote the interests of taxpayers and anyone who depends on the federal government for service. Regardless of the recommendations offered by the GAO Panel next year, AFGE will be fighting for those same principles.

H.R. 721 is, quite simply, our best hope of ending the human capital crisis, strengthening the administration of service contracts, and ensuring that the service contracting process is made more accountable to taxpayers and more equitable for federal employees.

The TRAC Act has five common-sense objectives:

I shall speak a lot about the Department of Defense (DoD) in my testimony. That is because DoD has the most experience with service contracting, spending the majority of service contracting dollars. It is also one of the few agencies that has over the last several years been subjected to more than cursory Congressional oversight of its service contracting because of the bipartisan concern generated over how service contracting has undermined readiness and failed to come even remotely close to achieving the savings goals established by its proponents. Mr. Chairman, your colleague, Representative Curt Weldon (R-PA), the chairman of the House Armed Services Committee on Readiness, referred to DoD service contracting at a March briefing as a "cesspool." However, because of the absence of strong oversight, the severe problems associated with DoD¡s service contracting are likely far worse in other agencies.

We don¡t even know how much DoD is spending on service contracting, let alone if those hundreds of billions of taxpayer dollars are being spent wisely. We do know that the cost to taxpayers for service contracting has increased dramatically. Over the last six years, Pentagon officials have systematically replaced federal employees with contractors, often regardless of whether or not it makes any sense. According to the Office of Personnel Management, the DoD civilian workforce fell from 966,000 to 682,000 in 2000. (Chart 1) Service contracting, on the other hand, increased from $39.9 billion in 1992 to $51.8 billion in 1999, according to the Inspector General (IG). (Chart 2) (As discussed below, GAO estimates that the annual bill for taxpayers for DoD service contracts is almost $100 billion.)

It is clear that the emphasis in DoD¡s service contracting crusade has been giving the jobs of federal employees to contractors, not in making sure that work has been well done.

Robert J. Lieberman, Assistant Inspector General for Audits, Department of Defense; "Federal Acquisition: Why Are Billions of Dollars Being Wasted?" (testimony before the House Subcommittee on Government Management, Information, and Technology); March 16, 2000.

One of the principal architects of DoD¡s massive transfer of work from federal employees to the private sector, Dr. Jacques Gansler, was sheepish when asked during a Senate Readiness Subcommittee hearing last year about the IG¡s damning report:

Jacques Gansler, Under Secretary for Acquisition & Technology, Department of Defense; "A Hearing on Acquisition Reform" (testimony before the Senate Subcommittee on Readiness); April 26, 2000.

GAO has weighed in as well, both with respect to service contracting undertaken pursuant to OMB Circular A-76 and service contracting generally.

"Efforts to improve the accuracy of data on savings from A-76 (public-private competition) studies at the time the studies are completed are warranted, as are efforts to assess savings over time. Both are key to establishing more reliable savings estimates and improving the credibility of the A-76 program amidst continuing questions in Congress and elsewhere."

 

General Accounting Office, DoD Competitive Sourcing (NSIAD 01-20), December 2000.

In an earlier report on A-76, GAO had noted that entries in the Commercial Activities Management Information System (CAMIS), the system that is supposed to be used to monitor contracts undertaken pursuant to the circular,

"are not modified and are being used continuously without updating the data to reflect changes in or even termination of contracts. DoD officials have noted that they could not determine from the CAMIS data if savings were actually being realized from A-76 competitions. Our work continues to show important limitations in CAMIS data™During our review, we found that CAMIS did not always record completed competitions and sometimes incorrectly indicated that competitions were completed where they had not yet begun or were still underway. We also identified where savings data recorded for completed competitions were incorrect based on other data provided by the applicable service."

 

General Accounting Office, DoD Competitive Sourcing: Results of Recent Competitions (NSIAD-99-44), March 2000.

According to a recent GAO report, DoD has chosen not to keep its commitment to the Congress to improve its system for reporting the costs of contract services.

"The Department of Defense (DoD) spends tens of billions annually on contract services¢ranging from services for repairing and maintaining equipment; to services for medical care; to advisory and assistance services such as providing management and technical support, performing studies, and providing technical assistance. In fiscal year 1999, DoD reportedly spent $96.5 billion for contract services¢more than it spent on supplies and equipment. Nevertheless there have been longstanding concerns regarding the accuracy and reliability of DoD¡s reporting on the costs related to contract services¢particularly that expenditures were being improperly justified and classified and accounting systems used to track expenditures were inadequate™

 

"™DoD has not developed a proposal to revise and improve the accuracy of the reporting of contract service costs. DoD officials told us that various internal options were under consideration; however, these officials did not provide any details on these options. DoD officials stated that the momentum to develop a proposal to improve the reporting of contract services costs had subsided. Without improving this situation, DoD¡s report on the costs of contract services will still be inaccurate and likely understate what DoD is paying for certain types of services."

 

General Accounting Office, CONTRACT MANAGEMENT: No DoD Proposal to Improve Contract Service Costs Reporting (01-295), February 2001.

In that last report, GAO even provided us with some rare comic relief in the "Agency Comments" section:

"DoD stated that the title of this report is technically incorrect and recommended that the title be changed to Update to DoD¡s Efforts on Reporting on Advisory and Assistance Service Costs. We believe that the title, No DoD Proposal to Improve Contract Service Costs Reporting, more accurately reflects DoD actions to address reporting problems." (Emphasis added)

 

Even Armed Forces Journal, a reliably pro-contractor publication, took aim in its May issue at the failure of the Pentagon¡s previous leadership to track the costs of contracting, firing one of its feared darts at

"former Secretary of Defense William Cohen¢for leaving his successor in a lurch. Cohen was a strong supporter of converting civilian-filled government positions to contractor-operated functions. The rationale seemed sound¢ostensibly, significant cash savings would be realized by the Defense Department through the more efficient business practices that private contractors would bring to many DoD activities. The trouble was, and still is, DoD is unable to show just how much (if any) money is being saved through the jobs-conversion scheme. Cohen told Congress in 1999 that he would come up with a reporting system to capture the data necessary to quantify the savings. He didn¡t do it."

 

As bad as the Pentagon is at tracking the costs of service contracting, DoD at least has some experience in this regard (although most of it could hardly be called instructive or worthy of emulation). Nevertheless, the Administration is directing non-DoD agencies to undertake massive increases in their service contracting without first establishing systems to reliably and accurately track their outsourcing costs.

To her credit, the new OFPP Administrator admits in her pre-confirmation submission that "agencies do not have a recurring system to adequately track A-76 savings over the long term." That is a stunning admission, given that the Bush Administration intends to use A-76 to convert or compete at least 425,000 jobs over the next four years. However, she also insists that "the federal government should carefully weigh the costs of developing an automated system to precisely measure these savings on a recurring basis, against the benefits of a precise measurement." Surely it is not too much to expect, Mr. Chairman, that agencies should be required to track the billions and billions of dollars spent on service contracting. Clearly, effective contract administration is one of the many additional costs of service contracting. Otherwise, service contracting becomes all about replacing federal employees with contractors, regardless of the expense.

H.R. 721 would require agencies to keep track of the costs and savings of its service contracting. For each service contract, the following cost information would be tracked and made public: the cost of federal employee performance at the time the work was contracted out, the cost of federal employee performance under a most efficient organization plan, the anticipated cost of contractor performance, the current cost of contractor performance, and the actual savings achieved by the contract.

