STATEMENT
OF ANGELA B. STYLES
ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY
BEFORE THE
READINESS AND MANAGEMENT SUPPORT SUBCOMMITTEE
COMMITTEE ON ARMED SERVICES
UNITED STATES SENATE
MARCH 19, 2003
Chairman
Ensign, Senator Akaka, and Members of the Subcommittee, I am pleased to
have this opportunity to update you on efforts the Office of Federal Procurement
Policy (OFPP) is taking to address the challenges facing our procurement
community. My comments, reflective of OFPP's activities, are government-wide
in scope, but are shaped in many important ways by the critical mission
needs of the Department of Defense (DoD).
Broadly
speaking, the majority of OFPP's current activities are intended to: (1)
make the federal marketplace more competitive in order to lower costs
for taxpayers and improve program performance to citizens, and (2) preserve
acquisition flexibilities through more accountable and strategic management.
As you know from prior statements, my primary mission since assuming the
responsibilities of Administrator of OFPP in May 2001 has been to renew
our acquisition workforce's focus on the fundamental building blocks of
procurement: sound planning, consistent use of competition -- applied
in a fair, transparent, and ethical manner -- well structured contracts,
and solid contract administration. While these principles are hardly strangers
to our workforce, we often find ourselves struggling to apply them consistently
in a world of rapidly changing needs and ever-evolving technologies. My
hope is that clearer emphasis on acquisition basics will better position
us as a community to ensure that taxpayer resources are managed well and
used more effectively.
There are
several important initiatives OFPP is pursuing, in close coordination
with other offices within OMB, to pave the way to a performance-based
environment -- in terms of both fostering effective use of competition
and instilling greater accountability for our actions. These initiatives
include:
- creating
a viable infrastructure for public-private competition;
- strengthening
the use of competition in our everyday acquisitions for services;
- expanding
the small business supplier base;
- reducing
transaction costs and increasing transparency through technological
advances; and
- improving
purchase card practices.
Let me now
briefly discuss each of these efforts with you.
Creating
a viable infrastructure for public-private competition
As you know
well, competitive sourcing -- i.e., using competition for selecting sources
to perform government activities that are commercial in nature -- is a
key component of the President's Management Agenda and the Administration's
vision for a market-based government. After nearly two years of hard work
with the agencies, I am pleased to see a large number of our federal managers
accepting the difficult challenge of building an infrastructure to identify
commercial activities, planning for their performance, and, for the first
time, institutionalizing public-private competition to address those needs.
While creation
of an infrastructure is just one step, it is a critical step. Many of
the processes relied upon until now are rooted in long-outdated management
ideals that have permitted vast numbers of our commercial activities to
remain insulated from competition. As our mindset transforms from one
that resists competition to one that embraces the value competition generates,
agencies should find themselves well-positioned to achieve a mix of government
and contract support that is optimal for mission success.
Progress
is proceeding according to plans at many of the agencies we are tracking
in the Budget (i.e., the "scorecard agencies"). We are starting
to see real management advances in a few instances. DoD has the largest
and most experienced infrastructure in the federal government for conducting
competitive sourcing, which is governed by OMB Circular A-76. The Center
for Naval Analysis and other evaluators have reviewed the results of DoD’s
competitions and found that: (1) the net long-term savings are significant
and permanent; and (2) few federal employees are worse off after competition,
and many are hired by contractors who win competitions.
DoD is increasing
the "tooth-to-tail" ratio through competition of military members
and civilians in commercial activities to less support-oriented activities,
particularly war-fighting. DoD is committed to reviewing half of the 452,000
positions in commercially available activities. DoD estimates that announcement
of new A-76 competitions will be around 10,000 positions in FY 2003 and
at least 10,000 in FY 2004. A major DoD review of A-76 and other competitions
by each Military Service and Defense Agency is scheduled this year so
that the President's FY 2005 Budget can present how DoD will achieve this
Presidential Management Initiative.
Action is
occurring at other agencies as well. For example, the Department of Veterans
Affairs is opening up the activities of 52,000 employees (primarily ancillary
support functions) to competition over the next five years -- initiating
studies of 25,000 of them in 2003 alone. At the Federal Aviation Administration,
2,700 federal flight services personnel are participating in a public-private
competition. These federal personnel currently provide weather reports
to private pilots, a function that is currently outsourced by every major
airline. Similarly, the Department of Energy has started public-private
competition for a variety of functions (such as computer personnel, graphic
designers, and financial services personnel) and locations nationwide.
