STATEMENT
OF ANGELA B. STYLES
ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY
BEFORE THE
COMMITTEE ON GOVERNMENT REFORM
UNITED STATES HOUSE OF REPRESENTATIVES
April 30, 2003
Chairman
Davis, Congressman Waxman, and Members of the Committee, I appreciate
the opportunity to appear before you today to discuss the Committee's
current plans for the “Services Acquisition Reform Act of 2003”
(SARA). Service contracting represents an ever-increasing proportion of
our procurement budget, as agencies look to the commercial marketplace
for managed solutions to address their varied needs. We must find ways
to ensure our officials are effectively positioned within their agencies
to manage the acquisition process, our contactors are offered the type
of incentives that will motivate them to perform at their best, and our
taxpayers are able to reap the full benefit of the marketplace's ingenuity.
I thank the Committee for engaging the Administration in productive dialogue
to address these important challenges.
For our
part, the Office of Federal Procurement Policy (OFPP) is pursuing a variety
of initiatives to lower costs and improve program performance to citizens.
These activities include:
- Establishing
the Federal Acquisition Council (FAC), a senior level forum of acquisition
officials to promote effective business practices for the timely delivery
of best value goods and services to the agencies. Working closely with
OFPP and the Federal Acquisition Regulatory Council, the FAC will ensure
each agency is committed and engaged at the highest levels in furthering
the priorities of the President's Management Agenda.
- Strengthening
the use of competition in our everyday acquisitions for services. Proposed
changes to the Federal Acquisition Regulation (FAR), published in the
Federal Register earlier this month, will improve application of acquisition
basics in purchases for services from the Multiple Award Schedules (MAS)
program, just as changes published last summer have laid a foundation
for improved ordering from multiple award contracts.
- Revitalizing
the use of performance-based services acquisitions (PBSAs) to capitalize
on contractor innovation in meeting the government's needs. An OFPP-sponsored
inter-agency group is working to make PBSA policies and procedures more
flexible and easier to apply.
- Reducing
transaction costs and increasing transparency through technological
advances. We are seeking to capitalize on the efficiency, transparency,
and administrative simplification that technology enables to stimulate
the type of robust contractor participation that makes for a successful
virtual marketplace.
- Promoting
more accountable and strategic management to preserve current flexibilities.
We are pushing agencies to improve oversight over their purchase cards
and track buying behaviors of their employees so they can realize cost-savings
efficiencies in acquisition and finance operations without wasting hard-earned
taxpayer dollars.
In pursuing
these and other initiatives, I have sought to take advantage of existing
statutory authorities under a framework that has been shaped over the
past decade through the leadership of this Committee. I believe there
is more that can, and should, be done within this framework to improve
acquisition practices. For this reason, I have not actively sought significant
statutory change during my tenure as Administrator. At the same time,
I recognize that carefully tailored legislative provisions can complement
the Administration's efforts to achieve greater return on our investment
of federal resources.
This morning,
I would like to offer some general observations on possible legislative
actions that I understand the Committee is considering for SARA. I have
organized my comments around three themes: (1) strengthening the management
of the procurement process, (2) improving use of contract incentives,
and (3) taking greater advantage of the commercial marketplace. These
themes were prominent in SARA when the bill was first introduced in the
last session of Congress, as H.R. 3832, and I understand they will form
the backbone of the new bill. As you will hear, I think there are a number
of concepts that can form the core for meaningful legislation.
I should
make one caveat at the outset of my statement. The comments that follow
are based on a discussion I had with your staff, who recently met with
me to describe the Committee's current thinking for SARA. Because agencies
were not privy to this conversation, my statement does not reflect the
benefit of their full insight. Of course, after SARA is introduced, the
Administration will be able to offer more formal views to help inform
your thinking as Congress considers the bill. With this proviso in mind,
let me now share some preliminary thoughts.
Management
of the Procurement Process
As one major
goal, SARA would seek to improve the overall management of the procurement
process. Among other things, the new bill would align management structures
to better reflect the integrated nature of acquisitions and require studies
to identify opportunities for further improvements. In my opinion, both
of these endeavors have merit.