If imitation is the sincerest form of flattery, then TRAC Act supporters should feel very flattered, indeed. Last year¡s defense authorization bill included a provision (Section 354) that required DoD to establish a TRAC-like inventory of all work involving 50 or more employees that has been subject to performance review (OMB Circular A-76, strategic sourcing, privatization, or any other analysis to determine whether the performance of work should be changed). For each such activity reviewed, the inventory is 1) tracking the cost of conducting the review; 2) comparing the cost of performance before and after the review; and 3) comparing the anticipated savings with actual savings, if any. Reviewed activities will be tracked for this information for at least five years. Reports from this inventory will be submitted to the Congress annually.

The TRAC Act would establish a similar system for all contracts in all agencies. The OFPP Administrator acknowledges that the federal government contracts out for $130 billion in services annually. Surely, it is not too much to expect that agencies track the actual costs of all that service contracting, especially given the persistent and longstanding problems with waste, fraud, and abuse in service contracting.

Of course, the cost-tracking requirement of the TRAC Act has already won outright flattery from the leader of a major service contracting group. According to the April 2 Federal Times, "(Contract Services Association Gary) Engebretson said he agrees with part of (H.R. 721) that calls for more reliable accounting systems to track the cost and savings from outsourcing." Mr. Chairman, the TRAC Act¡s cost-tracking requirement offers real hope that federal service contractors will finally be held accountable to the taxpayers.

Contractors are quick to insist that costs should not be the only criterion by which their work is judged. Although the outcome of any public-private competition process should always ultimately be decided on the basis of cost, there is no question that the quality of contractors¡ work should be scrutinized, especially given the increased use of performance-based service contracting. Although performance-based service contracting has been around for years¢and consistently failed to catch on¢it has become the acquisition establishment¡s magic bullet du jour, the long-sought solution to the waste, fraud, and abuse that is intrinsically part of service contracting. Performance-based service contracting, by emphasizing results at the expense of the process by which satisfactory results can be achieved and assessed, makes it particularly imperative that agencies be prepared to render informed judgments about the quality of their service contractors¡ work.

The TRAC Act requires agencies to describe for each contract the quality control process used by the agency in connection with monitoring the contracting effort; identify the applicable quality control standards and the frequency of the preparation of quality control reports; and then determine whether the contractor met, exceeded, or failed to achieve quality control standards.

Problem: Tracking the Size of the Service Contractor Workforce.

A former senior OMB official once said when asked about the size of the contractor workforce, "You can use any number you want. . . But whatever it is...it is a lot of people." Indeed, it is. Research by Paul Light of the Brookings Institution who is the author the ground-breaking book, The True Size of Government, indicates that the service contractor workforce is approximately 4 million employees. In contrast, there are just over 1.8 million executive branch federal employees. This means the service contractor workforce has grown to at least twice the size of the federal government's in-house staff.

The shadow workforce of contractors has been built up over many, many years. As Light has observed, the shadow workforce reflects in large part

"decades of personnel ceilings, hiring limits and unrelenting pressure to do more with less. Under pressure to create a government that looks smaller and delivers at least as much of everything the public wants, federal departments and agencies did what comes naturally. They pushed jobs outward and downward into a vast shadow that is mostly outside the public's consciousness."

 

OMB officials have long dismissed the need to document the size of the contractor workforce, both at the micro (i.e., number of workers employed under specific contracts) and macro (i.e., number of contractor workers employed agency-wide and government-wide) levels. "Numbers are not important," they blithely insist. "What really matters is how well the job is done." (Of course, because of the problems discussed above, we can¡t say how well contractors are actually performing.)

In documents ranging from the federal budget to the OMB Circular A-76 inventory, detailed information is kept on the number of federal employees, at both the micro and macro levels. Clearly, Bush Administration officials, like those who came before them, believe it is very important to maintain meticulous records about the size of the federal government's in-house workforce. However, they have historically professed no interest whatsoever in keeping the same statistics about the contractor workforce.

The government's ability to easily quantify its in-house workforce has put federal employees at a severe disadvantage vis-a-vis their contractor counterparts. Put bluntly, if the Administration and the Congress know who you are and where you are, they can hurt you.

Contrary to the assertions of OMB officials, numbers do count¢at least for federal employees. In order to ensure equity, the contractor workforce must be documented in a similar manner.

Of course, the importance of documenting the size of the contractor workforce is not just that it puts contractor employees at the same disadvantage in the budget process as federal employees. Light reminds us that, "More information about the size of the contractor workforce would also influence agencies' contracting out decisions."

For example, the Department of the Army determined after a comprehensive review of its records for fiscal year 1996 that it employed 224,000 contractor employees. Prior to conducting the research that went into the report, the Army had assumed it employed only 47,000 contractor employees. Analysts pointed out that the failure of the Army to

"take full credit for (its) level of contracting... could result in driving increased civilian manpower cuts that may compromise governmental control and erode critical technical and readiness capability in" important functions."

 

That is, the more an agency¡s managers understand just how much work has already been contracted out, the less likely they would be to contract out even more work.

Moreover, we cannot talk intelligently about what government does and what it needs to do without an accurate head count of the contractor workforce. As Paul Light concludes,

"It is impossible to have an honest debate about the role of government in society if the measurements only include part of the government. The government also is increasingly reliant on non-federal workers to produce goods and services that used to be delivered in-house. Not only does the shadow workforce create an illusion about the true size of government, it may create an illusion of merit as jobs inside the government are held to strict merit standards while jobs under contract are not. It may also create illusions of capacity and accountability as agencies pretend they know enough to oversee their shadow workforce when, in fact, they no longer have the ability to distinguish good product from bad™

 

"Expanding the headcount (to include, among others, contractor employees) would force Congress and the President to confront a series of difficult questions. Instead of engaging in an endless effort to keep the civil service looking small, they would have to ask just how many (employees working directly and indirectly for the government) should be kept in-house and at what cost. One can easily argue that the answers would lead to a larger, not smaller, civil service, or at least a civil service very differently configured."

 

The Department of the Army is to be commended for its development of a reliable, comprehensive and unobtrusive methodology for tracking the costs and size of its contractor workforce. It is unfortunate that some contractors and some of their allies in the acquisition establishment have worked so hard to kill this important initiative. The Army contractor inventory was established on December 26, 2000, after the usual publish-and-comment process. Comments from contractors were muted. According to the rule,

"The lack of adequate and reliable data on the missions supported and functions performed by service contractors, as well as the resources expended by the Department on these contractors on an Army-wide basis, has resulted in uninformed assumptions and decision-making™The capabilities provided by service contractors consume at least one third of the Department¡s obligation authority; and yet due to lack of reliable data, senior Army planners lack the ability to assess the total manpower capabilities within a function and major Army organization to the extent that the organization and function may rely heavily on contractor support."

 

In addition to tracking costs and size, the information collected would be used to determine the extent to which inherently governmental work had been given to contractors and whether readiness is undermined if commercial activities are contracted out to an excessive extent.

The statutory basis for the Army¡s contractor inventory includes:

1. 10 U.S.C. 129a [which requires DoD, in developing annual personnel authorization requests to Congress and in carrying out personnel policies, to consider particularly the advantage of converting from one form of personnel (military, civilian or private contract) to another for the performance of a specified job];

 

2. 10 U.S.C. 2461(g) (which requires DoD to annually submit to the Congress a report describing the extent to which commercial and industrial type functions were performed by contractors and include an estimate of the percentages of work by functions that will be performed by contractors and federal employees); and

 

3. Section 343 of P.L. 106-65 (FY00 defense authorization bill) (which required of DoD a one-time report on contractors by function, organization, and funding).

