Hearing: Contracting Fairness

CONTRACTING FAIRNESS
HEARING
BEFORE THE
SUBCOMMITTEE ON
GOVERNMENT OPERATIONS
OF THE
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
JULY 8, 2016
Serial No. 11468

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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
JASON CHAFFETZ, Utah, Chairman
JOHN L. MICA, Florida ELIJAH E. CUMMINGS, Maryland, Ranking
MICHAEL R. TURNER, Ohio Minority Member
JOHN J. DUNCAN, JR., Tennessee CAROLYN B. MALONEY, New York
JIM JORDAN, Ohio ELEANOR HOLMES NORTON, District of
TIM WALBERG, Michigan Columbia
JUSTIN AMASH, Michigan WM. LACY CLAY, Missouri
PAUL A. GOSAR, Arizona STEPHEN F. LYNCH, Massachusetts
SCOTT DESJARLAIS, Tennessee JIM COOPER, Tennessee
TREY GOWDY, South Carolina GERALD E. CONNOLLY, Virginia
BLAKE FARENTHOLD, Texas MATT CARTWRIGHT, Pennsylvania
CYNTHIA M. LUMMIS, Wyoming TAMMY DUCKWORTH, Illinois
THOMAS MASSIE, Kentucky ROBIN L. KELLY, Illinois
MARK MEADOWS, North Carolina BRENDA L. LAWRENCE, Michigan
RON DESANTIS, Florida TED LIEU, California
MICK MULVANEY, South Carolina BONNIE WATSON COLEMAN, New Jersey
KEN BUCK, Colorado STACEY E. PLASKETT, Virgin Islands
MARK WALKER, North Carolina MARK DeSAULNIER, California
ROD BLUM, Iowa BRENDAN F. BOYLE, Pennsylvania
JODY B. HICE, Georgia PETER WELCH, Vermont
STEVE RUSSELL, Oklahoma MICHELLE LUJAN GRISHAM, New Mexico
EARL L. BUDDY CARTER, Georgia
GLENN GROTHMAN, Wisconsin
WILL HURD, Texas
GARY J. PALMER, Alabama
JENNIFER HEMINGWAY, Staff Director

DAVID RAPALLO, Minority Staff Director
KATIE BAILEY, Staff Director, Subcommittee on Government Operations
PATRICK HARTOBEY, Counsel
WILLIE MARX, Clerk
(II)
SUBCOMMITTEE ON GOVERNMENT OPERATIONS
MARK MEADOWS, North Carolina, Chairman
JIM JORDAN, Ohio GERALD E. CONNOLLY, Virginia, Ranking
TIM WALBERG, Michigan, Vice Chair Minority Member
TREY GOWDY, South Carolina CAROLYN B. MALONEY, New York
THOMAS MASSIE, Kentucky ELEANOR HOLMES NORTON, District of
MICK MULVANEY, South Carolina Columbia
KEN BUCK, Colorado WM. LACY CLAY, Missouri
EARL L. BUDDY CARTER, Georgia STACEY E. PLASKETT, Virgin Islands
GLENN GROTHMAN, Wisconsin STEPHEN F. LYNCH, Massachusetts
(III)
CONTENTS
Page
Hearing held on July 8, 2016 ................................................................................. 1
WITNESSES
Ms. Angela Styles, Partner, Crowell & Moring
Oral Statement ................................................................................................. 6
Written Statement ............................................................................................ 8
Mr. John Palatiello, President, Business Coalition for Fair Competition
Oral Statement ................................................................................................. 14
Mr. Maurice McTigue, Vice President, Outreach, Mercatus Center
Oral Statement ................................................................................................. 23
Mr. Donald Kettl, Professor, School of Public Policy, University of Maryland
Oral Statement ................................................................................................. 28
APPENDIX
January 28, 2015, Letter from Anne E. Rung, Administrator, Office of Federal
Procurement Policy at White House Office of Management and Budget,
to Congressman John J. Duncan, Jr. ................................................................. 56
Written Statement from Congressman Pete Sessions (TX32) ............................ 57
(V)
CONTRACTING FAIRNESS
Friday, July 8, 2016
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON GOVERNMENT OPERATIONS,
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,
Washington, D.C.
The subcommittee met, pursuant to call, at 9:01 a.m., in Room
2154, Rayburn House Office Building, Hon. Mark Meadows [chair-
man of the subcommittee] presiding.
Present: Representatives Meadows, Mulvaney, Grothman,
Chaffetz, Connolly, Maloney.
Also Present: Representatives Duncan and Sessions.
Mr. MEADOWS. The Subcommittee on Government Operations
will come to order. And without objection, the chair is authorized
to declare a recess at any time.
Were here today to discuss contracting fairness, in other words,
when it is appropriate for the Federal Government to contract with
the private sector and when it is not appropriate to do so. In mak-
ing these decisions, its critically important that the government
focus on efficiencies and cost. And this is not about eliminating
and I want to stressthis is not about eliminating Federal employ-
ees. This is about ensuring we as a government are obtaining the
most cost-efficient and cost-effective solutions when the Federal
Government buys goods and services.
The private sector does a lot of things well. It is important that
the government taps the private sectors expertise and efficiencies
as appropriate. Obviously, there are certain things that only the
government should do, such as making contract award decisions or
granting a security clearance, et cetera. Finding the right balance
and promoting public-private competition through the A76 process
to gather the data to support valid cost comparisons is the way we
realize cost savings for the American taxpayer.
And one of the key areas where I think there are significant
questions is how to make the cost-effective comparisons between
the public and the private sector. For example, what are the appro-
priate cost elements needed to develop a valid cost comparison of
Federal employees and contracting employees? I would welcome the
witnesses input, all of you, on this particular area.
And under existing law, the public-private competitions are pro-
hibited, and early in this administration, there was a shift towards
decreasing the governments reliance on contractors. Now, that
may make sense as long as were actually saving money. Former
Secretary of Defense Gates said in 2010, As we were reducing con-
tractors, we were not seeing the savings that we had hoped for by
(1)
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insourcing. And given where we are today, were holding this hear-
ing to learn from the past efforts in this area and hopefully to
begin anew this discussion in the lead up to a new administration.
I want to thank Mr. Duncan for his leadership in this particular
area, particularly for his bill, H.R. 2044, the Freedom from Govern-
ment Competition Act. And as we look at that, looking at that par-
ticular bill further, this bill would make clear that the policy pref-
erence for obtaining goods and services from the private sector, and
unless there is no private sector option for the goods or services or
that they are inherently governmental, it addresses that issue.
Id like to thank the witnesses here today.
And Id like to now recognize the author of that particular bill,
the esteemed gentleman from Tennessee, my good friend, Mr. Dun-
can.
Mr. DUNCAN. Well, thank you very much, Mr. Chairman, for call-
ing this hearing.
As you mentioned, this is an issue Ive been working on now for
over 20 years. Government competition affects small businesses
every day in every congressional district across the country. Ive
had just about every type of business you can think of come to my
office and talk to me about government competition. These busi-
nesses range from high-tech companies like engineering firms and
low-tech firms such as landscaping companies. This issue affects
school bus drivers, truck stop operators, uniform companies, map-
ping companies, hearing aid dealers, and many, many, many oth-
ers.
This bill proposes a very simple concept: If a Federal agency is
providing a good or service that can be provided by the private sec-
tor more efficiently and cost effectively, we should contract out for
that good or service. The activities that are inherently govern-
mental, like national defense and others, are exempted from this
process. If the Federal agency can provide that good or service at
a lower cost, we should certainly allow that government agency to
continue to do so.
In 1998, I worked with then-Senator Craig Thomas of Wyoming
on this issue. We were able to get a limited version, a sort of wa-
tered-down version of this bill called the Federal Activities Inven-
tory Reform Act. It was called the FAIR Act at that time. And
thatwe actually got that passed into law. This act requires every
Federal agency to look at what goods and services they are pro-
viding and determine if those are inherently governmental or com-
mercial in nature.
In October of 2014, I wrote to the director of the Office of Man-
agement and Budget and asked him how many Federal employees
were engaged in commercial activities. In January of 2015, I re-
ceived a letter back from OMB stating that 1.12 million1.12 mil-
lion full-time equivalent employees were engaged in activities that
are commercial in nature. Let me repeat that: There were 1.12 mil-
lion, 1.12 million Federal employees engaged in activities that
could be provided by the private sector.
I would like to ask unanimous consent to submit a copy of that
letter for the record.
This bill is
Mr. MEADOWS. Without objection, so ordered.
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Mr. DUNCAN. This bill is not about contracting out to the private
sector just for the sake of contracting out. This bill is about getting
the best service and at the lowest cost for the taxpayers. This bill
is not about an attackit is not certainly an attack on Federal em-
ployees. Im a Federal employee, and I have many hardworking
Federal employees in my district. It has been hard enough, though,
for small businesses to survive over the past many years, and they
should not have to compete against their own government to sur-
vive.
The problem of government competition is not a new one. In fact,
during the Eisenhower administration in 1955, at the very first
White House conference on small business, freedom from govern-
ment competition was the number one issue. And that conference
issued a report that said, quote, The Federal Government will not
start or carry on any commercial activity to provide a service or
product for its own use if such a product or service can be procured
from the private sector. And this has been one of the top three
issues of every White House conference on small business since
then.
I understand that Ranking Member Connolly is the cochair of the
bipartisan Private-Public Partnership Caucus. I chaired the special
panel on P3s in the Transportation and Infrastructure Committee
in the last Congress. We had a number of hearings and heard from
expert witnesses all across the country, and that is a movement
that we need to really get more into as we proceed over these next
few years.
All across the country, States and cities are seeing the advan-
tages of the savings that can be made by taking advantage of the
private sector. In fact, a friend of mine, Mayor Madeline Rogero of
Knoxville, who really is one of the most liberal office holders in this
country today, just announced that she is going to allow private
company to manage three public properties in Knoxville that are
used for concerts, fairs, and festivals. And she said that doing this
will save over $500,000 for the city of Knoxville. If we can save
money in Knoxville, Tennessee, by relying on the private sector, I
think we can also do some of thata little bit more of that here.
Thank you very much, Mr. Chairman.
Mr. MEADOWS. I thank the gentleman for his foresight and his
leadership on this particular issue.
And, obviously, the chair notes the presence of not only the gen-
tleman from Tennessee, Congressman Duncan, but my good friend,
the gentleman from Texas, the chairman of the Rules Committee,
Congressman Sessions. And we appreciate your interest in this
topic and welcome your participation today.
And I ask unanimous consent that both Congressman Duncan
and Sessions will be allowed to fully participate in todays hearing.
And without objection, it is so ordered.
Im going to now recognize Mr. Connolly, the ranking member of
the Subcommittee on Government Operations for his opening state-
ment.
Mr. CONNOLLY. I thank the chair.
And I thank Mr. Duncan for his thoughtfulness and his legisla-
tion.
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I also cochair the Smart Contracting Caucus, and Taiwan and