Despite
progress, overall use of competitive sourcing remains weak. This is not
surprising when considering that the current processes governing sourcing
decisions are time consuming and unnecessarily complicated. Therefore,
OMB is committed to significantly improving how agencies determine whether
commercial activities will be performed by public or private sources.
Last November,
OMB proposed major revisions to OMB Circular A-76. The proposed changes
would provide for processes that are more manageable, more competitive,
more even-handed, and more results-driven. These objectives would be accomplished
by:
- helping
agencies more easily distinguish between commercial and inherently governmental
activities by offering a more concise definition of "inherently
governmental" and rescinding the more complex description currently
relied on;
- making
processes simpler and easier to understand, including appropriate use
of certain well-tested practices in the Federal Acquisition Regulation
(FAR);
- more
fully accommodating a program's need for best value and innovation,
while still requiring cost to remain a factor in all competitions and
the deciding factor in many competitions;
- incorporating
appropriate mechanisms of transparency, fairness, and integrity (e.g.,
by separating the team that is formed to write the solicitation from
the one established to develop the agency tender) so that competitions
occur on a level playing field that results in performance by the best
source;
- ensuring
that sourcing decisions are made in real time by imposing deadlines
that would reduce the cycle time from the current delay-plagued three
years (on average) to one year; and
- improving
post competition oversight so that selected sources, whether from the
public or private sectors, make good on their promises to the taxpayer.
With regard
to the first element, in particular, which involves distinguishing the
universe of activities that may be eligible for competition from those
that would not, I would emphasize that competitive sourcing is not, and
has never been, about outsourcing inherently governmental activities.
We are focused strictly on commercial functions, whether they be specialized
functions or more routine functions such as hanging dry wall or mowing
the lawn. I am puzzled to hear statements that the Administration is planning
to contract functions intimately related to the public interest, such
as determinations on the content and application of regulations. These
types of functions must be performed by public employees and we will continue
to depend on our able workforce to execute these important responsibilities
on behalf of our citizenry. This notwithstanding, we will still require
agencies to identify their inherently governmental functions to ensure
activities are properly characterized. By doing so, commercial functions
that should be considered for competition will not remain insulated from
the savings that a fair competition can yield. At the same time, we will
not force agencies to pursue competitive sourcing for competition's sake.
We appreciate that each agency has a unique mission and workforce mix
and will continue to work with agencies in tailoring competition plans
accordingly.
We have been working aggressively to consider the more than 700 comments
that were submitted on the proposed rule. These comments are posted on the
Internet at http://www.omb.gov and a discussion
of their general disposition will be provided in the preamble to the final
circular.
In analyzing
the public comments, we have been keeping an especially watchful eye out
for areas where processes may cause results that fall short of expectations
-- e.g., instances where the process unnecessarily constrains management's
ability to fully consider and compare options. In this regard, a number
of commenters pointed out that administrative convenience may drive agencies
to pursue direct conversions even where in-house providers may be the
better alternative. We are examining the viability and fairness of a process
that would allow for a highly simplified and streamlined consideration
of public and private sector sources.
We are aiming
to complete our review of public comments shortly so that agencies may
soon take advantage of our transformed processes. While final decisions
have not yet been made, you should anticipate that the major elements
I described a moment ago will be incorporated, in appropriate fashion,
in the final revisions to the circular.
Of course,
our commitment doesn't end with publication of the circular. This is just
a beginning. We will continue to work with agencies in crafting appropriate
competition plans. Equally important, we will track results through our
scorecard so that successes are promoted and shortfalls corrected.
Strengthening
and improving the use of competition in our everyday acquisitions for
services
As agencies
look to the marketplace for "managed solutions," we must continually
strive to make sure that the vehicles and strategies we use for these
purposes are shaped to achieve good results. For this reason, we have
been paying increasing attention to the popular Multiple Award Schedules
(MAS) program and looking for ways to encourage greater use of performance-based
services acquisitions.
MAS Purchases. OFPP recognizes that agencies have been inconsistent
in adhering to certain basic acquisition requirements in their MAS purchases,
such as in their use of statements of work, pricing of orders, application
of competition, and documentation of award decisions. The issuance last
fall of a final rule in the DoD FAR Supplement (DFARS) implementing section
803 of the FY 2002 Defense Authorization Act will significantly assist in
strengthening the Department's use of competition in its schedule purchases
for services over $100,000. But additional steps must be taken. I, and the
other members of the FAR Council, seek to significantly improve the application
of acquisition basics on MAS purchases for services and reinforce sound
MAS practices generally at all agencies.