 

DoD has historically not complied with the first two statutes listed above because of inadequate information regarding its contractor workforce, a dereliction that can be corrected by the methodology used by the Army in its inventory.

Absent reliable data on which work is being performed by contractors and how much they cost, DoD is obviously unprepared to adequately comply with the statutory requirements in 10 U.S.C. 129a and 10 U.S.C. 2461(g) to consider shifting work from contractor performance to federal employee performance and to accurately report on which services and to what extent those services are being delivered by contractors.

This inadequate compliance is demonstrated by the sheer lopsidedness of the public-private competition process. For example, of the 286 OMB Circular A-76 reviews conducted by DoD between 1995 and 1999, less than 3% involved work performed by contractors. With respect to the 2461(g) reports, DoD¡s estimates as to the size of the contractor workforce have grown from 197,000 in 1996 to 734,000 in 1999, suggesting significant historical problems with compliance. (Chart 5)

The rule establishes basic contractor reporting requirements to identify the number and value of direct and associated indirect labor work year equivalents for contracted services in support of the Army. Generally, data submitted would be current, unless the contractor prefers to provide retrospective data, and be submitted to a secure website contemporaneously with requests for payment, although payment is not contingent upon compliance. Contractors that lack an internal payroll accounting system permitting compliance are exempted from the reporting requirement. To ensure that proprietary data is protected, reporting is required only at the functional level by organization.

The worst case cost estimate for Army¡s compliance is reportedly $15M annually, which is believed to be small in comparison with the cost of compliance with the extremely labor-intensive FAIR Act. Moreover, it would represent a very reasonably priced investment in more effectively administering DoD¡s $100B in annual service contracting expenses.

Here are the views of various officials and organizations:

"Professional Services Council President Bert Concklin told (Federal Contracts Reports) that the rule, while imposing an additional administrative burden, should not be harmful in light of the fact that it is not coupled with receiving payment."

 

March 21, 2000, "Army Rule Requires Service Contractors to Provide Labor Hour Data," Federal Contracts Report

(Note: This organization subsequently changed its views, perhaps when the utility of the inventory in tracking contractor costs and encouraging contracting in became too obvious to ignore.)

"Data on the full range of agencies¡ activities, whether performed by federal personnel or contract, could inform managers and other decision makers about how they are performing their mission and mission support activities, and how they have currently allocated their resources." (Emphasis added)

 

September 2000, "Competitive Contracting," General Accounting Office

"We are pleased with your™endorsement of the Army methodology for collecting contractor manpower and labor cost information as a pilot for the rest of DoD™(because it) addresses many of our concerns about the absence of an objective way of tracking the costs of contracted activities over time and the size and functional composition of the contractor workforce™We would like to be updated every six months on the status of DoD¡s implementation of the Army pilot. Upon completion of the pilot, we ask that you provide us your plans to implement the program throughout DoD™"

 

February 28, 2001, letter to the Pentagon from Representatives Curt Weldon (R-PA) and Solomon Ortiz (D-TX), chair and ranking member of the House Readiness Subcommittee

May 24, 2001, Presidential Transition Memorandum No. 6, National Academy of Public Administration

May 25, 2001, Testimony to the GAO Commercial Activities Panel by the Reserve Officers Association

Meticulous statistics are kept about federal employees, their numbers, their salaries, and their work. Virtually nothing, however, is known about the federal government¡s estimated four million-strong contractor workforce. The work of federal employees is transparent as a result of the budget process, the appropriations process, the FAIR Act, and the Government Performance and Results Act. Using the Army contractor inventory¡s methodology will allow agencies to fulfill the TRAC Act¡s requirement to track their contractor workforces.

As is common knowledge, Mr. Chairman, almost all work is given to contractors without any public-private competition. DoD, the agency considered to be the champion of public-private competition, nevertheless, almost never uses public-private competition before giving work to contractors. (Please see Chart 3.)

Jacques Gansler, Under Secretary for Acquisition & Technology, Department of Defense; Senate Report 106-53; December 26, 2000.

At the same time that DoD¡s civilian workforce has been significantly downsized, service contracting in DoD has increased dramatically.

"From FY 1992 through FY 1999, DoD procurement of services increased from $39.9 billion to $51.8 billion annually. The largest subcategory of contracts for services was for professional, administrative, and management support services, valued at $10 billion. Spending in this subcategory increased by 54 percent between 1992 and 1999."

 

Robert J. Lieberman, Assistant Inspector General, Department of Defense; "Federal Acquisition: Why Are Billions of Dollars Being Wasted?" (testimony before the House Subcommittee on Government Management, Information, and Technology); March 16, 2000.

That is, DoD has dramatically increased service contracting and, as discussed earlier, reduced its civilian employee workforce¢while almost never using public-private competitions.

There is actually even less public-private competition outside of DoD. According to GAO, in the handbook for the Commercial Activities Panel¡s organizing meeting, "OMB reports that one-tenth of one percent of civilian agency commercial activities has been competed using OMB Circular A-76." (Chart 6) It is important to keep in mind that non-DoD agencies may contract out for as much as $40 billion worth of services annually.

At the Department of Housing and Urban Development (HUD), for example, despite hundreds of millions of dollars worth of service contracting over the last several years involving work that has historically been performed by federal employees, the A-76 public-private competition process has never been used. HUD managers systematically invoke exceptions that allow contractors to acquire work without any public-private competition. And according to a Department of the Interior (DoI) internal memorandum, "it is DoI¡s policy to use exemptions to formal A-76 cost comparisons to the maximum extent possible."

Moreover, there is often little competition among contractors for work. The DoD Inspector General reported to the House Government Reform Subcommittee on Government Management last year that in excess of three-fifths of the contracts he and his staff surveyed suffered from "inadequate competition." Regardless of the level of private-private competition, 77% of the surveyed contracts had "inadequate cost estimates" that "clearly left the government vulnerable¢and sometimes at the mercy of the contractor to define the cost."

As you know, Mr. Chairman, the relative absence of private-private competition holds true with regard to information technology contracts as well.

"Most of the 22 large (information technology goods and services) orders we reviewed were awarded without competing proposals having been received. Agencies made frequent use of statutory exceptions to the fair opportunity requirement. Further, contractors frequently did not submit proposals when provided an opportunity to do so. Only one proposal was received in 16 of the 22 cases¢the 16 cases all involved incumbent contractors and represented about $444 million of the total $553 million awarded."

 

General Accounting Office, "Contract Management: Few Competing Proposals for Large DoD Information Technology Orders" (GAO/NSIAD-00-56), p. 4.

To her credit, the new Administrator of the Office of Federal Procurement Policy has pointed out the growing problems associated with private-private competition for service contracts.

"Because we are spending the public¡s money, there are some goals that cannot be compromised in the name of efficiency. Since the beginning of the (acquisition) reform movement, over a decade ago, I have not seen a serious examination of the effects of reform on competition, fairness, integrity, or transparency. As a result, I think we are seeing some serious competitive problems surface with the proliferation of government-wide contracting vehicles and service contracting."

 

Angela Styles, then the Nominee to be Administrator of the Office of Federal Procurement Policy, Hearing of the Senate Governmental Affairs Committee; May 17, 2001; p. 2.