Increasing
the emphasis on the integrated nature of acquisition. As I understand,
the Committee intends to propose a variety of provisions for SARA to increase
attention on the fact that acquisition is an integrated activity. For
example, the bill would codify a standard definition of the term "acquisition"
that captures the full cycle of activities, from requirements development
to contract financing and contract administration. The bill would further
require that each executive agency appoint a "chief acquisition officer"
(CAO) who would be responsible both for traditional procurement oversight,
such as increasing use of full and open competition, as well as for acquisition
management. In addition, the bill would establish a CAO Council to monitor
and improve the federal acquisition system.
I share
the Committee's desire to foster better integration between traditional
contracting functions and related disciplines whose input is critical
to successful acquisition. The Administration is finding many benefits
in being more mindful of the relationships between the functions that
make up the acquisition process. As a general matter, under OMB's capital
programming guidance (in Circular A-11, Part 7), agencies must prepare
business cases for major capital acquisitions to justify their requests
for budget. Business cases must be reviewed in the agency by an executive
committee composed of the senior program official, the Chief Financial
Officer, the Chief Information Officer, and the senior procurement executive.
This senior level review ensures that investments reflect the true needs
of all stakeholders to the acquisition process -- not just one vested
interest. This process is helping us to identify projects at risk and
avoid wasteful duplication of expenditure.
You might
also note that in our efforts to carry out the President's vision of a
citizen-centric e-Government for acquisition, we have been reshaping information
technology (IT) investments in ways that mirror the integrated nature
of acquisition. This focus is enabling us to facilitate the migration
and leveraging of IT investments to modernized, technology-based infrastructures
that harmonize the varying functions that support the acquisition process.
Managers across agencies have greater awareness of the activities of their
counterparts and, as a result, are in a better position to identify and
avoid redundant IT investments. This awareness saves money for the government
and can reduce burdens on contractors as well. Creating a government-wide
integrated "business partners network," for instance, means
that contractors may register once to do business with the government
and avoid having to make costly redundant submissions, as they have been
required to do in the past. Accurate and up-to-date registration information
also promotes timely payment to contractors.
For these
reasons, I think there is benefit in several of the steps the Committee
is considering to ensure acquisition is approached as a shared responsibility.
First, I agree with the Committee's recommendation to codify the definition
of "acquisition." Having a statutory definition that captures
an integrated vision of the entire spectrum of acquisition will serve
as a useful reminder to the community at large that acquisition requires
not only the expertise of contracting officials, but also the active participation
of program, IT, and finance functions, among others.
Second,
I agree with the Committee that senior level commitment to integration
is needed if this vision is to be institutionalized across government.
In this regard, the creation of a CAO to effectively oversee these integrated
activities may be beneficial. OMB would envision that these appointments
be accomplished through use of existing resources.
In the past,
when I testified before the Technology and Procurement Policy Subcommittee
(TAPPS), I suggested that creation of a CAO not come at the expense of
committed attention on traditional procurement activities. There remains
a very real ongoing need for attention to the nuts and bolts of contracting
-- what I have referred to as "acquisition basics." At the same
time, I am increasingly confident that agencies will take the steps necessary
to ensure this commitment is fulfilled by CAOs. This confidence is a reflection,
in large part, of the progress the Administration has been making to create
a performance-based government. The Program Assessment Rating Tool (PART),
for example, is laying the foundation for evidence-based funding decisions.
In addition, the use of precise action plans on what agencies must deliver,
and "traffic light" scorecards to grade progress on priorities,
are making the government answerable to the public for results. As these
accountability mechanisms take hold, agencies will continue to adjust
their management structures, including those related to contracting activities,
to ensure effective return on taxpayer investment.
As the bill
moves forward, I would suggest that the Committee consider making the
appointment of CAOs optional for small agencies with minimal procurement
budgets -- e.g., generally agencies that are not members of the President's
Management Council (PMC). Such a mandate may be constraining for these
agencies.
Third, I
strongly support the statutory recognition of a CAO Council and commend
the Committee for considering such a provision for its bill. Progress
often requires sustained effort, and a properly focused senior-level organization
can play a vital role in delivering the type of ongoing agency commitment
required for achieving real results. This reasoning recently led the Administration
to establish the FAC. The FAC's charter makes clear that agency efforts
are to be effectively aligned with the President's Management Agenda and
other priority acquisition initiatives. Consistent with the President's
vision for a market-based government, the Council will emphasize initiatives
that promote competition, transparency, fairness, integrity, and openness
in the federal acquisition process.