Turkey and Korea and Morocco and Georgia, and vice chair of the
New Dem Coalition, and cochair of the Sustainable Energy and En-
vironmental Caucus. So Im busy with a lot of caucuses, but none
less important than this.
My view on this topic is forged in my experience in local govern-
ment, 14 years in local government. I knew Mr. Palatiello then
when he was on the Planning Commission in Fairfax County. And
what I discovered, sometimes to my surprise, was that presuppo-
sitions on this subject are not always borne out.
I can remember one specific example. When I became chair of the
county, I was looking for something to privatize. I saidI thought
to myself, well, surely there are some functions better done in the
private sector. And the one I kind of focused on was outsourcing
the vehicle maintenance. We had a very big fleet, vehicle fleet. And
I thought, well, surely the private sector can do at least mundane
things, like oil changes and that sort of thing. Jiffy Lube for sure
can do it cheaper than we can.
And I had the auditor look at it. I didnt just take the word of
county employees. What surprised me, and I think a lot of my col-
leagues, was actually, no, weempirically, we did it cheaper and
the quality of care and service, because that was their mission in
life, to make sure that vehicle fleet was always in tiptop shape.
Couldnt be matched.
And it was a lesson. It wasnt that youre always better off
insourcing, but it was a lesson in dont assume and approach this
in a nontheological way. You shouldnt be looking at the whole
issue of outsourcing, or insourcing for that matter, on an a priori
basis. Look at it on a case-by-case merit basis. Does it make sense,
does it meet certain criteria in terms of cost, as Mr. Duncan indi-
cated, but also quality.
I remember John Glenn. I workedwhen I first came to the U.S.
Senate, I worked inter alia with Senator John Glenn. And the story
was told that when he was in that capsule about to take off and
circumnavigate the world, somebody asked him after he came back
down to Earth, you know, what in the worldwhat must have
been in your thought, this profound moment? He said, all I could
think of was Im sitting in 90,000 pounds of thrust on their little
capsule provided by the Federal Governments lowest bidder.
So quality does matter and common sense matters. And I told
Labor the same thing as Im saying here, that we really need to
not approach this as a theological issue. Insourcing is not better
than outsourcing, and outsourcing isnt better than insourcing.
Theres nothing intrinsically preferable or good about one versus
the other. And where there is domain expertise, where there is the
ability to provide quality services at a cost-effective way, that al-
ways makes sense.
There are some inherently government functions that should
never be, in my view, outsourced. Federal oversight of contracts
that it lets, for example. Most people I know in the Federal con-
tracting world think that would be highly inappropriate to
outsource, that that ought to be managed by the government. And
it puts them in an awkward position when it is outsourced, because
they want to bid on contracts and sometimes its the competition
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or even the collaborator who theyre evaluating or theyre moni-

toring and managing.
So Im glad for the hearing, but Im always going to look askance
at anything that smacks of theology on this subject.
And with that, Mr. Chairman, I yield back.
Mr. MEADOWS. I thank the gentleman.
I will hold the record open for 5 legislative days for any member
who would like to submit a written statement.
Well now recognize our panel of witnesses. And Im pleased to
welcome Mr. John Palatiello, president of the Business Coalition
for Fair Contracting; Mr. Maurice McTigue, vice president of out-
reach at the Mercatus Center; and Mr. Donald Kettl, professor at
the School of Public Policy at University of Maryland.
And I would like to now recognize the gentleman from Texas,
chairman of the Rules Committee, Mr. Sessions, to introduce our
last witness.
Mr. SESSIONS. Mr. Chairman, thank you very much. Its a great
delight for me to be back with not only you but Chairman Duncan
as he spoke very clearly about his work not only in this committee
but across Congress for government efficiency.
I must say, I was delighted to hear Mr. Connolly speak very
clearly about how important government efficiency and the peoples
money is.
Today, I show up really to introduce Mrs. Angela Styles. Mrs.
Styles is a person who, like the other gentlemen who have been on
this panel today, is a distinguished alumnus, not only of the United
States Congress as a former staffer, but she worked at OMB, in the
Office of Management and Budget, and served under a great
Texan, George W. Bush, and served not only with distinction for
the President to try and ensure government efficiency, but was
there with a role to make sure that it was done for the benefit of
the American people, and as Mr. Connolly said, in the none be it
theological way.
The people of the United States want and need a government
that works properly, that takes every dollar that it needs but not
a penny more, and ensures that its services are second to none.
Angela not only served at OMB, but the General Services Admin-
istration. She is a graduate of the University of Virginia and the
University of Texas Law School. She is a person who is a mom on
the side, but more importantly, a dedicated public servant in her
role as a partner with Crowell & Moring.
So I wanted to come here today when I knew that Angela would
be here and to let her know that her words of wisdom, her insight
from out in public service and in the private sector does matter to
us.
Lastly, Mr. Chairman, Id like to say that we are also passing on
much of which we do to the next generation. And we have Meredith
Milton, who is here from Parker County, Texas. She goes to the
University of South Carolina. And she is one of our interns who
came to Washington with the viewpoint of government efficiency
and government oversight.
So I wanted you to know that, just as I was in your chair some
15 or 18 years ago trying to learn much about how we can make
the government more efficient, you now are that person in the role,
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along with Mr. Connolly, and Meredith is looking out at you and
will learn much. And I hope that there are other students who go
through our schools, who come to Washington to learn we have to
have a government that can work effectively and efficiently to meet
the needs of the American people.
Mr. Chairman, the last thing Id like to say is Id like to add to
the record the statement that I brought and came with. And I want
to thank you for allowing me to be here. And I yield back my time.
Mr. MEADOWS. Without objection, so ordered.
Mr. MEADOWS. I thank the gentleman for his remarks and his in-
troduction, but his longstanding conservative passion to making
sure that the government is accountable and efficient. And so with
that
Mr. CONNOLLY. Let the record show, Mr. Chairman, progressives
care about it too.
Mr. MEADOWS. No, no, no. It was not meant to be a slight.
Mr. CONNOLLY. No, no, I know.
Mr. MEADOWS. If I said that you had a conservative bit, you
might not get reelected, so
Mr. CONNOLLY. Right. And by the way, I wanted to thank Mr.
Sessions for his brilliant remarks, and I hope hell approve my next
amendment when Im up in the Rules Committee.
Mr. SESSIONS. Well do our best to hear you out fully, Mr. Con-
nolly, and you know that.
Mr. MEADOWS. Well, welcome to all. Pursuant to committee
rules, all witnesses will be sworn in before they testify, so Id ask
that you please rise and raise your right hand.
Do you solemnly swear or affirm that the testimony that you are
about to give will be the truth, the whole truth, and nothing but
the truth?
Let the record reflect that all witnesses answered in the affirma-
tive. Thank you so much.
In order to allow time for discussion, please limit your oral testi-
mony to 5 minutes. Your entire written statement will be made
part of the record. Many of our members will be coming and going
today, but I can tell you that they have staff that will be following
up on that.
And so at this point, I would like to recognize you, Ms. Styles,
for 5 minutes.
WITNESS STATEMENTS
STATEMENT OF ANGELA STYLES