Federal agencies need not be at the mercy of sole-source contractors, however. If GAO reports that savings are possible from individual A-76 competitions, and if OMB insists that savings are generated through A-76 competitions generally whether the work stays in-house or is contracted out, and if federal employees win 60% of the public-private competitions actually conducted, then federal employees should be competing for more work, both for their own as well as for new work.

If agencies were being run in the interests of taxpayers and the people who depend on the federal government for services, managers would be actively considering in-house performance of work. Would a firm in the private sector¢a big defense contractor, let¡s say¢automatically contract out almost all new work, as DoD does now? Of course not.

It¡s a homely metaphor but today, in the federal services marketplace, there are two shops, a civilian employee shop and a contractor shop. However, agencies never use the civilian employee shop¢no matter how much more effective we are, no matter how much more efficient we are, and no matter how much more reliable we are.

Of course, ensuring that federal employees have a right to compete for work is not just a matter of efficiency; it¡s a matter of equity as well. The obvious inequity raised by the failure to accord federal employees a right to compete has probably never been more apparent than this year for lawmakers in the Washington, DC, metropolitan area.

As a result of a loophole in the defense appropriations bill, the National Imagery and Mapping Agency (NIMA) is poised to give 600 jobs away to a contractor just because the firm happens to be at least 51% Native American owned. Although the work is almost entirely performed at NIMA facilities in Bethesda, MD, and St. Louis, MO, a significant minority of the East Coast federal workers live in Northern Virginia. Moreover, some of the affected NIMA employees actually work in Reston, VA.

This is the third time that DoD has used this loophole in the last two years, to the best of AFGE¡s knowledge. What lawmakers need to know is that at any time, at any place, for any line of work, DoD can take jobs away from civilian employees in their districts and give them to any contractor that claims to be majority-owned by Native Americans. AFGE, which is as diverse as the federal workforce it represents, bears no animus towards Native Americans. In fact, AFGE supports the use of small business set-aside contracts that benefit, among others, Native Americans. However, the Native American direct conversion process is fundamentally different, a public policy scandal that is as bad for federal employees as it is for taxpayers.

Thanks to the leadership of Representative Richard Gephardt (D-MO) and Senator Jean Carnahan (D-MO), NIMA¡s pork-barrel, sole-source, sweetheart contract is receiving the notoriety it deserves. We appreciate that several Washington, DC, area lawmakers, including Representatives Connie Morella (R-MD) and Jim Moran (D-VA), signed a letter of opposition to the direct conversion of the NIMA jobs and urged agency officials to allow the 600 federal employees threatened to compete in defense of their jobs.

Given your position as chair of the House Government Reform subcommittee that has jurisdiction over government-wide service contracting issues and your traditionally strong support for federal employees and their families, we were disappointed that you were unable to sign that letter.

Let¡s turn our attention to direct conversions on a much grander scale: OMB¡s scheme to review at least 425,000 jobs over the next four years for conversions (giving work to contractors without public-private competition) and competitions. In FY02, every single agency is required to convert or compete 5% of the federal employee jobs on their FAIR Act inventories. For the entire government, that works out to 42,500 jobs in FY02 alone. In FY03, that quota is hiked to 10%--that¡s another 85,000 jobs.

Because agencies have little experience with OMB Circular A-76, having long grown accustomed to simply giving work to contractors with no public-private competition, and because contractors, many of whom have become completely dependent on government contracts because of a failure to compete successfully in the private sector, want work now, not later, there is fear that agencies will fulfill their quotas by simply giving the federal employee jobs reviewed to contractors without public-private competition, i.e., through direct conversions.

According to an article posted on the GovExec.com website on June 6, OMB Deputy Director for Management Sean O¡Keefe, after declaring his devotion to public-private competition, was "asked what he would tell agencies that only use direct conversions to meet the 5 percent target, (and) O¡Keefe replied,

%Let¡s talk.¡"

That is, if agencies hit their combined target of 42,500 jobs in FY02 and 85,000 in FY03 through direct conversions, Mr. O¡Keefe would have a chat with those agencies afterwards. Mr. Chairman, that¡s not good enough for me. It should not be good enough for any friends of taxpayers and federal employees. I would hope that¡s not good enough for you. How desperately in need of reform is a system that allows agencies to give away tens of thousands of jobs without any guarantee of savings to the taxpayers?

Bush Administration officials talk a good game on public-private competition. For example, Mr. O¡Keefe in the article discussed above averred that he is "very much more an advocate of public-private competition, because it brings out the element of efficiency™There is no bias towards privatization or outsourcing™(We are trying) to get agencies to think about different ways of delivering their services."

However, the service contracting policies developed by Bush Administration officials betray their real positions. In spite of the rhetorical support of public-private competition, Bush Administration officials oppose allowing federal employees to compete for new work and for contractor work. And many, if not most, of the federal employee jobs reviewed will be given to contractors without public-private competition. That is, public-private competition only "brings out the element of efficiency" when federal employee jobs are subjected to public-private competition, but not when the work is new or performed by contractors. And even when the work is performed by federal employees, the "element of efficiency" doesn¡t always leap out; hence, the Bush Administration¡s strong emphasis on direct conversions. Put another way, the Bush Administration believes that agencies should "think about different ways of delivering their services"¢as long as it means federal employees lose their work to contractors, with or without public-private competition. That¡s not a philosophy of public-private competition. Rather, it¡s merely pork-barrel politics: rewarding contractors for past and future favors.

The sponsors of the TRAC Act don¡t just talk public-private competition; they mean it. The legislation would require that agencies subject work performed by federal employees as well as new work to public-private competition before it is given to contractors. The public-private competition requirement was carefully written to ensure that it would not apply to work performed by the private sector prior to the date of enactment, including the renewals of contracts in effect when the legislation becomes law.

Here are two recent precedents for this much-needed reform:

1. Interservice Support Agreements: As discussed earlier, the Bush Administration is on the verge of requiring that agencies automatically subject to competition all contracts between agencies for services, both new ones as well as old ones that are continued or renewed. The TRAC Act is not quite so ambitious. It would only require public-private competition for work performed by federal employees as well as new work before it is given to contractors.

    

2. The Recovery Audit Act (H.R. 1827): Mr. Chairman, I appreciate your support last year for the inclusion of a clear and unambiguous public-private competition requirement in this legislation for all recovery audit contracts. We also appreciated the support of House Government Reform Committee Chair Dan Burton. Thanks to you and Chairman Burton, as well as the strong support from Ranking Member Henry Waxman, the recovery audit legislation, with its clear and unambiguous public-private competition requirement, passed the House of Representatives by a vote of 375-0. We look forward to reassembling that same bipartisan coalition behind the TRAC Act¡s public-private competition requirement.

The TRAC Act¡s requirement that work currently performed by federal employees as well as new work be subjected to public-private competition before it is given to contractors would not just benefit taxpayers and everyone who depends on federal agencies for important services by ensuring reduced costs and real choices in service delivery. It would have many additional benefits as well:

1. Reduced Times for Public-Private Competitions: Currently, agencies have no incentive to become quicker and more adept at performing public-private competition because managers are accustomed to simply giving work to contractors. The more competitions they conduct, the more expert managers will become. Once agencies understand that public-private competition is not an optional extra, managers will have no choice but to develop the capacity to expeditiously and economically conduct the comparisons. With respect to new work that is subject to the public-private competition requirement, agencies can perform that work in the interim with federal employees¢either existing or newly-hired temporary or permanent employees in that agency or in another agency¢or contractors.