OMB has
high expectations for the new Council. The PMC worked closely with us
in creating a membership that would help deliver results and we would
anticipate similar consultation regarding representation on a statutory
council.
Studying opportunities for further improvement. SARA would require
OFPP to establish an advisory panel to review laws and regulations that
hinder the use of commercial practices, performance-based contracting, the
performance of acquisition functions across agency lines of responsibility,
and the use of government-wide acquisition contracts. OFPP would report
to Congress approximately 15 months after SARA is enacted.
I appreciate
the benefit that may derive from studying these areas. My office would
certainly want to be an active participant in such reviews. However, current
funding constraints would significantly limit OFPP's ability to effectively
lead an effort of this magnitude. I hope the Committee will take this
point into consideration so that a review of these issues receives the
level of attention needed to generate the type of meaningful analysis
that can form the basis for additional improvements.
Contract
incentives
As a second
goal, SARA would include various provisions to encourage good contract
performance. The new bill would provide motivation for agencies to use
PBSA, codify use of award-term contracting, expand application of share-in-savings
contracting, and facilitate
telecommuting by federal contractors. With a few caveats, these are generally
positive steps.
Reinvigorating PBSA. I support efforts to reinvigorate the use
of PBSA and take advantage of the innovativeness that is generated when
contractors are given the freedom to figure out the best solution to meet
the government's needs. An OFPP-sponsored working group is helping to lay
the foundation for improved FAR coverage and new practical guidance, such
as sample performance-based statements of work. 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.
SARA would
complement these activities by authorizing agencies that apply this concept,
and meet certain other conditions, to conduct their acquisitions under
FAR
Part 12,
which is otherwise reserved for commercial item purchases. I support this
type of incentive, which builds on a concept first sanctioned by Congress
in the FY 01 Defense Authorization Act. The Defense Authorization Act
allowed DOD, on a trial basis, to take advantage of Part 12 for PBSA acquisitions
that, among other things: (1) were in amounts up to $5 million, and (2)
were placed on a firm-fixed price basis. I understand the Committee proposes
permanent authority and the elimination of limitations on both contract
type and dollar size of the acquisition.
I recognize
that there may be benefit in some broadening of the authority afforded
to DOD. However, I would want to ensure, at a minimum, that purchases
are not made using cost-type contracts. This limitation serves as a needed
safeguard when conducting a purchase using the tools of FAR Part 12, which
were geared towards arrangements that provide for tangible results. I
also think that, at this point in our transition to PBSA, where we are
seeking to gain experience and develop expertise, pilot authority is probably
preferable to permanent authority. Pilot authority gives us the opportunity
to compare the gains made through the use of PBSA to any potential negative
consequences of purchasing non-commercial items under a framework designed
for services that have been market tested or have commercial analogs.
I would have no objection to a long-term pilot or to significantly increasing
the size of eligible acquisitions.
I understand
the bill would require OFPP to establish a center of excellence in contracting
for services. The center would serve as a clearinghouse for identifying
and promoting best practices. While the idea is a sensible one, OFPP may
be hard-pressed to effectively lead such an initiative under current funding
constraints.
Using award-term contracts. The bill would include a provision
allowing an agency to extend a contract by one or more additional periods
on the basis of exceptional performance by the contractor. A contract providing
for such extension would be required to include performance standards and
be performance-based to the maximum extent practicable.
There is
intuitive appeal to "award-term" contracting where contractors
are offered the opportunity to obtain more work as a mechanism for motivating
exceptional performance. This commercial-style practice may create a win-win
situation for the government and contractors alike if agencies are vigilant
about: (1) conducting new competitions when cost savings are no longer
accruing through the existing contract, and (2) limiting the overall term
of the contract to a reasonable timeframe so that the full benefit of
marketplace competition can be applied to secure favorable pricing and
refresh terms and conditions. I plan to discuss award-term contracting
with agencies that have used this technique to get a better of sense of
how this tool can be used most effectively.
Increasing share-in-savings contracting. The draft bill would build
on authority in the E-Government Act that provides for expanded pilots of
share-in-savings contacting for IT. SARA would provide permanent share-in-savings
authority and permit use of this tool for any need, as opposed to only IT
needs.