Ms. STYLES. Thank you very much. Chairman Meadows, Con-
gressman Connolly, Chairman Duncan, members of the sub-
committee, I really appreciate the opportunity to be here today,
particularly, Chairman Sessions, for that very kind introduction. I
have to say, he has been a friend and a mentor throughout my en-
tire career, and I wouldnt be here today without him. And as a na-
tive of Dallas, I certainly know there are many issues on his mind
today, so thank you very much for the kind introduction.
As a former administrator for Federal procurement policy at the
Office of Management and Budget from 2001 to 2003, I had the
unique opportunity to lead the most significant effort by the Fed-
7
eral Government to open commercial activities performed by the

government to the dynamics of competition between the public and
private sectors.
I applaud this subcommittee for shining a bright light on the
commercial activities performed by public sector employees. These
activities have long been insulated from competition or even, frank-
ly, review at all.
In my written testimony, I tried to address the bipartisan history
behind public-private competition and the demonstrated benefits of
market-based government. It isnt just about saving money or mov-
ing jobs to the private sector, as you heard Congressman Connolly
say; its about improving the performance of our government for its
citizens. It is a travesty, a true travesty of public governance that
public-private competition has been stalled for 8 years, and every
attempt to create a true infrastructure for competition has been
struck down by special interests.
The Bush administration competitive sourcing initiative forced
Federal Government personnel to critically examine their processes
and determine how they could improve the delivery of services to
remain competitive. Not surprisingly, as the competition increased,
so did the pressure to save Federal jobs.
A series of legislative actions resulted in a full moratorium on
public-private competition by 2008. Once in office, the budget re-
quest from the Obama administration asked for the continuation of
the prohibition. The legislative moratorium shunned market-based
government, competition, innovation, and choice. Taxpayers and
citizens were the losers. Not only are we paying more for Federal
employees to perform commercial services, taxpayers are not bene-
fiting from improved service delivery that derives directly from
competition.
Second, anybody that questions the true benefits of competition
is diluting themselves. The cost savings have been proven out over
40 years. My written testimony provides several real examples and
citations to significant studies. There are thousands more examples
to be studied if you need more evidence.
Most significantly, Id like to point out testimony from 2002 given
by Comptroller General David Walker. The testimony was given
after studying public-private competition with a panel of experts
for over a year, and this is what he said: The panel concluded that
the current A76 process has been used to achieve significant sav-
ings and efficiencies for the government. Savings result regardless
of whether the public or private sector wins the cost comparison.
This is because competitive pressures have served to promote effi-
ciency and improve the performance of the activity studied.
In standing up the Bush administration competitive sourcing ini-
tiative, we made great strides in creating infrastructure, people
and processes for competition. Sadly, the people have moved on
over the years. But on a positive note, the processes in place for
competition remain. There is a place to start in the executive
branch.
Now, H.R. 2044, the Freedom from Government Competition Act
of 2015, would reverse the 8-year drought. The 8 years that not a
single commercial activity performed by the Federal Government
has faced an iota of scrutiny. But this moment, its really only Con-
8
gress that has the ability to allow and then encourage the execu-
tive branch to take full advantage of the best capabilities that both
sectors have to offer.
This concludes my prepared remarks.
[Prepared statement of Ms. Styles follows:]
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Mr. MEADOWS. Thank you, Ms. Styles.

Mr. Palatiello, youre recognized for 5 minutes.
STATEMENT OF JOHN PALATIELLO

Mr. PALATIELLO. Thank you, Mr. Chairman. And I realize when
I say Mr. Chairman, thats inclusive of everyone on this panel
who has at one time or another been a chairman.
Im president of the Business Coalition for Fair Competition, and
we support the yellow pages test. Its a very simple process that
says if you can find firms in the yellow pages of the phone book
that are providing a good or a service and a government agency
thats providing that same good or service, then that government
activity ought to be subjected to a review, a governmenta private
competition to break up whats, in effect, in in-house monopoly,
subject it to market competition and get a better value for the tax-
payer.
This is a test that has been successfully applied on a very bipar-
tisan basis by mayors and governors and county executives across
the country. Unfortunately, the Federal Government does not have
such a process in place today, and thats for two reasons: First,
Congress has failed for more than 80 years to enact legislation to
codify such a process to set the ground rules. Additionally, Con-
gress has imposed a very unfortunate moratorium on OMB Cir-
cular A76, which has guided this process administratively since
1955.
As Mr. Duncan pointed out, the Federal Government today has
a total workforce of 2.6 million employees, not including our men
and women in uniform and the Postal Service. Of that, 1.2 million
are in functions that are commercial in nature. This is the aggre-
gate of all of the FAIR Act inventories. So in other words, 43 per-
cent of the Federal workforce is in commercial positions, and only
a handful of them have ever been studied to determine whether the
in-house function is performing as efficiently as it could.
When these studies are conducted, the literature shows that the
average saving is 30 percent, regardless of whether the activity
stays in-house or gets contracted. When applied to all 1.12 million
positions, the annual potential savings are as much as $35 billion.
You asked with regard to best practices, Mr. Chairman, and I
would point to the 3DEP, or Three-Dimensional Elevation Program
of the U.S. Geological Survey, in Reston, Virginia, in; Mr.
Connollys district. Over a period of some 20 years, USGS has suc-
cessfully transitioned from being an in-house mapping production
agency that, quite frankly, the private sector felt duplicated and
competed with them, to where the USGS now uses the private sec-
tor for a majority of its mapping data acquisition and processing,
and focuses its employees on standards, coordination, and other in-
herently governmental activities.
Perhaps the most successful thing the Federal Government has
done in its 240-year history, in my view, was the original GI Bill.
My late father was a DDay veteran. He was a beneficiary of that
program. After World War II, Congress provided every eligible vet-
eran an opportunity to buy a home and get an education, but the
government did not start in-house homebuilding and did not start
15
Federal schools. The GI Bill was essentially a voucher program, a

contracting program.
The government used the private sector, let our veterans go out
into the market and get what they needed to return to civilian life.
Thats a bipartisan best practices model I believe the government
should emulate again today.
You also asked in your invitation, Mr. Chairman, to examine the
impact on the private sector from decreased competition. In its last
study of A76, the Small Business Administration found that of
companies that received these procurements, 71 percent were small
business. So it is clear that the moratorium on A76 harmfully and
disproportionately impacts small and small disadvantaged busi-
nesses.
As has already been stated, this is not about eliminating Federal
employees. Lets put that myth to rest here today. What this is
about is lower cost, better service, but also access to expertise, bet-
ter quality, improved risk management, innovation, better meeting
of peak demand, and timeliness.
We have a couple of recommendations that we would like to
share with the committee. First, we do support Mr. Duncans bill,
the Freedom from Government Competition Act. Second, the mora-
torium on A76 should be repealed. Third, insourcing should be
ended or at least there should be a requirement for a reverse A
76 to study whether it is more cost effective to bring something
back in-house. We think the establishment of a Federal entity to
review commercial activities.
Mr. Connolly will remember that for about 15 years, Virginia had
the Commonwealth Competition Council; was very effective. And
we believe that there needs to be an enhancement to Federal agen-
cy contract management and improvement of the acquisition work-
force.
Mr. Chairman, today, the Federal Government has become too
big to succeed. In an effort to be all things to all people, it cannot
effectively provide its core services. The Federal Government is
spread out too thin, carrying out too many activities best left to
free enterprise. Using the private sector for commercially available
products and services will help focus the government on its core in-
herently governmental activities, those things that the American
people expect from Uncle Sam, and it will improve the effectiveness
of those important government activities.
Thank you for the invitation. Its a pleasure to be here. Ill be
happy to take your questions.
[Prepared statement of Mr. Palatiello follows:]
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Mr. MEADOWS. Thank you for your testimony.