    

2. Eliminating the Incentive to Manage Federal Employees by Arbitrary Personnel Ceilings: Over the years, the Congress has striven to prevent DoD from managing its civilian workforce by arbitrary end-strengths. Unfortunately, despite much effort, lawmakers have been singularly unsuccessful. Work that either should be performed by civilian employees because of its inherently governmental nature or could be more efficiently performed by civilian employees is contracted out in order to stay under onerous and illegal personnel ceilings. A public-private competition requirement, however, eliminates any incentive to discriminate against the civilian workforce because DoD would have to consider in-house performance. Pentagon officials would then shift from downsizing the civilian workforce to rightsizing the civilian workforce.

    

3. Ensuring Better Management and Better Managers: Right now, when managers run into trouble, they all too frequently contract out the work. In other words, they outsource their problems, instead of working to solve them with rank-and-file employees through labor-management partnerships. Because it is so easy to contract out, and because they can often count on working for the contractor, managers sometime have little incentive to improve service.

    

   Some contractors have said that the TRAC Act would curtail or even eliminate DoD¡s "strategic sourcing" initiative. To the extent that "strategic sourcing" is about taking work from federal employees and giving it to politically well-connected contractors without public-private competition, that is true. To the extent that strategic sourcing is about reorganizing, reengineering, and reinventing how DoD provides services, that is false. In fact, by eliminating the unsavory, pork-barrel aspects of strategic sourcing through a public-private competition requirement, DoD managers can be more creative than ever.

    

4. Ensuring Better Contract Administration: The establishment of a public-private competition requirement will give agencies real choices in the delivery of services and ensure that careful consideration is given before the taxpayers are billed for additional service contracting. By ensuring that they are allowed to compete, federal employees will be able to keep contractors honest¢and vice-versa, of course.

Agencies may well choose to keep commercial activities in-house for reasons of better contract administration. As the authors of "IT Outsourcing: Maximizing Flexibility and Control," which appeared in the Harvard Business Journal in 1995, pointed out, allowing in-house staff to compete for information technology services doesn¡t just cut costs; it also allows managers to

 

"gain a much deeper understanding of the costs of a given service and the best way to provide it. If they decide to outsource it in the future, they will be in a stronger position to evaluate bids and to write a contract that serves their own interests. Do we have the knowledge to outsource an unfamiliar or emerging technology? A company can¡t control what it doesn¡t understand. Many managers think that because no one in the company has enough technical expertise to assess new technologies, they should hand the job over to an outsider. After all, why devote internal resources to acquiring `esoteric¡ knowledge? Most of the companies in our study that outsourced emerging technologies experienced disastrous results because they lacked the expertise to negotiate sound contracts and evaluate suppliers¡ performances."

 

By retaining important elements of the OMB Circular A-76 process¢the formal cost comparison process, the 10% differential, and the most efficient organization¢the TRAC Act ensures that the interests of taxpayers will be paramount. Contractors complain that the TRAC Act focuses on reducing the costs of services to the taxpayers. Well, this time they¡re right. Guilty as charged. In the context of A-76, lowest price is the only objective and fair criterion on which to base a decision on whether or not to outsource. In the process of analyzing which party should perform the work under review, the contracting officer should always decide what level and quality of service her agency needs, and then cost the work in order to decide which bidder can do the work at the lowest price. That is, qualitative improvements in service delivery are part of the OMB Circular A-76 process.

 

It should also be noted that best value factors are already incorporated into the competitive provisions of the Supplement to OMB Circular A-76: Part I, Chapter 3, Paragraph H, 3(c), (d), and (e):

 

• This provision establishes the responsibility of the source selection authority to identify the offer which represents the best overall value to the government," and requires that this most responsive¤not least cost¤bidder compete with the in-house cost estimate.

• This section then allows the in-house to adjust or technically level its bid in order to assure that the government¡s in-house cost estimate is based upon the same scope of work and performance levels as the best value contract offer.

This fair arrangement allows federal decision-makers to take into consideration best value factors, allows the in-house bid to meet or exceed the new scope of work, and allows an objective evaluation of the relative merit and value of the new performance level in terms of its cost.

One cannot help but be amused by the contractors¡ well-rehearsed pleas for "best value." When the Clinton Administration announced plans to subject tens of thousands of DoD civilian jobs to A-76 reviews, the rationale was to generate savings that could be plowed back into weapons procurement. When the savings failed to materialize, contractors needed a new sales schtick and fell back on "best value." It¡s as if a used car salesman were forced to admit to a customer, "Sure, you¡re not saving any money, but what about our incredible customer service?"

 

To the extent that "best value" addresses qualitative improvements, that¡s already part of the A-76 process, as I discussed above. To the extent that "best value" is a pretext for allowing contracting officers, already operating under the prejudicial constraints of arbitrary federal employee conversion and competition quotas, to abuse their discretion and award work to contractors on the basis of unneeded "bells and whistles" and "revolutionary systems and approaches" that are unrelated to the government¡s actual needs, it is not part of A-76¢nor should it be.

 

Here¡s the bottom line on best value: Contractors win only 40% of A-76 competitions. So, they reason, why not change the rules? Hence, best value. Sorry, Mr. Salesman, no deal.

 

1. Bringing About an End to the "Human Capital Crisis": GAO has warned the Congress repeatedly about the federal government¡s worsening "human capital crisis"¢the shortages of federal employees in critical occupations in agency after agency. This crisis is, of course, entirely self-inflicted: the natural and inevitable consequence of years and years of senseless downsizing and indiscriminate service contracting. By eliminating the discretion of agencies to give work to contractors without public-private competition, agencies will give serious consideration to in-house performance and begin the necessary restaffing process.

Private sector firms¢even those that are only nominally in the private sector because they derive the vast majority of their revenues from government service contracts¢are constantly confronted with "make-or-buy" decisions. That is, businesses decide to keep or start a service in-house or outsource it. Right now, federal agencies can only "buy." Thanks to the public-private competition requirement, agencies will be able to make real and informed "make-or-buy" choices.

 

In some instances, that will mean starting a new service in-house, sometimes with new staff or existing staff. Contractors often acquire work and then staff up, sometimes by hiring the federal employees who used to do the work, albeit often with reduced compensation packages. In fact the NIMA information technology contract I spoke of earlier in my testimony will likely be awarded to a "ghost," a contractor whose capacity to perform the complicated and sensitive information technology contract work required barely exists on paper.

 

Mr. Chairman, I know how closely you follow the information technology industry. I¡m sure you¡ve seen the recent articles in The Washington Post, most recently on May 21 and June 17, about how the local public sector is absorbing layoffs in the information technology private sector. (It is instructive to remember that those firms are not experiencing slowdowns because of arbitrary personnel ceilings or because they are forbidden to compete.) The TRAC Act, by ensuring that agencies seriously consider in-house performance of work, ensures that your constituents adversely affected by the rightsizing of the information technology industry can secure gainful employment in the federal civil service and also benefits the American people through the provision of even better government services.

 

Mr. Chairman, we need to work together to make sure agencies have all of the tools they need to recruit and retain the federal employees they will need upon winning the public-private competitions required by the TRAC Act.