Within the
next several weeks, I anticipate issuance of a proposed FAR that will:
- add new
coverage on use of statements of work when acquiring services from the
MAS;
- reinforce
documentation requirements generally and address the documentation of
sole-source orders and price-reasonableness determinations in particular;
and
- clarify
and strengthen the procedures for establishing blanket purchase agreements
against the MAS.
In developing
these changes, we gave careful consideration to the findings and recommendations
made by the General Accounting Office as part of its study of DoD’s
large MAS buys for services.
Performance-based services acquisitions (PBSA). OFPP is taking
steps to reinvigorate the use of PBSA and capitalize on the competitiveness
and innovativeness that is generated when contractors are given the freedom
to figure out the best solution to meet the government's needs. Specifically,
an OFPP-sponsored inter-agency working group has developed a set of recommendations
for making PBSA policies and procedures more flexible and easier to apply.
The working group's recommendations will form the basis for proposed amendments
to the FAR's coverage on service contracting. The recommendations also will
be used to develop new practical guidance, such as sample performance-based
statements of work that OFPP plans to post on the Internet for easy access
and application to appropriate agency services acquisitions. This new guidance
may replace OFPP's current best practices guide, which was last updated
in 1998.
OFPP intends
to review data collected by the Federal Procurement Data System (FPDS)
to measure PBSA usage. FPDS began collecting data in FY 2001 on whether
service contracts are performance-based. This measure will not, by itself,
indicate the effectiveness of PBSA. However, the measure will serve as
a useful gauge of whether agencies are making PBSA a priority.
Expanding
the small business supplier base
The Administration
seeks to create a dynamic atmosphere where competitive and innovative
small businesses can flourish and apply their talents to the many pressing
needs facing our government. Over the past 10 years, we have seen a significant
increase in contract bundling -- i.e., where agency procurement requirements
are consolidated into contracts that are unlikely to be suitable for performance
by a small business because of the size or performance requirements of
the contract. As we have broadened the scope of contract requirements
and awarded fewer contract vehicles over the past decade, the pool of
small business contractors receiving new contract awards declined from
26,000 in 1991 to about 11,600 in 2000.
We cannot
afford to revert back to the paperwork and labor-intensive acquisition
system of the past; nor can we pursue operational efficiencies at the
expense of reducing small business opportunities. We must find an appropriate
balance between operational efficiency, opportunity, and fairness. We
must also recognize that bundling decisions should not be an “either
or” decision, i.e., a decision to either bundle or not bundle acquisitions.
Like any acquisition strategy, analysis of bundling should account for
how it would help or hinder the operation of programs within and across
agencies. For example, the Administration’s e-Government initiatives
often require integration that may be facilitated by bundling if the agency
demonstrates substantial benefits. However, even in instances where bundling
is found to be necessary and justified, agencies should seek alternative
acquisition strategies that have less negative impact on small businesses.
Today, there
are certain conditions under which an agency may be able to bundle contracts
without analyzing the benefits or considering alternatives that may produce
similar positive results with fewer negative effects on small businesses.
Without this analysis, we put ourselves at risk of a shrinking contractor
base and fewer products and services from which to choose.
Last October,
OFPP submitted a nine-point strategy to the President for eliminating
unnecessary contract bundling and mitigating the effects of bundling that
agencies find to be necessary and justified. The strategy is designed
to: (1) promote leadership and accountability; (2) close regulatory loopholes;
and (3) mitigate the effects of necessary and justified contract bundling.
With successful implementation of this strategy, we believe that we will
have reduced a significant barrier to entry and, in doing so, allowed
small businesses to bring their innovation, creativity, and lower costs
to the federal marketplace.
With this
result in mind, OFPP established and heads an interagency task force to
bring the bundling strategy to fruition. The task force's primary task
has been to develop regulations that implement the new bundling strategy
in the FAR and SBA's regulations. Proposed regulations, which were published
in the Federal Register at the end of January, would:
- provide
more effective agency small business contracting review procedures;
- require
agencies to identify alternative strategies that reduce bundling and
justify decisions not to use those alternatives; and
- make
clear that multiple award contracts and orders under those contracts
are not exempt from regulatory requirements and procedures designed
to eliminate unnecessary contract bundling and mitigate the effects
of bundling.
Comments
on the proposed rules are due by April 1, 2003.