Mr. McTigue, youre recognized for 5 minutes.
STATEMENT OF MAURICE McTIGUE
Mr. MCTIGUE. Chairman Meadows, Ranking Member Connolly, I
am honored to have been invited to present testimony in front of
you today on the issue of competition in government operations.
Before I became a member of parliament in New Zealand, I was
a farmer. Farmers really understand the value of competition.
When you take your stock to market, if there are plenty of hot buy-
ers, the prices are good. If there is only one buyer, you have a bad
day. So I am an enthusiast for competition.
Competitive sourcing in government should really be based upon
what delivers the best prices with the best goods and services from
the best suppliers using the best technology. This is the only ac-
ceptable rationale, in my view, for competitive sourcing. I agree
with Mr. Connolly, it should not be about ideology; it should be
about whats going to provide the best services for the consuming
public.
Governments have had mixed results with competitive sourcing.
One of the reasons, in my view, is that the rules often dont allow
the competition to occur, so the rules must be written in such a
way that the competition can occur.
Some of the other things that have been failures in the process
in the past, the first, not accurately defining what best means. Best
does not mean cheapest. And best should be able to be defined for
every competition, because best when youre delivering social serv-
ices will require certain components that are very difficult to pro-
vide if you just use the normal commercial criteria. Not writing
good specifications for the bidding process is often one of the fail-
ures in competitive sourcing. Thats a professional contract man-
agement requirement, and agencies need to have that capability or
they need to buy that capability if theyre going to embark in com-
petition.
No departures from the contract is a really important criteria,
because competitive sourcing often gets a bad name by people being
able to lowball their bid knowing full well that theyll get a depar-
ture from the contract, which will allow them to readjust the price
at a later date. That discredits the whole of the process and makes
everybody consider it to be unfair.
There should be fixed terms for the contracts, so no automatic re-
newals, so that the bidding process can be repeated over and over
again. The competition has to be seen to be fair. It needs to be fair
to the public sector bidders, and it needs to be fair to the private
sector bidders.
When I arrived in the United States in 1997, Al Gore was in the
middle of his reinventing government process, and I attended many
forums on just exactly that. There were two outstanding mayors
that presented at many of those forums: Mayor John Norquist from
Milwaukee, a Democrat; and Mayor Stephen Goldsmith from Indi-
anapolis, a Republican. Both of them used competitive sourcing to
help rescue their city budgets.
Their experiences saw successful bidders come from the private
sector and the public sector. Their experience showed that at the
24
next iteration of those contracts they often saw them turn around.
What they got from that, though, was a big win for the citizens in
that those cities received better services at better prices.
I just want to now quote an example from New Zealand, which
is a variation on this process. One of the things that the New Zea-
land Government did was that it allowed governmentsgovern-
ment departments to compete to provide goods and services with
each other. We call it internal markets.
But a department that had a very high quality legal department
could sell those services to another department or they could com-
bine to buy payroll services or HR services, accounting, data collec-
tion. They might buy that from the private sector or the public sec-
tor, but they were looking at how you can utilize competition to im-
prove the quality of those services. This needs to be a strictly con-
tractual undertaking with legally enforceable contracts. It might
surprise you, but when government departments deal with each
other, they frequently cheat, so you need to be able to stop the
cheating if the competition is going to remain fair.
In conclusion, the success with this process should be measured
in terms of improved services, greater innovation, technological su-
periority. It shouldnt be measured in terms of this group got it or
that group got it. I hope this initiative is adopted as part of cost
efficiencies and service improvement.
Thank you for the chance to testify, and Id be very happy to take
your questions.
[Prepared statement of Maurice McTigue follows:]
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Mr. MEADOWS. Thank you for your testimony.

Professor Kettl, you are now recognized for 5 minutes.
STATEMENT OF DONALD KETTL
Mr. KETTL. Thank you very much, Mr. Chairman and Mr. Mead-
ows and Ranking Member Connolly. Its a great pleasure to have
a chance to be able to appear before you this morning.
And its also a great privilege to have a chance to continue the
conversations with Mr. Grothman. For years in Wisconsin, we
worked hard to try to improve government performance, and its
just such a great privilege and opportunity to be able to continue
that conversation here today.
The primary point of my testimony is to focus on the best lessons
for procurement and acquisitions from the private sector. And what
the private sector teaches us is that effective procurement and con-
tracting requires a smart buyer, a buyer that, first, knows what it
is that the buyer wants to buy; second, that the buyer knows how
to try to choose a good supplier and providing the highest quality
of goods and services at the lowest and best prices; and finally,
making sure that the supplier provides what it is that, in fact, the
buyer wants to go out and purchase.
Those are the important lessons of the private sector, and those
are the things that government needs to do and do even better.
And what I want to suggest, there are five ways of going about
doing that. First is to recognize that contracts for commercial prod-
ucts are an essential part of this and have become, in fact, a more
important part of governments strategy; that, at this point, con-
tracting represents two-fifths of all Federal discretionary spending.
And commercial items, as a percentage of all contracting, has actu-
ally gone up significantly in the last 5 years from 21.3 percent of
all Federal contracts to 25.2 percent in the last figures in 2015. So
that, in fact, we have an increasing trend of more commercial prod-
ucts being part of government contracting, even though govern-
ment contract spending as a whole has declined for a variety of
reasons. But its clear that we are, in fact, focusing significant at-
tention on the purchase of commercial products.
The second item, though, is that we need to focus, essentially, on
the management of contracts and contractors, because contracts
and we learned this from the private sectordo not manage them-
selves. We can look over a series of issues in the last few years,
whether its the Office of Personnel Managements challenges in
trying to manage the employee background checks, problems in
Medicare where about one out of every $10 spent on Medicare is
spent on programs thatand on payments that are judged im-
proper, where a company, in the last year, paid a $146 million fine
for false claims filed for supplies tofor our troops in Afghanistan.
Its clear that contracts dont manage themselves, and good Federal
management is essential to ensure that we get our moneys worth
for the money that we spend.
The third point is that, in fact, strong contract management can
reap big success. Ive recently completed a study of GAOs high risk
list of the programs in the Federal Government most prone to
fraud, waste, abuse, and mismanagement. And there are two
things that are important coming out of that study. The first is
29
that half of all the programs in the high risk list have been identi-
fied as having problems in contract management. Thats the bad
news. The good news is that over the last 25 years, 24 areas have
been taken off that list, and of the 24 areas, half of them have been
taken off because of improvements in contract management, so that
effective contract management is essential to try to deal with the
underlying problems.
There are several issues and examples throughout the Federal
Government where thats, in fact, happened. NASA is a premier ex-
ample, as is the DODs effort in improving supply chain manage-
ment, and Id be happy to discuss that more in the question period
as well.
The fourth point is that all of this depends on an effective cost
comparison system; that is, if we want to try to buy from the best
and the cheapest supplier, we need to know who that is. And the
problem, unfortunately at this point, is that, as GAO has shown in
a series of studies, our current cost comparison systems are simply
inadequate. We do not have a good methodology for making good,
sustained, effective comparisons about who it is whos cheaper.
The problems are many in part trying to assess the relative
value of the salaries, assessing fringe benefits, looking at overhead
rates, total life-cycle costs, capacity, transparency, flexibility ques-
tions. These are all eminently solvable problems, but at this point
were handicapped in making comparisons because we do not have
a common and accepted methodology for how to go about doing
that.
What we most need if were going to try to advance our efforts
to try to improve increased contracting out for commercially avail-
able products is to have a system where we know and can have
confidence in the cost comparisons that were making. And one sug-
gestion that I would make, in fact, is the Federal Advisory Com-
mittee that would look carefully into this question so that we know
that, in fact, were getting our moneys worth.
The fifth point is that new and enhanced strategies for improving
the effectiveness of contract management could vastly improve our
ability to be able to get our moneys worth. And that means, in par-
ticular, focusing on human capital inside government and improved
category management to try to improve the governments ability to
be able to buy as one and reduce the level of duplication and to im-
prove relationships with those who supply goods and services to
government.
So, Mr. Chairman, that concludes my remarks, and Id be very
happy to try to answer any questions that the committee may
have. Thanks so much.
[Prepared statement of Mr. Kettl follows:]
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Mr. MEADOWS. Thank you, Professor Kettl.

The chair recognizes the gentleman from South Carolina, Mr.
Mulvaney, for 5 minutes.
Mr. MULVANEY. I thank the chairman.
I thank everybody for participating. Reminds me of my days on
Small Business, which I miss from time to time.
Ms. Styles, lets start with you and well just go down the aisle.
I want to talk with you a little bit about the history, because I was
not aware until recently of the demise of the A76 competition pro-
gram. Tell me, why did the administration say they wanted to dis-
continue or suspend this program?
Ms. STYLES. Well, I mean, its largely about Federal jobs. Its pro-
tecting the Federal jobs. Its the labor unions, the Federal employee
labor unions protecting those jobs. Its as simple as that.
Mr. MULVANEY. But the argument was made, right, it was sup-
posed to save money? Correct?
Ms. STYLES. Yes.
Mr. MULVANEY. How did that work out?
Ms. STYLES. Not so well.
Mr. MULVANEY. Tell me about that.
Ms. STYLES. Well, its very clear from history, and its very clear
from 40 years of history and studying A76 and studying the com-
petition, there are cost savings. Could there be better ways to
measure, as Professor Kettl pointed out? Absolutely. But theres
just a lot ofthere have been dynamics for 40 years about the poli-
tics of this and whether you want the Federal jobs to stay in place
or whether you want those jobs to go to the private sector.
And so you see, you know, its back and forth or its a pendulum,
however you want to describe it. Sometimes we look at it and say,
we really need to examine these commercial activities; and other
times we say, oh, weve examined them, we know we need to pro-
tect the Federal employees. So its been back and forth, even
though its very, very clear when you subject these jobs to the pres-
sures of competition, whether the private sector wins, the public
sector wins, you get cost savings and you get better service.
Mr. MULVANEY. Mr. Palatiello, is the private sector ready to step
up and have these competitions again? Are there businesses that
are prepared to provide the same services that the government
does?
Mr. PALATIELLO. Oh, absolutely. Absolutely. Theyre providing it
in a marketplace today. You have examples where you have one
Federal agency, for example, that considers something inherently
governmental and another is successfully contracting for that serv-
ice. So you have firmsfor example, Ill use the mapping example
that I mentioned in my testimony.
You have the geological survey that has demonstrated very suc-
cessfully how to use the private sector in this field, but then you
have, for example, NOAA that still does a significant amount of its
hydrographic surveying and mapping in-house.
I got an email the other day from a companyand this is not un-
usual. I get these every couple of monthscompanies that have in-
definite delivery, indefinite quantity contracts for surveying and
mapping with the Corps of Engineers and then dont get task or-
ders, dont get any work out of the contract. And then they go on
40
FedBizOpps and that same office with the Corps of Engineers is