I appreciate
that the Committee is anxious for the government to take advantage of
a tool that has been used only rarely since its creation in the Clinger-Cohen
Act as well as to permit its application to any type of purchase where
the concept may provide benefit. To help ensure successful use of the
recently enacted E-Government pilot authority for IT acquisitions, OMB,
among other things, will work to ensure that agencies heed the lessons
learned by industry, as identified in a recent report by the General Accounting
Office (GAO). Namely, there must be thorough and deliberative planning,
as well as management commitment, to identify clear outcomes and measures
that are agreed upon by both parties to a share-in-savings contract.
As the Committee
considers additional applications of share-in-savings contracting, please
be aware that OMB is opposed to any expansion of the authority provided
in the E-Government Act to waive full funding of termination costs. Agencies
should account fully for the government's obligations when they enter
into contracts. Further expansion of share-in-savings should not increase
the government's exposure to unfunded contingent liabilities, especially
given the government's limited experience with this tool and the GAO's
caution that the government may face challenges identifying favorable
opportunities (at least until we gain experience in establishing appropriate
baselines). OMB welcomes the opportunity to work with the Committee to
further discuss options for facilitating the successful use of share-in-savings.
Telecommuting. The draft bill would include a provision to recognize
the use of telecommuting by federal contractors. The Committee's desire
to address this issue is certainly understandable. Telecommuting by contractor
employees may enable agencies to realize lower contract prices by lowering
the costs for contractors doing business with the government. For this reason,
I would agree that agency requirements and evaluation criteria should not
generally be used as a basis for disqualifying an offeror who seeks to telecommute
or for reducing that offeror's score. Of course, there will be instances
where telecommuting will either be undesirable or inconsistent with the
government's needs. Thus, agencies will need the ability to either
render an offer ineligible or reduce the scoring of an offeror
who seeks to telecommute if the requirements cannot be met in this fashion
and the determination is documented in writing.
Access
to the commercial marketplace
As a third
goal, SARA would take several steps to further facilitate access to the
capabilities of the marketplace. I would like to briefly comment on provisions
that would: (a) address use of the commercial marketplace for fighting
terrorism and (b) expand application of the FAR's commercial item policies.
Combating terrorism. The ongoing war on terrorism has intensified
the need for responsive, results-based contracting. The new flexibilities
authorized by the Homeland Security Act, which were enacted with this Committee's
proactive efforts, represent a reasonable set of tools to help agencies
meet the demands associated with protecting our homeland. The FAR was amended
earlier this year to implement the emergency procurement flexibilities.
OFPP has prepared supplementary (non-regulatory) guidance, which we plan
to issue shortly. We have purposely written the guidance in basic terms
to facilitate broad distribution and understanding throughout the acquisition
community. Our aim is to reinforce successful and confident application
of these tools, generally through common sense reminders.
I appreciate
the potential need for emergency procurement flexibilities beyond the
present sunset date of November 24, 2003 and would support their continued
availability as the Committee advocates. However, I would prefer that
the authorities remain subject to an appropriate sunset date, as opposed
to being made permanent, until we have a better sense of their overall
effect in helping agencies meet their missions.
Finally,
I favorably note the Committee's intention to allow agencies to engage
in transactions other than contracts, grants, or cooperative agreements
(so-called "other transactions" or OTs) for research and development,
including prototype efforts for purposes of supporting efforts to combat
terrorism. By reducing barriers to commercial firms, OTs can broaden the
technology base and foster new relationships and practices within the
current supplier base.
Expanding application of FAR Part 12 commercial item policies.
I understand that the new bill, like H.R. 3832, will contain provisions
to expand application of FAR Part 12, which is designed to reduce barriers
between the government and sellers of commercial items. Similar to H.R.
3832, one provision would provide express authority for use of a time-and-materials
(T&M) contract or labor-hour (L/H) contract for the procurement of commercial
services. However, unlike H.R. 3832, the new bill would limit use of these
contract types to services that are "commonly sold to the general public
through such contracts." A second provision would eliminate caveats
in law that currently require that services be sold in substantial quantities,
among other things, in order to be considered eligible for Part 12. A third
provision would require an agency to purchase the non-commercial items of
a "commercial entity" using the clauses and policies prescribed
by Part 12 if at least 90 percent (in dollars) of the sales of the enterprise
over the past three business years have been made to private sector entities
or under FAR Part 12.
The revised
coverage on T&M and L/H contracting is an improvement over that originally
proposed in H.R. 3832. However, the latter two provisions, which are unchanged
from that set forth in H.R. 3832, continue to raise concerns.