We have
also asked agencies to report quarterly to OMB on the status of their
efforts to address contract bundling issues. OFPP will be monitoring agency
actions and will develop additional guidance as necessary.
Reducing
transaction costs and increasing transparency through technological advances
The President's
Management Agenda calls on federal agencies to champion a citizen-centered
electronic government that consistently delivers high quality service
at lower cost. The appeal of "e-Government" for procurement
is easy to see. The efficiency, transparency, and administrative simplification
that technology enables can stimulate the type of robust participation
that makes for a successful virtual marketplace. Consider "e-Buy"
-- i.e., a new electronic quote system for MAS purchases. As a convenient
and easy medium for transmitting notices, e-Buy can be a catalyst to further
increase MAS competition without hampering the efficiencies that draw
buyers to the MAS program.
The introduction
of e-Buy is particularly timely in light of the recent and pending regulatory
changes that seek to strengthen MAS purchasing. I commend both the Federal
Supply Service (which operates the MAS) for making this infrastructure
available to MAS customers and DoD for highlighting the availability of
e-Buy in the DFARS as part of its coverage on schedule purchases.
The "inter-agency
contract directory" (ICD) offers another good example of how we are
using the powers of the Internet to improve our buying practices. While
agencies have become increasingly interested in inter-agency contracting,
there are few, if any, places, they can turn to see the range of contracts
across government that may be suitable for their use. The ICD is designed
to overcome this shortcoming and facilitate more informed decision making.
Later this year, the ICD will provide general information about contracts
available for inter-agency use, including information about: the scope
of the contract, socio-economic considerations, ordering procedures, and
fees. Agencies will be able to use this information as one data point
in deciding whether they are better served by placing an order under an
existing contract or pursuing a new open market contract action. The ICD
will also help senior managers to get a better picture of the number of
inter-agency contracts that their agencies are operating.
GSA, which
manages this project in consultation with my office, has been working
for a number of months to address configuration issues. In addition, the
FAR regulatory councils have evaluated public comments on proposed FAR
changes that will provide the regulatory underpinning for the ICD. Population
of the directory is expected to begin after validation testing is completed
this spring. FAR changes will be finalized at that time to encourage consideration
of the ICD during acquisition planning and market research as well as
to ensure agencies regularly input information on new inter-agency vehicles
in a timely fashion.
Of course,
"e-Buy" and the ICD are just two components of our efforts to
reshape information technology (IT) investments in ways that mirror the
integrated nature of acquisition. Our "integrated acquisition environment"
(IAE) initiative seeks to facilitate the migration and leveraging of IT
investments to modernized, technology-based infrastructures that harmonize
the varying functions that support the acquisition process. GSA serves
as managing partner of the IAE initiative, working closely with OMB's
Office of Information Technology and Electronic Government, and OFPP.
IAE projects
have been placed into one of three broad functional areas that collectively
encompass the acquisition process, namely, functions that: (1) promote
access to business opportunities, (2) manage information about the government's
business partners, or (3) capture information on acquisition activities.
For instance, "e-Buy" and the ICD are part of a larger "business
opportunities network" that also includes:
- "FedBizOpps,"
our government-wide point of entry for information on actions over $25,000,
and
- "SUBNet,"
a one-stop resource for information on subcontracting opportunities.
The functional
groupings are helping managers across agencies to more easily identify
and avoid redundant IT investments. This saves money for the government
and can reduce burdens on contractors as well. An integrated "business
partners network," for example, means that contractors may register
once and avoid the effort of submitting redundant data each time they
seek to do business with the government. Accurate and up-to-date registration
information also facilitates timely payment to contractors.
In short,
the IAE is laying the foundation for lasting change. As we work our way
closer to a technology-based infrastructure, we greatly increase the odds
of achieving major improvements in how agencies carry out their missions.
Improving
purchase card practices
It is no
secret that purchase cards have evolved quickly into a major institution
in our procurement system, with expenditures increasing more than eight-fold
since the mid-1990s. The reason for the purchase card's popularity is
not difficult to understand: purchase cards eliminate many of the impediments
of traditional procurement. Unfortunately, the efficiency of the card
program has increasingly become overshadowed by waste, abuse, and even
fraud, with little or no corrective action taken by the agency. While
some members of our procurement community appear concerned that corrective
action will unnecessarily erode flexibility, I believe that failure to
act is much more likely to put this flexibility at risk.