spending millions of dollars to buy equipment to beef up its in-
house capability, but yet theyre telling the firm we dont have any
requirements, we dont have any money.
Mr. MULVANEY. Is the Federal Government still in the pest ex-
termination business?
Mr. PALATIELLO. It is to a certain degree, and we applaud your
efforts in that regard. There is a negotiated settlement between
USDA and the pest management industry, but thats an example.
This is a little bit of a dated example, but there was athis is no
disrespect to the dais, but there was a pest problem here on the
Hill. Did the Congress contract out to a private company? No, they
brought in the Department of Agriculture. No competitive bidding.
Mr. MULVANEY. And I still have the mice traps in my office.
Mr. McTigue, thank you. But you mentioned something I never
even considered before, which is competition and intragovernment
competition. Could you tell us very briefly aboutmore details
about that, what you guys did in New Zealand? Ive never heard
of such a thing, never even occurred to me.
Mr. MCTIGUE. One of the things that happens inside government
is that you often have to build a capability for a pretty small oper-
ation. So a relatively small agency has to build legal services, ac-
counting services, payroll services, HR services. Its just smart to
say, hey, not everybody has to do that. So-and-so next door has ex-
cess capacity there, we will buy it from them. In some cases, they
will actually buy that, get together and buy it from the private sec-
tor.
Mr. MULVANEY. Im sorry to interrupt you, but youve just
something just popped into my head, because weve had similar
hearings on this exact topic, or something similar, I think, in this
room, which is computer security; that certain agencies within the
government havedo a tremendous job of protecting their com-
puter systems and others do a really, really lousy job and dont
even use some of the same systems.
Would that becould you do the same type of competition in
that service area?
Mr. MCTIGUE. Certainly. But one of the experiences of the New
Zealand Government, after having made huge mistakes in tech-
nology purchases, was to actually start contracting for capabilities.
So what kind of capability do we want on peoples desks, and we
would buy those services?
So instead of buying computers and servers, you bought that ca-
pability, and the provider made certain that you had that capa-
bility there all the time and it was continually renewed. It also
means that you didnt have to go through dealing with the problem
of getting capital for new purchases because you were now buying
a service that was outside the capital budget.
Mr. MULVANEY. Thank you. Thats very helpful.
Professor Kettl, I dont have any time left, but I haveyou said
something, sir, that stunned me, in fact, shocked me. You said you
had pleasant conversations with Mr. Grothman.
Mr. KETTL. Thats actually true, sir.
Mr. MULVANEY. Can youafterwards, can you teach us how to
do that because were
41
I yield back the balance of my time that I dont have.

The chair recognizes the ranking member, Mr. Connolly, for 5
minutes.
Mr. CONNOLLY. I thank the chair.
And it may come as a further shock to my friend from South
Carolina, I remember we had one voteI cant remember when,
though. Its a number of years agoon the floor, and I was the only
Democrat at that time who supported A76. I mean, it was a lonely
place. But I have been consistent in my position.
Mr. MULVANEY. Have you figured out the Grothman thing yet?
Mr. CONNOLLY. And Im working on that one.
Mr. MULVANEY. Okay. All right.
Mr. CONNOLLY. Im working on that one. Were working through
a dictionary and the whole thing.
I will say, sometimes people are consistent and inconsistent. Sec-
retary Gates, when he was Secretary of Defense, of all people, a
Bush holdover, announced that there was too much outsourcing
and we needed to just put an artificial limit on it. And it reminded
me of the scene in Amadeus where, you know, the emperor is say-
ing to Mozart, you know, your music is beautiful but there are just
too many notes. Cut out a few, itd be perfect. And Mozart says,
well, which notes did his majesty have in mind?
How does one in ais this some platonic ideal of what con-
stitutes just the right percentage of outsourcing or just the right
percentage of insourcing? And so Ive tried to be consistent. I took
on Secretary Gates, and we won that battle, actually, in thein
Virginia, about, no, were not going to have artificial limits and
there is no such thing as too much or too little.
And Im, you know, Im going to be boringly consistent that it
may not always make you happy because probably your prejudice
on this side of the table tilts toward the private sector can always
do it better. Thats actually not always true, just factually not al-
ways true, as I discovered in running a local government. On the
other hand, there are some things that absolutely the expertise is
there, the management and expertise and so forth.
Ms. Styles, I took your point about wanting to expand the out-
sourcing of services, which really began in bulk under Ronald
Reagan and, maybe to the surprise of some, actually expanded
under Bill Clinton and sustained under George W. Bush and ex-
panded.
But one of the things I think would be a fair criticismand my
guess is Professor Kettl would agreeduring those years of growth
and outsourcing in the Bush years, what we did not do was keep
up with quality contract management. We actuallythe ratio
changed lower and the risk of that is bad project management,
losses, waste, and sometimes fraud. You agree?
If you look back on in terms of area of self-criticism, would that
be a fair criticism from your point of view?
Ms. STYLES. Well, I do agree, but I think there were a number
of things going on. So you were in a post-2000 9/11 environment,
right. And so the Federal Government spending with the private
sector went from $200 billion to $600 billion, and thats right after
wed gotten through Clinton administration cuts to the Federal
42
workforce and to the Federal contracting workforce. Honestly, it

was too much for them to handle all together at that time.
Mr. CONNOLLY. Professor Kettl, do you want to comment on that?
Mr. KETTL. Sure. There are a couple of points that are worth
making. The first is that whoever it is who can do the job best and
most cheaply ought to do the job, and we have a hard time trying
to make those comparisons. But the other thingand this is a les-
son the private sector teaches uscontracts dont manage them-
selves. And one of our real problems, and if you look at sustained
studies from OMB and GAO over the years, is that our acquisitions
workforce is not strong enough and is not capable enough to be
able to do the jobs that were asking it to do.
Mr. CONNOLLY. Yeah.
Mr. KETTL. The same things would be true for the private sector
as well. And the costs of that are everything from the fact that $1
out of every $10 spent on Medicare through contracts is subject to
improper payments and is a major problem. If you look at GAOs
high risk list, we have a huge number of programs that are on the
list because of inadequate contract management.
So contracting, that makes great sense, but only makes sense if
we have the capacity to be able to manage the contracts well.
Mr. CONNOLLY. Yeah. I think thats really key. If were going to
expand on outsourcing, weve got to have the contract management
capability, the procurement and management capability. And as
contracts get more technical, more technically detailed and com-
plex, that becomes even more of a challenge because, quite frank-
lyI mean, I worked in the private sector for 20 years with two
IT companies. The Federal Government has difficulty just match-
ing the expertise of the private sector on the other side of the con-
tract table, even when both parties mean well and want to make
sure it works, let aloneyou know, but the Federalincreasingly,
the Federal manager on the other side is older and less skilled
technically, if were talking about IT contracts, big systems integra-
tion contracts, for example.
And what can go wrong when you dont really have the expertise
to manage a multibillion dollar, multiyear complexevenyou
need help from the outside in even determining the terms of ref-
erence to the contract, because you may know in laymens terms
what you want to accomplish but translating that technically into
a contract so that the specified services are matched against your
objectives, actually even that requires increasingly private sector
expertise to help. And what can go wrong with that? Well, self-
dealing, conflicts of interest, and so forth.
Mr. Palatiello, you look like you want to comment on that.
Mr. PALATIELLO. I do, Mr. Connolly, my Congressman. You make
an excellent point, but I would place a caveat. If a Federal agency
doesnt have the expertise because its an aging population, its not
current with technology, that it cant write specifications and cant
write a contract, you cannot then conclude that that agency has the
capability to actually do that technology work in-house. And if
youre not smart enough to go out and buy itits like the experi-
ence I once had.
You know, I walked into the kitchen one day and Sally says to
me, the garbage disposal is broken. I have a decision to make. Do
43
I try to replace it myself or do I call the plumber and have him

