April 8, 2002
Editor
Federal Times
6883 Commercial
Drive
Springfield, VA 22159-0190
Dear Editor:
Steven Kelman touted the alleged benefits of
share-in-savings (SIS) contracts, which are included in the
Service Acquisition Reform Act (SARA), at a March 7
Congressional hearing. That testimony was summarized for a
recent commentary in Federal Times ("When Agencies,
Contractors Share Savings, Everyone Benefits").
In order to understand what we say, readers should
understand who we are. I would not represent myself merely as
"a senior official of an organization of 600,000 taxpayers who
translate their `good government' beliefs into action every
day." I am the National Secretary-Treasurer of the American
Federation of Government Employees, the undisputed leader in
the fight against wasteful service contracting. That's where I
come from—and I'm proud of it.
Consequently, I'm puzzled why Mr. Kelman continues to
represent himself merely as an academic when he discusses
federal contracting. In fact, Mr. Kelman is a paid agent of
Accenture, an information technology (IT) contractor, and
lobbies in support of SIS and SARA. When Mr. Kelman touts the
Department of Education's (DoEd) use of SIS contracts, with
which Accenture is intimately involved, or testifies in
support of SARA, legislation that would significantly advance
the interest of Accenture, he is working for a contractor.
There is nothing wrong with that. That's where he comes
from—and he should be proud of it. However, lawmakers and
Federal Times readers need to understand who Mr. Kelman is in
order to fully understand what he says.
While the Clinger-Cohen Act authorized pilot SIS programs
for IT, agencies have chosen not to use this authority. Does
this mean that agencies have been unable to contract out for
IT? Of course not. IT firms that are ailing from the economic
downturn are eagerly shifting more and more of their attention
to federal customers. The problem with IT service contracting
is that it is so uncompetitive. The General Accounting Office
reports that in almost three-quarters of the IT contracts it
surveyed there was no competition.
SARA would make such contracting even less competitive by
encouraging agencies to use SIS contracts for as long as ten
years. By shielding IT service contractors even further from
competition, SARA would ensure that agencies would be stuck
with yesterday's systems and processes. According to the DoD
Inspector General, "The 10-year length of the contract is
unnecessary and may actually impede further savings…A 10-year
contract may provide little incentive for proposing
significant improvements after the initial proposal to win the
contract."
So SARA's SIS provision would reduce competition among
contractors and lock agencies into long-term contracts that
would prevent them from considering better options, either
in-house or in the private sector. Would this approach at
least result in savings? Even the contractor-friendly Bush
Administration says no. Ms. Angela Styles, the Administrator
of the Office of Federal Procurement Policy, insists that
there is no reason to expand authority for SIS beyond a pilot
project "until there are demonstrable benefits. To date, we
have not seen the results." Contrary to Mr. Kelman's
assertion, SIS contracts have not "produced successful
results" for DoEd; Ms. Styles added that energy SIS contracts
have not produced any savings either, even though some of them
are more than a quarter-century old.
SIS contracts, which essentially encourage agencies to
borrow capital from the private sector at high interest rates,
are unnecessary. There's no need to forfeit any savings to
contractors. Some outsourcing initiatives like refurbishing
military housing, rebuilding utilities, and SIS energy
contracts have been justified on the basis that the federal
government can not pay for the significant associated costs
without leveraging private sector capital. Such endeavors
often require large amounts of resources up front but can
generate long-term efficiencies and savings.
Because an agency generally must absorb the entire cost of
these relatively expensive acquisitions in a single year's
budget, such endeavors may seem prohibitively expensive
despite their long-term benefits. The adoption of a separate
capital budget or greater use of robust revolving funds would
allow the federal government to avoid undertaking outsourcing
merely in order to overcome short-term funding shortfalls.
Given the record, it is amazing that SARA would make SIS
authority permanent and then extend it to all agencies and for
all manner of services. At most, this risky practice should be
undertaken only with the confines of the pilot project
authority.
Sincerely,
Jim Davis
National Secretary-Treasurer
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