T&M and L/H contracting and the definition of commercial service.
Last year, the issue of whether use of T&M or L/H contracts should be
authorized under FAR
Part 12
appeared to trigger more public dialogue than any other provision of SARA.
Some praised the idea, claiming that T&M and L/H contracting will
encourage more commercial firms to compete for government business. They
pointed out, among other things, that these contract types minimize pricing
risk for contractors and allow parties to reach agreement in an administratively
simplified manner. Others, such as the Defense Inspector General (DOD
IG), opposed the idea of expanding use of T&M and L/H contracting
for commercial item purchases. The DOD IG pointed out that T&M contracts,
for example, are susceptible to cost growth because profit is built into
the hourly billing rate and contractors have little incentive to control
cost or increase labor efficiency. The DOD IG cautioned that T&M contracts
require a high degree of surveillance. This admonition is hardly limited
to DOD. In a hearing earlier this year, one civilian agency IG, discussing
experiences with a T&M contract, reported a seven-fold cost overrun,
which increased the bill to taxpayers by hundreds of millions of dollars.
My point
is not to scare agencies from using T&M contracting, either as a general
matter or for the acquisition of commercial items. Rather, I want to reiterate
the very real need for appropriate oversight and safeguards if a T&M
contract is otherwise appropriate for use. I believe this message is especially
important in the context of using T&M contracts in FAR Part 12, because
Part 12 was drafted with the expectation that purchases would be made
through arrangements that provide payment in return for tangible results.
The FAR drafters gave little thought to the risk involved when using a
flexibly-priced contract to buy commercial items. Accordingly, if we are
to use T&M and L/H contracts under Part 12, we must do so in a way
that ensures the government's interests are adequately protected.
For this
reason, I commend the Committee for proposing to limit use of T&M
and L/H contracts to procurements of commercial services that are commonly
sold to the general public in this fashion. I strongly agree that the
government should not, as a general matter, be taking on levels of risk
that a smart commercial business would not undertake.
I would
further recommend that the Committee retain current requirements for competitive
sales in substantial quantities. As a general matter, even where fixed-price
contracts are being used, this caveat continues to play an important role
in helping the government to manage and mitigate risks. In the case of
a T&M contract in particular, an agency will have the assurance that
a contractor's services have been purchased repeatedly in the commercial
marketplace to help offset the fact that the agency must bear the risk
that the arrangement is simply one for best efforts.
In addition, agencies will need to heed the long-standing warning that has
always been coupled with T&M contracting -- i.e., that these contracts
be used only when it is not possible at the time of placing the
contract to estimate accurately the extent or duration of the work or to
anticipate costs with any reasonable degree of confidence. When agencies
know their requirements and can meet them with commercial items, they need
to negotiate fixed-price arrangements that effectively protect the government's
business interest, just as a commercial contractor would do. Indeed, I would
challenge anyone to point to an example of where a successful commercial
company routinely accepts the risk of T&M or L/H contracts for commercial
needs once they can be definitized.
As SARA
moves forward, I plan to work with the other FAR Council members to continue
to think about what other steps may need to be taken. But, as you can
see, I think the Committee has taken an important positive step in enabling
the effective use of T&M and L/H contracting under Part 12.
Commercial entities. The new bill, like H.R. 3832, would require
an agency to purchase the non-commercial items of a commercial entity
using the clauses and polices prescribed by Part 12. In order to do so,
we would need to accept the premise that the government will be protected
when it buys non-commercial items (i.e., items that are not sold or even
of a type offered or sold in the marketplace) as long as the company has
a demonstrated track record in selling commercial items at fair and reasonable
prices. Unfortunately, I am unable to find any meaningful protection for
the taxpayer in accepting the pricing of a non-commercial item based solely
on the company's good track record for an unrelated product or service.
For this reason, I urge the Committee to reconsider this proposal.
Conclusion
Mr. Chairman,
as you have just heard, the Administration shares many of Committee's
desires to strengthen procurement management, better incentivize our contractors,
and take greater advantage of the commercial marketplace. While there
are some areas of disagreement, I believe that with continued dialogue,
we can reach agreement on a significant number of legislative provisions
that can serve to further our joint vision of a results-oriented, market-driven
government. I look forward to working with the Committee as we work towards
the delivery of better value for agencies and the taxpayer.
This concludes
my prepared remarks. I am happy to answer any questions you may have.
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