come in? Well, I tried to fix it myself.
Mr. CONNOLLY. Yeah.
Mr. PALATIELLO. In a couple of days and several
Mr. CONNOLLY. But in this case, theres no question about that.
They are outsourcing, but theyre havingIm getting at the con-
tract management piece, and it starts with how you write the
terms of reference for what you think you need. You know
Mr. PALATIELLO. And we need the workforce to do that.
Mr. CONNOLLY. Yes. Yeah, because
Mr. PALATIELLO. I stated that in my testimony as well.
Mr. CONNOLLY. Absolutely.
Mr. PALATIELLO. And thats an inherently governmental function,
that is right. You dont want contractors hiring contractors on be-
half of the government. That is a very important function, and its
a question of priorities. We need to have a good, strong acquisi-
tiona stronger acquisition workforce in the government, abso-
lutely essential.
Mr. CONNOLLY. Absolutely. And I just stand on this, because I
can tellyou know this, but, I mean, the private sector doesnt
want to be in that position. The private sector doesnt want to be
in the position of substituting itself for contract management be-
cause it createswell, it can sometimes eliminate them from com-
peting. Because if youre going to do that, you cant compete for the
actual work. And the government has kind of sometimes strict and
funny conflict-of-interest rules that preclude the ability of compa-
nies, even pro bono, to provide expertise that we sometimes need.
My time is up, Mr. Chairman. Thank you for indulging me.
The chair recognizes the gentleman from Wisconsin, Mr.
Grothman, for 5 minutes.
Mr. GROTHMAN. Thanks much.
Professor, first of all, for Professor Kettl, how did you wind up
over here?
Mr. KETTL. Im hereactually, Ivein what may have been a
mistake in judgment, I left Wisconsin, and Im now at the Univer-
sity of Maryland, where I actually served as dean for 5 years, and
Im now a professor of public policy.
Mr. GROTHMAN. Okay. Very good. Now I got that.
Mr. KETTL. But I still want to, for the record, assert the fact that
I remain a shareholder of the Green Bay Packers.
Mr. GROTHMAN. Very good. Very good.
Okay. I have questions for Ms. Styles or Mr. McTigue. The com-
petitive sourcing critics say that any cost savings is eaten up by
the cost of administering the competition. Is there any truth to that
charge? Do you want to respond to that charge?
Ms. STYLES. So, of course, theres a cost to administering it.
Theres an infrastructure of people that actually have to run the
competitions and then have to manage the contracts. But the cost
savings are so significant, whether it stays in-house or whether it
goes out to the private sector, it is not wholly eaten up. There are
still cost savings, and frankly, there are still tremendous benefits
of simply the pressure of competition giving us better performance
and better service.
44
Mr. GROTHMAN. Is there any way we can measure, you know, the
savings we had last time, the last time we used A76 competition?
Ms. STYLES. Well, what I was fascinated by, as I left the govern-
ment at the end of 2003, and competitive sourcing continued to
buildyou know, a lot of the infrastructure for the civilian agen-
cies, built on what had been done by the Clinton administration at
DOD and pushing out the civilian agenciesIve been really
stunned by the lack of data and information from those competi-
tions that used to be out there. There was a law that required the
information to be out there about the cost savings. It has almost
entirely been taken down from the White House Web sites and the
agency Web sites. The data should be there. It was reported to
Congress. But its there, theres just very, very little analysis of the
most recent iteration.
Mr. GROTHMAN. So if I want to be a little bit jaded, I might won-
der if there is a lot of cost savings, but for political reasons you
want to hide the savings. Do you think thats whats going on here?
Ms. STYLES. I am really worried about that, because I was
stunned. Professor Kettl actually mentioned the Federal Advisory
Committee panel. There was one led by David Walker in 2002. This
is the report that they came out with. It cannot be found on the
Internet. It literallylike how is that possible that a years worth
of efforts with a panel of ten experts is not available on the Inter-
net? And this talks about the savings.
Mr. GROTHMAN. Hmm. Can you extrapolate from that report on
the savings that you think we might have today if
Ms. STYLES. Absolutely. I went backand this was only, you
know, a few days effort, because Mr. Palatiello and I have lots of
old files that we dont rely on the Internet necessarily to keep. And
I went back through GAO reports, the Center for Naval Analyses,
and I just scratched the surface of the ones that are available that
demonstrate the cost savings. Theyre really hard to find now,
though.
Mr. GROTHMAN. Okay.
Mr. PALATIELLO. Mr. Grothman?
Mr. GROTHMAN. Yes.
Mr. PALATIELLO. If I may, after Ms. Styles left the Office of Fed-
eral Procurement Policy, the program continued and OMBOFPP
was issuing annual reports. The last one was in May of 2008, re-
ported on the competitive sourcing results for fiscal year 2007, and
it documented the 2003 to 2007 savings at $7.2 billion, with the
majority of the savings to be realized over the next 5 years, and
the annualized expected savings of over $1 billion. I have the full
report. It is rather lengthy. Whether you want to enter it into the
record or not
Ms. STYLES. And its not on the Internet. I looked for it. I could
notyou may have been able to more easily.
Mr. PALATIELLO. I think it could be found in some back archive
someplace. It is not on the White House Web site any longer. But
that is the most recent report that actually documents the savings
that were achieved.
Mr. GROTHMAN. Professor Kettl, you must do research all the
time. Do you find this is sometimes something you deal with in
45
government; if the results are not what they want, it kind of gets
hidden and you cant find the results?
Mr. KETTL. In terms of trying to track down, especially old docu-
ments, things from the late 1990s and early 2000s are sometimes
refugees from the Internet. And these arethis is information we
need to try to recapture. But the broader point is that it is un-
doubtedly the case that we can save money by effective contracting.
Its also undoubtedly the case that we can lose substantial money
from ineffective contracting.
We can create fraud, waste, and abuse by contracting managed
poorly, and we can improve government performance by managing
it well. And what we really need to do is to make sure we do more
of the good stuff and less of the bad stuff. And our problem is cre-
ating the capacity for being able to do that and making the cost
comparisons to make sure that were making the smart decisions.
And thats where the really difficult problems are.
Mr. GROTHMAN. You just think its coincidence that that stuff is
not on the Internet, of all the things that are on the Internet?
Mr. KETTL. I think it probablyI can point to lots of stuff from
back in the late 1990s and early 2000s that I have been looking
for and just cant find anymore either. So it may very well be, espe-
cially if its not the product of a particular agency that didnt have
archival policies at that point.
Mr. GROTHMAN. We will give you one more question, and this is
for Ms. Styles again. Are there any limitations we should place on
the A76 competitions? Either you or any one of the folks.
Ms. STYLES. Sure. I mean, there are inherently governmental
functions, and thats a public policy decision to make. I mean, there
were times after 2011 that we thought screening at airports was
an inherently governmental function. And so there are some things
that should be off limits, but saying that nothing should happen,
that there should be zero examination of commercial activities, is
not the right response.
Mr. GROTHMAN. It seems the answer should be obvious. Thanks
much and Ill
Ms. Styles, if you will get the report to this committee, we will
make sure that its on the Internet in short order, and I can assure
you that it will not disappear.
Ms. STYLES. Thank you.
Mr. MEADOWS. And, Mr. Palatiello, if youve got something that
you think would be prudent, and I think Professor Kettl makes a
good point, is we need to look at the balance. Good data always
makes for at least informed decisions. And so, in doing that, it
doesnt always make for good decisions, but it makes for informed
decisions. And so, as we do that, we will do that.
The chair recognizes the gentleman from Tennessee, Mr. Dun-
can, for 5 minutes.
Mr. DUNCAN. Well, thank you, Mr. Chairman, and I want to
thank all of the witnesses for what I think has been very inter-
esting and informative testimony.
I tell people in my district all the time that we all dont hate
each other up here, though some people out in the country seem
to think thats the case and that everything is so partisan and divi-
46
sive. I think I get along with almost all the Democrats in the Con-
gress, but at the same time, I will say that, in this committee, we
have had many fairly contentious hearings.
This has been about the most pleasant hearing I think weve ever
had in this committee, because I think I agree with about every-
thing that everybody said here today.
And Mr. Connolly talked about outsourcing the oil change func-
tions and so forth. And I can tell you, I said in my statement, I
said: This bill is not about contracting out to the private sector for
the sake of just contracting things out; this bill is about getting the
best service and at the lowest cost for the taxpayers.
And Professor Kettl talked about how we need to manage these
contracts better, and I agree with that, because I can tell you I am
horrified when I read about some Federal contractor who is ripping
the taxpayers off. Thats not what this is about at all.
Mr. Connolly talked about all the caucuses that he chairs, and
he is a very hardworking and effective Member. I will tell you that,
in this Congressof course, in the Congress, to have an official
caucus, you have to have a Republican co-chair and a Democratic
co-chair. Im the Republican chair of the Clean Water Caucus, be-
cause that is a special interest of mine.
But I think it was about 12 years ago, the British Embassy
called up and said they had run a genealogy and found out that
I had more Scottish heritage than just about anybody in the Con-
gress, and they asked me would I form a Friends of Scotland Cau-
cus. And I was a little surprised at that, but I did that, and I still
co-chair that caucus, and I really enjoy that. And I get teased all
the time about being too tight, and maybe its because of that Scot-
tish heritage. But I remember I was told that they had two thick
notebooks in one department that had biographical sketches of all
the Members of Congress, and at the bottom, it had questions com-
monly asked at hearings. And they said, on most Members, it
didnt have many questions listed, but under mine, it said: How
much does it cost?
And I thought, well, theyve gotten me pretty accurately, but I
think that we havent had enough Members who have asked that
question as much as we should have.
And Mr. Connolly is correct also in saying that I guess most of
us on this side do generally favor the private sector.
Professor Kettl, what would you say to this: As a general rule,
do you think the private sector does things more economically and
efficiently than the public sector, or would you disagree with that?
Mr. KETTL. I think its a question that needs to be examined.
Sometimes the answer is yes; sometimes the answer is no. Some-
times what government seeks to buy is not the kind of stuff that
the private sector supplies. Sometimes when it comes to a lot of
commercial activities, it does.
And I think, as Mr. Connolly pointed out earlier, whats essential
is to try to figure out what we want to buy, who can supply it best,
and how the government can make sure it gets its moneys worth.
And that is the set of core questions that we have to examine, and
there isnt I think a black or a white question on this. And weve
sometimes gotten ourselves into the biggest problems by assuming
we know the answers to the questions before we start looking at
47
the evidence. I think we need just a much more careful examina-