 

For example, managers should be using the broad flexibility granted them under the Federal Employees Pay Comparability Act (FEPCA) that evidence shows they use only rarely. Under FEPCA, managers have authority to offer retention allowances of up to 25% of base pay. Another provision of the law gives managers the authority to offer one-time bonuses of up to 25% of basic pay to recruit employees and / or relocate employees to less desirable locations. In spite of the existence of such pay incentive flexibility under FEPCA, OPM reported in December 1999 that the special pay incentives have been received by less than 1% of federal employees. Further, when these incentives are implemented, they have been most often paid at a rate of 10% of basic pay, or less.

 

I know that you will continue to be a leader, Mr. Chairman, on such other federal employee pay and benefits issues¢from closing pay gaps with the private sector to increasing the employer share of health insurance premiums to expanding opportunities for child care subsidies to federal employee parents to defending the earned retirement benefits of federal employees¢that are so necessary for agencies¡ recruitment and retention purposes.

 

We will also work with you, Mr. Chairman, to speed up the hiring process in view of reports that agencies lose out on hiring desirable job candidates to employers able to make on-the-spot hiring decisions, as long as merit principles, veterans¡ preference, and internal candidates¡ rights are preserved.

 

But all of that work will be futile if agencies are not systematically required to consider the appropriateness of in-house performance, as is called for by the TRAC Act.

 

I realize that the public-private competition requirement of the TRAC Act is difficult for contractors to take. However, during the unprecedented downsizing of the civil service over the last eight years, I often heard it said that "the federal government is not a jobs program for federal employees." Well, you know what, Mr. Chairman, the federal government is not a dividend-enhancement program for contractor executives whose firms have been sheltered from actual competition, whether it be public-private or private-private, for far too long. In fact, according to an article in the May 7 edition of Federal Times ("Government Is Hot New Market for Contractors"), contractors

A major reason why federal employees are prevented from competing for work is the use of arbitrary personnel ceilings that keep agencies from hiring or forces the firing of in-house staff. Agencies then simply contract out the work¢often at higher costs. Agencies should be required to manage their workforces by workloads and budgets, not by arbitrary numbers. When workload exceeds arbitrary limitations on workforce, contracting out should not be the only option.

According to OMB, during the Clinton Administration, several agencies¢including the Departments of Agriculture, Health & Human Services, Housing & Urban Development, State, Education, and Treasury, as well as the Environmental Protection Agency¢said that they each could have saved millions of dollars by performing work with federal employees instead of contractors but did not do so because they were forced to work under arbitrary personnel ceilings. GAO has also reported that agencies sometimes manage their in-house workforces by personnel ceilings set by OMB that "frequently have the effect of encouraging agencies to contract out regardless of the results of cost, policy, or high-risk studies."

The problem is particularly bad at DoD. In 1995, the personnel directors of the four branches of the Armed Forces told the Congress that arbitrary personnel ceilings¢not workload, cost, or readiness concerns¢were forcing them to send work to contractors that could be performed more cheaply in-house. GAO reported in 1997 that a "senior command official in the Army stated that the need to reduce civilian positions is greater than the need to save money". An earlier report by the DoD Inspector General noted that the goal of downsizing the public workforce is widely perceived as placing the DoD in a position of having to contract for services regardless of what is more desirable and cost-effective.

The tradition of arbitrary personnel ceilings is, alas, being faithfully observed by the Bush Administration. On the campaign trail, then Governor Bush promised to arbitrarily reduce the number of federal managers by 40,000. And, of course, the direct conversion component of the Bush Administration¡s review of at least 425,000 federal employees over the next four years is nothing more than an arbitrary reduction of the number of federal workers so that they can be replaced by contractors without any public-private competition.

The TRAC Act would move us away from sterile debates about downsizing and upsizing so that we can finally talk about rightsizing. If agencies prove they can do work more efficiently through a public-private competition, they can hire the additional employees necessary to do the work, notwithstanding any arbitrary personnel ceilings imposed by OMB. If they can¡t do the work, then the agency couldn¡t hire any additional employees. The legislation would ensure that agencies always use the most efficient, most effective, and most reliable service provider, instead of having to always choose contractors.

The prospect of contracting in would keep contractors from forcing taxpayers to swallow costly post-award mark-ups. Usually, there is very little competition among contractors for work, especially when the initial contract comes up for renewal. Columbia University Professor Elliot Sclar, who testified before the House Government Reform Subcommittee on Government Management in 1998 on contracting out, has described service contracting as a

"...dynamic political process that typically moves from a competitive market structure towards a monopolistic one. Even if the first round of bidding is genuinely competitive, the very act of bestowing a contract transforms the relative market power between the one buyer and the few sellers into a bilateral negotiation between the government and the winning bidder.

 

The simple textbook models of competition so prized by privatization advocates provide no guidance to what actually occurs when public services are contracted. Over time, the winning contractor moves to secure permanent control of the `turf¡ by addressing threats of potential returns to (contracting in) or from other outside competitors. To counteract the former threat, they move to neutralize competition, most typically through mergers and market consolidation among contractors. This trend helps to explain why two-thirds of all public service contracts at any time are sole-source affairs...."

 

The Department of Energy (DoE) is a notorious example of what happens when an agency becomes completely dependent on sole-source contractors because it can provide no in-house competition when expensive contracts come up for renewal. In 1994, DoE officials became alarmed at skyrocketing service contract costs. Noting that only a handful of contracts had been put up for bid when an incumbent contractor wanted to stay on, DoE officials put their collective foot down and said that service contracts would no longer be automatically renewed.

What was the response from DoE contractors? According to The Washington Post, "the `specter of competition' led some contractors, including Westinghouse Electric Corp...to offer to reduce costs by 15 percent to 20 percent `If implied competition will do that, imagine what real competition will do,' quipped a DoE official."

This could have been a success story¢recompeting contracts seemed so simple a solution. But by 1997 it was clear that this reform effort was not going to have a happy ending. According to GAO, DoE continues to make noncompetitive awards for management and operating (M&O) contracts despite having changed its policy and adopted competitive contract awards as the standards for these contracts. "Of 24 M&O contracts awarded between July 1994 and August 1996, DoE awarded 16 noncompetitively. Also, DoE decided not to compete three major contracts before it renegotiated the terms of the contract renewal¢a practice that is contrary to contract reform."

Because DoE has given up the capability to do the work itself and will not reconstitute that capability in-house so that work might be contracted in, taxpayers are paying far more than they should for dozens of multi-billion dollar service contracts. Obviously, DoE's contractors have not been shy about using their influence in the executive branch and in the Congress to make sure that their sole-source arrangements are left undisturbed.

Mr. Chairman, AFGE has long believed that if savings were possible from competing the jobs of federal employees, then they were possible from competing the jobs of contractors as well. As you know, OMB Circular A-76 provides for insourcing as well as outsourcing. The same rules and the same rationales apply.

The Clinton Administration agreed with us¢or so we believed. A senior OMB official even committed to ensure that agencies undertook more contracting in. In a February 2, 1999, letter to me, Acting Deputy Director for Management G. Edward DeSeve wrote,

"I also agree with you that we should ask federal managers to `take pause¡ and consider the potential benefits of converting work from contract to in-house performance. As I indicated at our October meeting, OMB will encourage agencies to identify opportunities for the conversion of work from contract to in-house performance™"

 

No such guidance was ever offered. We were not deterred, however. Working with lawmakers on the House and Senate defense appropriations subcommittees, we secured the enactment of this report requirement:

"The Secretary of Defense shall submit a report to™identify those instances in which work performed by a contractor has been converted to performance by civilian or military employees of the Department of Defense™In addition, the report shall include recommendations for maximizing the possibility of effective public-private competition for work that has been contracted out."