To help
preserve public confidence in our workforce's ability to be effective
stewards with purchase cards, we have taken several important actions.
In January, OMB began requiring agencies to report quarterly on certain
aspects of their purchase card programs to ensure that agencies are implementing
strong internal controls. Agencies will provide information regarding
the number of cards, span of control, spending limits, rebates, delinquency
rates, fraud and misuse investigations, disciplinary actions taken, and
other agency information related to the management of these programs.
In addition,
the President's Budget for FY 2004 proposes a statutory amendment that
would require departments and agencies to evaluate the creditworthiness
of individual employees before issuing a government purchase charge card
(or Government travel charge card). Agencies would not be allowed to issue
charge cards to those without a credit history or with an unsatisfactory
credit history. Agencies would be required to develop guidelines and procedures
for disciplinary actions to be taken against agency personnel for improper
or fraudulent use, or abuse of charge cards. Better management over card
activities, as reinforced by this provision, will help agencies capture
cost-saving efficiencies in acquisition and finance operations without
wasting hard-earned taxpayer dollars.
I would
emphasize that our efforts are focused not just on protecting against
waste. We are also seeking to capitalize on the value that cards offer
in furthering strategic decision making. Cards give agencies the ability
to gain much better insight into buying behaviors of their employees.
Agencies must actively use this information to identify opportunities
for smarter purchasing and we plan to work with agencies to find appropriate
ways to make this happen.
Implementing
a balanced reform of Federal Prison Industries
Before concluding,
I would like to draw your attention to promising developments regarding
the reform of Federal Prison Industries (FPI). The Administration strongly
supports a balanced reform of FPI that would level the playing field between
the private sector and FPI, increase opportunities for small businesses,
give agencies greater flexibility to obtain best value when spending taxpayer
money, and ensure continued work opportunities for federal inmates. As
the Armed Services Committee has recognized, the products that agencies
have been required to buy from FPI may be ones that many of our nation's
private sector contractors are able and willing to provide at better prices
and at a level of quality that FPI, as a federal correctional program,
is not always in a position to match.
Over the
last several months, FPI's Board of Directors has taken several administrative
steps that will benefit all agencies. I suggested many of these actions
to the Board and strongly commend them for recognizing the need for reform
and taking timely action. Let me briefly describe these actions for you.
In January,
the FPI Board of Directors raised the waiver threshold for application
of the mandatory source requirement from $250 to $2,500. This change,
which will apply to all federal agencies and become effective when implemented
in the FAR, will give buyers across the government the opportunity to
carefully consider the wide array of products offered in the marketplace,
as well as by FPI, and make buying decisions free from the management
restraints associated with mandatory sourcing.
Agencies
will further benefit from additional business reforms the Board announced
earlier this month. The Board resolved that:
- FPI will
immediately begin granting waivers in all cases where the private sector
provides a lower price for a comparable product that FPI does not meet.
- The FPI
Chief Operating Officer will prepare and present to the Board by March
31 a plan to end the application of mandatory source for products for
which FPI's share of the Federal market exceeds 20%.
- Inmates
will be denied access to personal information of any kind, including
credit card numbers, medical records, social security numbers, credit
records, and other personal information.
In addition,
the Board agreed to consider ending the practice of selling products for
which prison labor does not have a substantial portion of the value (at
least 20%) of the product. OFPP's intent in offering this proposal to
the Board is to help ensure that all of FPI's activities further the goal
of providing work opportunities for federal inmates. We think such an
action would be consistent with the Board's announcement made at the end
of last year to eliminate the practice of "pass through" sales,
in which FPI purchases products directly from commercial manufacturers
and resells them to a federal agency to meet delivery deadlines. The Board
has tabled action until it can obtain more information. We look forward
to a continued collaborative effort with the Board as it pursues reform
efforts.
Conclusion
As this
year's Budget again illustrates, the Administration remains firm in its
resolve to improve the performance of government and the culture that
drives our investment decisions. For the acquisition community, this means
that we must continue our efforts to promote access to the federal marketplace,
and ensure competition is used effectively at every level of purchasing
throughout the government. This will enhance opportunities for all businesses
-- small and large -- spur creativity in the marketplace, and provide
the framework for the delivery of better value for agencies and the taxpayer.
There is
more to be done. But I am confident that the steps we are taking are laying
the foundation for an acquisition process that is considerably more market-driven
and results-oriented than that which this Administration inherited.
This concludes
my prepared remarks. I am happy to answer any questions you might have.
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