tion of cost comparisons to be able to do this, and that I think is
the key to unlocking the A76 question.
Mr. DUNCAN. Well, I think thats exactly right, what youve just
said. And I also have read about the 10 percent of improper pay-
ments in the Medicare program, and thats something that we all
want to fight and do as much as we can about.
I guess another thing, I always usually root for the underdog in
sports, and I usually almost always root for the small business
against the big business. So one reason Ive worked with Mr.
Palatiello for so many years is that, you know, hes testified here
today that 71 percent of the businesses that would benefit from
this primarily are small businesses.
And do any of you question or doubt this when he said that the
potential savings here are probably $35 billion or more? Would any
of you question that? In other words, do all of you agree that there
can be substantial savings
Ms. STYLES. I certainly agree, yes.
Mr. DUNCAN. if we expand this?
Mr. McTigue?
Mr. MCTIGUE. I just want to make two comments there, Mr.
Duncan, that I think are important. The first is, one of my jobs in
government was controlling government spending. You can save all
of the money if you stop doing everything. So theres a tradeoff.
Youre going to spend some money, but what you really need to
measure is what you get in return. So sometimes the lowest price
is not necessarily the best deal. I think thats very important.
The second thing is, unrelated to this, please dont think that A
76 is a miraculous, perfect document. I would start off with a big
red pencil and get rid of three-quarters of it. It tries to micro-
manage the process too much. And if you were just judging the end
result, you would get a much better result than you would by using
all of that micromanagement, because a lot of the accountability is
for complying with the process rather than getting the best result.
Mr. DUNCAN. Right. Mr. Palatiello, this isnt all just about sav-
ings, saving money, though, is it? Arent there other potential bene-
fits?
Mr. PALATIELLO. Well, yes, and I spelled them out in my testi-
mony, in terms of bringing in innovation, being able to manage the
workforce for peak loads, things of that nature.
But two other points. One is I think all the Kumbaya has just
gone out, because Mr. McTigue would take a red pen to A76, and
hes sitting here with the author of the last version of A76. So I
think Angela may be a little offended by that.
Let me point out something that we really havent discussed in
detail this morning and the reason why I stand behind my $35 bil-
lion figure. The way A76 works is an agency says: Okay. We have
a widget-making function that we have in our agency, and we are
using government employees, and we have 100 Federal employees
involved in making widgets, and we are going to compete that
against the private sector.
Well, the first thing that occurs is that 100-person widget-mak-
ing function goes through what is called an MEO, a most efficient
organization reengineering. And they may determine that they can
48
make widgets with 75 people. Well, its that 75-person function

that then gets competed against the private sector, and the better
provider wins.
So, in terms of cost saving, the taxpayer saves regardless of
whether the activity gets contracted out or stays in-house, because
then that 75-person MEO gets implemented and the savings are
achieved.
I would point out in the study thator the report from OMB
that I cited earlier, in fiscal year 2007, this was not something that
was applauded by the private sector. Seventy-three percent of the
A76s that were conducted in fiscal year 2007 stayed in-house, but
there were still savings.
So your bill, for example, Mr. Duncan, doesnt mandate con-
tracting out; it mandates some type of review. Do something with
that commercial activity so a saving and an efficiency will be
achieved, regardless of whether the work gets contracted or not.
So, to Mr. Connollys point, no, our position is not that the pri-
vate sector is always more efficient than the government. We think
things always ought to be studied and competed to make the deter-
mination as to who should be the better provider.
Mr. DUNCAN. Well, Ive gone way over on my time, and I apolo-
gize, but let me say this. We were able to pass this earlier bill out
of this committee, and its in law, and I am very pleased about
that. But what were trying to do is go a little bit further, expand
on that. And I think that it would be a good thing if we could do
that, and thats what this is about. Anyway, I will stop.
I will say this, Mr. McTigue. I came to New Zealand many years
ago. Its a beautiful country, and they actually had me shear a
sheep on a sheep farm there. And my dad told me many years ago,
he said, everything looks easy from a distance. And I can tell you
theres a lot of truth in that, because that is a very difficult thing.
The professionals make it look pretty easy, but its not.
Mr. MCTIGUE. Every Scotsperson should be able to shear a
sheep.
Mr. DUNCAN. Thank you.
Mr. MEADOWS. I thank the gentleman for his questions and his
interest in this topic.
The chair recognizes himself for a series of questions, and so I
just want to try to bring some of this into focus in two ways. One
is I want to thank all of you for being here today and, actually, for
the genteel way that we have had differing opinions bantered back
and forth. I think I would agree with Mr. Duncan that its refresh-
ing.
I would be remiss, however, if I would suggest that were all on
the same sheet of music at this particular point, because this is the
startand I would like to reemphasizethe start of really looking
at procurement overall and how we do it and how it should be
done, what are best practices.
Mr. Connolly and I have really agreed to start to lay the founda-
tion for real reform. It will not happen this year. And so that foun-
dation will start to be laid, hopefully, again, in the spring of the
next term, provided that both of our constituencies believe that we
should return, and then, from there, start to make real progress on
how we look at procurement overall, whether it is the public/pri-
49
vate side of things, whether it is procurement overall, whether it

is best practices. And this is much larger than just this particular
contracting issue.
With that being said, it is incumbent on all of you, all four of
you, to get us real details on what you see are the problems associ-
ated with this. Mr. Connolly actually has two very tough constitu-
encies. He has Federal contractors and Federal workforce, of which
those have at times competing interests with regard to this par-
ticular issue that he has articulated. He has also been one who has
been very transparent in saying he wants to make sure that we do
the best thing at the right time at no expense to the American tax-
payer, and Im taking him at his word. Weve been able to work in
a real bipartisan way there.
So, with that being said, heres what I would like each one of you
to comment on. As we start to look at the procurement process and
if we are going to go from less insourcing to more outsourcing, one
of the troubling thingsand I see some of our Federal contractors
herethat I get, it gets to be we have an outside firm who is going
to do some Federal work, but we put so many parameters on it that
we dont actually allow the outside firms to come forward with a
proposal that will actually be implemented in an effective way.
So then the finger-pointing starts. I used to have general contrac-
tors that worked for me. So you had a general contractor say: Well,
it wasnt my fault. It was the subcontractor over here, or it was
this person.
What I need from each one of you for you to comment on is
where you get that conflict, where you have a Federal agency that
puts out an RFP that is maybe too ambiguous, and so everybody
is bidding on this, and then all of a sudden, we try to work it out
later on in the process.
And, Mr. McTigue, have you ever seen that happen in the public
arena?
Mr. MCTIGUE. Absolutely. I also had the task of stopping it from
happening. And one of the things is what I mentioned in my testi-
mony, allowing, readily allowing departures from the signed con-
tract, because around that, you get changes to terms and conditions
and changes to payments, and then its not fair to all of those who
failed in the bid.
The second thing I would say about that is that theres too much
focus on how many jobs are being contracted. I think that its the
task that you are contracting that is more important and whether
or not you can get better outcomes from putting that out to com-
petition.
And part of it is not just about price; its about, how can we do
it better? That might be better technology. It might just be better
empathy with the subject groups that youre going to deal with.
Also, sometimes, it means that the best bid is one you have to turn
down. I got a bid once, we were puttingcontracting out debt col-
lection. And that was very effective. We were getting a lot of debts
that previously were hard to collect. One of the bidders was actu-
ally the Road Knights motorcycle gang, and they theoretically had
a very good record of collecting money, but we had to say: No, you
are not a satisfactory bidder.
So those things have to be taken into account in the process.
50
Mr. MEADOWS. Point well taken.