 

U.S. Congress, FY 2000 Defense Appropriations Act, Section 8109.

The resulting report on DoD¡s contracting in activities¢or, more precisely, the lack of contracting in activities¢was hardly a surprise. DoD¡s compliance¢or, more precisely, DoD¡s complete failure to comply¢with the second requirement to develop a contracting in policy did cause me some surprise.

"Eight of the 286 (OMB Circular A-76 public-private competition) studies (completed during the previous five years) involved work which was being performed by the private sector." (Note: Federal employees were victorious in five out of the eight cases.) "In responding to the Section 8109 requirement to present recommendations for maximizing the possibility of effective public-private competition for work that has been contracted out, the Department reiterated existing policy guidance on the subject."

 

General Accounting Office, DoD Competitive Sourcing (01-20), December 2000.

At a time when the Pentagon is supposedly championing public-private competition, less than 3% of all A-76 studies performed by DoD were directed at work performed by contractors. (Chart 4) In other words, public-private competition is being used to replace federal employees with contractors, instead of to make DoD as a whole more efficient. Moreover, after being directed to come up with a plan for increasing its contracting in, the Pentagon thumbed its collective nose at the Congress. As usual, the situation is worse in non-DoD agencies where contractors¡ work is never subjected to the scrutiny of public-private competition.

With respect to contracting in, it¡s illustrative to look at local government, using survey data collected by the International City / County Management Association.

"Our data show significant incidence of reverse privatization or contracting back in previously privatized services™From 1992-1997, 88 percent of governments had contracted back in at least one service and 65 percent had contracted back in more than three services. On average across all places, 5 services were contracted back in from 1992 to 1997."

 

Mildred Warner and Amir Hefetz, Privatization and the Market Structuring Role of Local Government, Cornell University Department of City and Regional Planning Working Paper #197, December 2000."

Why so much contracting in? The authors explain:

"Contracting back in reflects problems with the contracting process itself, concerns over limited efficiency gains and maintenance of service quality™Analysis of cases of contracting back in shows that it is motivated by desire to maintain service quality and local control and to ensure cost savings in the face of changing markets."

 

Let¡s revisit the scene at the federal level: The A-76 process is a money loser. Contract administration is virtually nonexistent. Sole-source contractors have federal agencies at their mercy. To engage in a bit of understatement, it¡s safe to say that conditions are ripe in federal agencies for the same sort of corrective contracting in that¡s occurring in local government.

What is the explanation as to why there is so much contracting in at the local level and so little at the federal level, especially given the strong likelihood that there is much less private-private competition for the federal government¡s work because of the much greater complexity of the work required and contract administration problems are so much more severe?

Here¡s the most likely explanation:

"Ideology does not dominate local service delivery decisions; rather, pragmatic local government demonstrate the continued importance of public investment, innovation and direct involvement in service delivery."

 

The TRAC Act would neither prohibit contracting out nor require contracting in. Rather, the legislation would simply require agencies to subject equivalent numbers of federal employee and contractor jobs to public-private competition. That is, agencies would choose how many and which contractor jobs would be subjected to public-private competition.

It should also be pointed out that this comparability of competitions provision is far more generous to contractors than they deserve. This provision does not encourage¢let alone require¢the use of direct conversions on work performed by contractors. Rather, any work brought back in-house would come as the result of fair and full public-private competitions. Unlike contractors, who simply want to take our work without bothering to prove that they can perform more efficiently, federal employees are confident that they can compete¢and win¢on their own merits.

It is well-established that contracting out has been used in the private sector and in the non-federal public sector to shortchange workers on their pay and benefits and to avoid unions. It is likely that this pernicious phenomenon exists at the federal level as well.

In 1998, at the request of AFGE, Representatives Steve Horn (R-CA) and Dennis Kucinich (D-OH) asked the GAO to examine the pay and benefits of the federal service contractor workforce; Congressional auditors, however, came back empty-handed: agencies couldn¡t be helpful because they didn¡t keep the relevant information and contractors did not respond to surveys. A survey conducted by GAO in 1985 of federal employees who were involuntarily separated after their jobs were contracted out revealed that over half "said that they had received lower wages, and most reported that contractor benefits were not as good as their government benefits."

The Economic Policy Institute (EPI), in a recent ground-breaking study, determined that more than one in ten federal contractor employees earn less than the "living wage" of $17,000 per annum, i.e., the amount of money necessary to keep a family of four out of poverty.

"The federal government saves money by contracting work to employers who pay less than a living wage ($8.20 per hour). Even the federal government jobs at the low end of the pay scale have historically paid better and have had more generous benefits than comparable private sector jobs. As a result, workers who work indirectly for the federal government through contracts with private industry are not likely to receive wages and benefits comparable to federal workers™

 

Economic Policy Institute; "The Forgotten Workforce: More Than One in 10 Federal Contract Workers Earn Less Than a Living Wage"; November 27, 2000; page 2.

Contractors ritualistically invoke the Service Contract Act whenever the human toll from service contracting is raised. However, EPI¡s research reveals the very limited reach of that prevailing wage law.

"In 1999, only 32% of federal contract workers were covered by some sort of law requiring that they be paid at least a prevailing wage™But even this minority of covered workers is not guaranteed a living wage under current laws. For example, the Department of Labor has set its minimum pay rate at a level below $8.20 an hour for the workers covered by the Service Contract Act in 201 job classifications."

 

Economic Policy Institute; "The Forgotten Workforce: More Than One in 10 Federal Contract Workers Earn Less Than a Living Wage"; November 27, 2000; page 2.

GAO has been unable to determine the extent to which contracting out undercuts workers on their wages and benefits. And despite its pioneering work in this area, EPI acknowledges that

"Further research, such as a survey of contracting firms, is needed in order to know more about these workers and their economic circumstances."

 

It is outrageous that the Administration and the Congress¢despite their words of support for working Americans¢continue to allow contractors to take work away from federal employees simply because, in many cases, they pay their workers less and provide them with inferior benefits. When the budget has generated unprecedented surpluses and the economy's booming, how can any politician justify replacing working and middle class Americans with contingent workers who are forced to make do with significantly smaller compensation packages?

The TRAC Act, by itself, would not require comparability of wages and benefits between federal employees and contractors; nor would the legislation take wages and benefits out of the public-private competition process. Instead, the legislation would require that the Office of Personnel Management (OPM) and the Department of Labor (DoL) compare the wages and benefits of federal employees to their contractor counterparts and then report the findings to the Congress.

The OPM-DoL report would give lawmakers all the information they need to address the human toll from federal service contracting in a forthright manner. In the interim, this subcommittee can begin to address the human toll of service contracting on wages and benefits by ensuring the expedited consideration of Representative Gutierrez¡s "living wage" legislation" (H.R. 721), which I discussed earlier in my testimony.

As an enforcement mechanism to ensure agencies¡ prompt compliance with the TRAC Act¡s requirements to track contractor costs, ensure public-private competition for our work and new work before it is given to contractors, abolish the use of arbitrary in-house personnel ceilings that prevent federal employees from competing for work, and emphasize contracting in to the same extent as contracting out, the legislation includes an enforcement mechanism.

AFGE worked seriously and constructively with the Clinton Administration to deal with the concerns of federal employees about the service contracting process. Despite commitments¢to develop a contractor inventory, start contracting in work, stop managing federal employees by arbitrary in-house personnel ceilings, and establish a system to track contractor costs¢and laws¢to end the practice of managing the DoD civilian workforce by personnel ceilings, develop a plan for contracting in work, regularly consider contracting in work, stop replacing downsized employees with contractors without public-private competition¢the situation has not improved. And the Bush Administration, with its aggressively pro-contractor agenda, is likely to make this situation far, far worse.

That¡s why it became necessary to secure agencies¡ prompt compliance by including a temporary suspension on new service contracting in the TRAC Act. That will give agencies the necessary incentive to correct longstanding problems as soon as possible. This enforcement mechanism does not interfere in any way with existing contracts or renewals of existing contracts. Section 4, which includes the temporary suspension, "does not apply to work performed by the private sector prior to the date of enactment of this Act."

Moreover, the exceptions allow agencies sufficient flexibility to continue necessary service contracting: when it¡s essential to 1) national security, 2) patient care, or to 3) avoid extraordinary economic harm. There are no administrative, legislative, or judicial reviews or appeals to the use of the exceptions. AFGE can¡t tie up agencies in courts or Congress over the use of those three broadly-worded exceptions.

The temporary suspension is intended to last only as long as it takes for agencies to make the much-needed reforms required by the TRAC Act. It is temporary, instead of being for a fixed period of time, in order to give agencies the incentive to accomplish these important tasks as soon as possible. If it takes three days, the Congress can lift the suspension in three days. If it takes longer, the Congress can lift the suspension later. Moreover, the criteria the Congress uses to make its decision are completely up to lawmakers in order to allow them the maximum flexibility. The Congress could wait until the work is done before lifting the suspension or lawmakers could merely wait until the agencies had begun a good faith effort.

Mr. Chairman, I will now provide additional details about why an enforcement mechanism is a necessary part of TRAC.

Here are the commitments made by the Clinton Administration to address long-standing problems in the service contracting process:

1. to AFGE, in 1998, to develop a contractor inventory administratively in exchange for AFGE¡s neutrality on the Federal Activities Inventory Reform Act;

    

2. to AFGE, in 1999, to establish firm guidance to prevent the management of federal employees by arbitrary personnel ceilings;

    

3. to AFGE, in 1999, to develop guidance to ensure that agencies consider contracting in work;

    

4. to federal employee unions, in 1993, to use the workforce reductions required by the Federal Workforce Restructuring Act to improve manager-employee ratios¢thus reducing overhead and making the in-house side more competitive¢instead of disproportionately reducing rank-and-file federal employees; and

    

5. to the Congress, in 1999, to establish a system to track DoD service contracting costs.

Not a single one of those commitments was kept.

Here are the laws that were enacted, particularly in the context of DoD, to address long-standing problems in the service contracting process:

1. forbid the management of DoD civilian employees by arbitrary personnel ceilings (a perennial general provision in the defense appropriations bill);

    

2. forbid the replacement of downsized employees with contractors without public-private competition (The Federal Workforce Restructuring Act of 1994, which arbitrarily reduced the federal workforce by 275,000 employees);

    

3. require DoD to develop recommendations to "maximize public-private competition" for contractor work (Section 8109 of the FY00 defense appropriations bill); and

    

4. require DoD to regularly consider the appropriateness of bringing in-house work performed by contractors (10 U.S.C. 129a).

DoD still regularly manages it workforce by arbitrary personnel ceilings. It is widely acknowledged that agencies replaced federal employees downsized by the Federal Workforce Restructuring Act with contractors without public-private competition. DoD never came up with the required contracting in plan and has consistently failed to follow 10 U.S.C. 129a.

The Bush Administration¡s aggressively pro-contractor agenda indicates that they have no intention of making the federal service contracting process more fair to federal employees and more accountable to the taxpayers:

1. requiring that agencies directly convert to contract performance or subject to public-private competition over the next four years at least 425,000 federal employee jobs¢without directly converting or even subjecting to public-private competition a single contractor job;

    

2. encouraging agencies to use anti-taxpayer, anti-federal employee direct conversions (i.e., giving work to contractors without public-private competitions) to achieve the 5% / 10% FAIR Act quotas; and

    

3. unilaterally expanding the FAIR Act to include inherently governmental jobs¢while leaving the much larger contractor workforce shrouded in mystery with respect to its cost and size.

Contractors have always had¢and will always have¢an important role to play in the provision of services that are truly commercial in nature, particularly those that are nonrecurring or highly specialized. The temporary suspension in the legislation is a mean to an end¢securing compliance with the TRAC Act¡s requirements¢not an end in itself. It is the least important part of the legislation and was included only to ensure compliance with the essence of the TRAC Act: tracking contractor costs and ensuring full and fair public-private competition.

I would be the first supporter of the TRAC Act to go to its sponsors and ask them to eliminate the temporary suspension section¢provided that an acceptable alternative enforcement was put in its place.

Mr. Chairman, AFGE understands that you don¡t care for the TRAC Act¡s enforcement mechanism. Given the failure of the previous Administration to follow up on its commitments or carry out the law and the determination of the current Administration to implement a wholly one-sided pro-contractor agenda, what alternative enforcement mechanism would you include in the TRAC Act in place of a temporary suspension?

Your opinion means a lot to AFGE, Mr. Chairman. We know the influence you have with this Administration on federal service contracting issues. If you could personally guarantee that the TRAC Act¡s cost tracking and public-private competition requirements would be faithfully implemented, I believe the sponsors would remove the temporary suspension provision on their own. In any event, it is imperative that we get beyond concerns over the temporary suspension provision, whether real or manufactured, so we can instead concentrate on the rest of the legislation and how we can ensure that when the TRAC Act becomes the law of the land that this time the federal service contracting process will finally be made fair to federal employees and accountable to the taxpayers.

Giving work performed by federal employees to contractors without public-private competition is pork-barrel politics at its worst. AFGE¡s opposition to direct conversions, whether through share-in-savings contracts, Native American direct conversions, or the myriad of exceptions loopholes, and waivers in the A-76 process is non-negotiable, whether five jobs or five hundred jobs are at stake.

Atr the same time, public-private competition must be used to make the federal government more efficient, not as a "spoils system" by the new Administration to replace federal employees with the businesses of politically well-connected contractors. Contractors and their allies can no longer have it both ways, the federal sector always under scrutiny, the contractor sector immune from review; competitions and conversions mandatory for the jobs of federal employees but strictly off-limits for contractors; showering new work on contractors while putting federal employees on a starvation diet.

The establishment of a process that subjects work to public-private competition before it is given to contractors and holds contractors to the same scrutiny as that experienced by federal employees, like that in the TRAC Act, will benefit taxpayers and all Americans who depend on agencies for important services.

First, taxpayers will save money because contractors will finally have real competition. Second, the quality of work will be improved because managers will finally have real choices in the delivery of services. Third, a real public-private competition process will bolster contract administration and thus reduce waste, fraud, and abuse. Fourth, ensuring that agencies consider the appropriateness of in-house performance will help to end the "human capital crisis."

It¡s time for contractors and their friends in the Congress and on this subcommittee in particular to face a fundamental and inescapable truth: if public-private competition works, then it works for new work and contractor work¢not just federal employee work. If public-private competition isn¡t right for contractor work or new work, then it¡s not right for federal employee work either¢and the entire outsourcing process must be shut down.

Mr. Chairman, that concludes my testimony. I would be happy to entertain any questions.