Ms. Styles, in that Mr. McTigue would like to redline most of
your proprietary work, how would you take some of that and
streamline it so that we can be more efficient and effective as it
relates to the contracting and procurement process?
Ms. STYLES. Well, what I really appreciate about this hearing is,
I will tell you, in my 3 years at OMBand I must have testified
like more than 20 times on this issue while I was in the govern-
mentis that rarely do people understand that public-private com-
petition wasnt going to be effective unless our procurement system
was really effective.
And I think what youre finding today is that, as the dollars in-
crease going out the door to Federal contractorsand it wasnt just
public-private competition; it was just because we were spending
more to fight terrorism, reallyis that the oversight increases.
So what you see today is youve got the Department of Justice,
DCAA. Youve got the IGs. Youve got AUSAs. Youve got the press
that all look at contractors, and what has happened is there has
been this extraordinary chill in the discussions between them.
So when you describe the situation where, you know, the govern-
ment comes out because nobody will talk to them about what their
requirement is, they dont really have enough information from the
private sector to really put together a good RFP. And then when
things start going bad, theyre even scared to talk to the govern-
ment about it, just because, are we going to be investigated? Is my
contracting officer going to be investigated? Is my company going
to be investigated? So its created a real chill in the procurement
system in terms of providing the best service, I think, for the tax-
payer.
I will say, though, in the A76 process and in rewriting it, like
anything else, its a compromise. We worked extremely closely, be-
lieve it or not, with the AFGE on rewriting that. You know, the
door was very open. They commented on many versions of it. Im
not going to say that it was always friendly, but the door was al-
ways open, and we worked really hard on that.
I think, after I left, it became just more, you know, difficult be-
tween the administration and the AFGE. And its really critically
important, whether you rewrite A76 or not, that you really have
both parties at the table to compromise. And its going to be a com-
promise. And sometimes that means that compromise on how you
do the process is pretty complicated.
But I will say my mantra in running my law firm is that you
should never let the perfect be the enemy of the good enough. And
here you see $1.2 million commercial activities that arent being
competed. Do something. You know, actually, take a look at some
of these things as opposed to waiting for the perfect process or the
perfect cost comparison. That will never exist.
Mr. MEADOWS. Professor Kettl, obviously, as youve looked at
this, you can see a number of the cost issues. Have you seen there
being a very difficult time to determine that real cost comparison?
So you have public sector, private sector. I was in the private sec-
tor all my life, and I put everything in there, because, I mean,
whether it was the gas to get vehicles there, I had to figure it, be-
cause if I made a mistake, it meant that I had to declare bank-
51
ruptcy. And so it was accounting for all those costs. And at times,
in the public sector, we dont necessarily do that.
So would you suggest that the current cost analysis at times is
ambiguous orand I dont want to put words in your mouth, but
youve looked at that and testified to that.
Mr. KETTL. Sure. You can look at whether its ambiguous, wheth-
er its uncertain. At the very least, its contentious. The basic prob-
lem is we just dont have an agreed-upon methodology for making
the cost comparisons. If the basic point is, whoever it is who can
do the job best and cheapest ought to get the work, we need to be
able to figure out how to do that and how to have some consensus
on agreeing on what that looks like. And we have no consensus on
how to do that.
My suggestion is to circle back, perhaps, to this idea of creating
an advisory committee to establish a methodology that creates a
level playing field. This is a set of rules by which everybody will
agree to play, and its something that, in the coming year, may be
somethingcan be the foundation for both trying to reinvigorate
A76 and being able to establish the goal of giving the work to
whoever it is who can do it best and cheapest.
Mr. MEADOWS. All right.
Mr. PALATIELLO. Mr. Chairman, there are three things that I
would add. First of all, the FAIR Act was a compromise. As Mr.
Duncan indicated, he had an earlier version of the Freedom from
Government Competition Act. There was a negotiation between the
private sectorI was chairing the Procurement and Privatization
Council of the U.S. Chamber at the time, so I was very much in-
volved in those discussionsAFGE and the Clinton administration,
and what we all could agree to was the FAIR Act.
I would agree with Mr. Duncan that the shortcoming and one
thing we had to give in that was the FAIR Act said: Do the inven-
tory and then review everything on the inventory. We could not
reach agreement as to what constituted that review. The term was
not defined. And his current bill tries to establish what that review
process is.
I would agree that theyou know, when I cited before, when in
the last year where theres a report from the Bush administration,
that 73 percent of the competition went to the government, the pri-
vate sector was saying: Well, we dont have a good methodology for
calculating the in-house government cost; theres no way they could
be winning that percentage. So I would agree that revisiting that
issue is probably worthwhile.
Three things that I think are absolutely essential: One, as I
think many of us have said, is training and rebuilding that acquisi-
tion workforce.
The second is communication, and Ms. Styles mentioned that. It
is amazing today, when a government agency puts out an RFP, the
communication shuts down. Oh, I cant talk to you about this be-
cause we have to preserve procurement integrity. If I tell you some-
thing, Im afraid I wont tell one of your competitors. So the com-
munication just gets shut down, and thats not good for the process.
So I think that is another thing we have to review.
And the third is, surprisingly, the communication within the gov-
ernment. Often, whether this is a regular procurement or an A76,
52
the program manager often doesnt see the RFP until its out in
theI am dating myself, Commerce Business DailyFedBizOpps.
So theres this lack of communication between the contracting offi-
cers and the program people that actually have to use the service
or product once its purchased. So I think enhancing that commu-
nication would really improve the process all the way around, com-
munication within the government and communication between
government and the firms that are seeking to compete for the con-
tract.
Mr. MEADOWS. All right. Well, thank you all.
Im going to recognize the ranking member, Mr. Connolly, for his
closing remarks.
Mr. CONNOLLY. Thank you, Mr. Chairman.
And thank you to the panel.
And good luck with that apples-to-apples thing. I mean, we have
that problem even within the private sector, because there are peo-
ple who come in and low bid and win contracts. And I can remem-
ber arguing about whether they had fully loaded costs in their pro-
posal and so forth and accurate overhead and administrative costs
and so forth.
So, at the end of the day, this happens all the time, but, I mean,
for various and sundry reasons, sometimes because of set-asides or
whatever, but somebody who wins the contract obviously patently
does not have the capacity to undertake the contract and then has
to subcontract with the people who do have the expertise. And its
a bit of a shell game, so that we meet check boxes or meet certain
statistical goals. And I am not sure the public is well-served by
that, or the private sector, frankly, is well-served by that, but that
is a different issue.
I just want to point out in context and to end, Mr. Chairman
because one would not want the impression left from this hearing
that somehow were starving the private sector of Federal Govern-
ment businesswe spend over a half a trillion dollars a year on
outside products and services. And thats a pretty big increase from
where we started, say, at the beginning of the Bush administra-
tion, 2000. We grew 87 percent in that time period. Its growing at
a rate of about 5 percent a year.
Contracting also grew as a percentage of total Federal spending
during that time. So its not like, Well, yeah, but if you look at
the total pie, it shrunk. No. Actually, contracting grew from 11
percent to 15 percent.
And then a final point that the GAO presented to us: The Fed-
eral Government spends more on contract employeesyour point
when you were talking about my districtthan it does on public
employees. GAO pointed out that non-DOD agencies spent $126
billion on service contractors, and DOD spent $184 billion, for a
total of $310 billion. The total cost of Federal civilian employees,
excluding Postal Servicethey are not exactly Federal employees
by way of contrast, was $240 billion.
So, you know, again, for me, its not theology, but I did want to
put it in context. Actually, contracting has grown. Non-Federal em-
ployment in this context has also grown. And the Federal work-
force, as a percentage or in a ratio to U.S. population, has actually
shrunk.
53
Thank you, Mr. Chairman.

Id like to thank all of our witnesses for being here, and so let
me just close by saying this. It is not my policy nor my desire to
hold hearings just to hold hearings. And I think you will find the
ranking member and I have been committed to not only hold hear-
ings but to follow up on those things. So, whether its input from
stakeholders, whether its input from you, as witnesses and experts
in this field, if you will get it to this committee. This fits into really
a painting that weve started to paint on a canvas that, when we
came in, really was blank. We said: Were going to take a blank
canvas, make no assumptions, and then start to put the different
images on a canvas. And by that, whether it is this, whether it is
job sharing, whether it is FITARA, whether it is the DATA Act, a
number of these areas that start to bring in different parameters
on what we do well and what we dont do well, we are in that infor-
mation-gathering process, but it is one that we will be tenacious
and diligent on until, ultimately, we come up with a product that
incorporates something like Mr. Duncan has in his and a number
of other legislative remedies and then working with whatever ad-
ministration is there to hopefully look at the procurement process
that advances the efficiency and accountability that we all want.
So I want to thank you, look forward to your continued input.
And, with that, if there is no further business, without objection,
the subcommittee stands adjourned.
[Whereupon, at 10:29 a.m., the subcommittee was adjourned.]
APPENDIX
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Hearing: Contracting Fairness

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CONTRACTING FAIRNESS

Serial No. 11468

Available via the World Wide Web: http://www.fdsys.gov

U.S. GOVERNMENT PUBLISHING OFFICE

For sale by the Superintendent of Documents, U.S. Government Publishing Office

JENNIFER HEMINGWAY, Staff Director

Friday, July 8, 2016

I also cochair the Smart Contracting Caucus, and Taiwan and

or even the collaborator who theyre evaluating or theyre moni-

STATEMENT OF ANGELA STYLES

eral Government to open commercial activities performed by the

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Mr. MEADOWS. Thank you, Ms. Styles.

STATEMENT OF JOHN PALATIELLO

Federal schools. The GI Bill was essentially a voucher program, a

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Mr. MEADOWS. Thank you for your testimony.

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Mr. MEADOWS. Thank you for your testimony.

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Mr. MEADOWS. Thank you, Professor Kettl.

FedBizOpps and that same office with the Corps of Engineers is

I yield back the balance of my time that I dont have.

workforce and to the Federal contracting workforce. Honestly, it

I try to replace it myself or do I call the plumber and have him

the evidence. I think we need just a much more careful examina-

make widgets with 75 people. Well, its that 75-person function

vate side of things, whether it is procurement overall, whether it

Mr. MEADOWS. Point well taken.

Thank you, Mr. Chairman.

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