Privatization and Competition: Comments on H.R. 716, The Freedom from Government Competition Act

Published by the Government Accountability Office on 1997-09-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Government Management,
                          Information and Technology Committee on Government
                          Reform and Oversight House of Representatives

For Release on Delivery
Expected at
9:00 a.m., EDT
                          PRIVATIZATION AND
Sept. 29, 1997            COMPETITION

                          Comments on H.R. 716, The
                          Freedom from Government
                          Competition Act
                          Statement of
                          L. Nye Stevens, Director,
                          Federal Management and Workforce Issues,
                          General Government Division


Privatization and Competition: Comments
on H.R. 716, the Freedom From Government
Competition Act
                 Mr. Chairman and Members of the Subcommittee:

                 I am pleased to be here today to assist the Subcommittee in its
                 consideration of H.R. 716, the Freedom From Government Competition
                 Act. The bill would require that the government procure from the private
                 sector, with some exceptions, the goods and services it needs to carry out
                 its functions. As you know, we testified in June on S. 314, the Senate
                 companion bill to H.R. 716, and my remarks today closely parallel our
                 statement before the Senate Committee on Governmental Affairs.1
                 Specifically, I will discuss H.R. 716 as a potential vehicle for competitive
                 contracting, using the results of our recent work on privatization
                 initiatives at the state and local government levels.

                 We reported in March 1997 on the major lessons learned by, and the
                 related experiences of, state and city governments in implementing
                 privatization efforts.2 Our report, done at the request of Representative
                 Scott Klug, examined the privatization experiences and lessons learned by
                 the states of Georgia, Massachusetts, Michigan, New York, and Virginia, as
                 well as the city of Indianapolis. While not done across the board each of
                 these governments made extensive use of privatization—primarily
                 contracting out governmental functions—over the last several years,
                 tailoring their approaches to their particular political, economic, and labor
                 environments. On the basis of our literature review, the views of a panel of
                 privatization experts, and our work in the six governments, we identified
                 six lessons that were generally common to all six governments. In general,
                 the governments found that they needed to

             •   have committed political leaders to champion the privatization initiative;
             •   establish an organizational and analytical structure to implement the
             •   enact legislative changes and/or reduce resources available to government
                 agencies in order to encourage greater use of privatization;
             •   develop reliable and complete cost data on government activities to assess
                 their performance, support informed privatization decisions, and make
                 these decisions easier to implement and justify to potential critics;
             •   develop strategies to help their workforces make the transition to a
                 private-sector environment; and lastly,

                  Privatization and Competition: Comments on S. 314, the Freedom From Government Competition Act
                 (GAO/T-GGD-97-134, June 18, 1997).
                  Privatization: Lessons Learned by State and Local Governments (GAO/GGD-97-48, Mar. 14, 1997).

                 Page 1                                                                        GAO/T-GGD-97-185
                                             Privatization and Competition: Comments
                                             on H.R. 716, the Freedom From Government
                                             Competition Act

                                         •   enhance monitoring and oversight to evaluate compliance with the terms
                                             of the privatization agreement and evaluate performance in delivering
                                             services to ensure that the government’s interests are fully protected.

Figure 1: Lessons Learned From Our Review of State and Local Privatization Efforts

                                                 Political champion
                                                 Privatization can best be introduced
                                                 and sustained when a political
                                                 leader champions it.

                                                 Implementation structure
                                                 Government leaders need to
                                                 establish an organizational
                                                 and analytical structure to ensure
                                                 effective implementation.

      Legislative and                 Reliable cost data                  Strategies for         Monitoring and oversight
      resource changes                                                    workforce transition
      Governments may need to         Reliable cost data on              Governments need        More sophisticated
      enact legislative changes       government activities              strategies to manage    monitoring and oversight
      and/or reduce governmental      are needed to support              workforce transition.   are needed to protect the
      resources to encourage          informed privatization                                     government's interests
      greater use of privatization.   decisions and to assess                                    when its role in the delivery
                                      overall performance.                                       of services is reduced
                                                                                                 through privatization.


                                             Source: GAO analysis.

                                             Page 2                                                                  GAO/T-GGD-97-185
                           Privatization and Competition: Comments
                           on H.R. 716, the Freedom From Government
                           Competition Act

                           The history of government reform has demonstrated that new policies,
H.R. 716 Provides a        whether based in law or in administrative directives, are not
Tool but Not a             self-implementing. In our work on state and local privatization initiatives,
Substitute for a           we reported that reforms such as privatization are most likely to be
                           sustained when there is a committed political leader to champion the
Political Champion         initiative. In the six governments we visited, a political leader (the
                           governor or mayor), or in one case, several leaders working in concert
                           (state legislators and the governor), played a crucial role in fostering
                           privatization. These leaders built internal and external support for
                           privatization, sustained momentum for their privatization initiatives, and
                           adjusted implementation strategies when barriers to privatization arose.

                           H.R. 716 does not, and probably cannot, provide for effective political
                           leadership. It has been executive branch policy for more than 30 years to
                           encourage competition between the federal workforce and the private
                           sector for providing commercial goods and services. However, this policy
                           has been embodied only in an administrative directive, Office of
                           Management and Budget (OMB) Circular A-76. While we have consistently
                           endorsed the concept of encouraging such competition, its effectiveness in
                           practice has been questioned both in the executive branch and in dozens
                           of congressional hearings.

                           H.R. 716 would give the force of law to general reliance on the private
                           sector for commercial goods and services, and thus would provide a
                           stronger foundation, but not a substitute, for political leadership.

                           To implement their privatization initiatives, the governments we visited
H.R. 716 Would             reported the need to establish an organizational and analytical structure. A
Establish a Flexible       key aspect of this structure is an office to guide and support the
Implementation             privatization initiative and provide the analytical framework to evaluate
                           the costs, benefits, and risks of privatizing a particular activity. Many of
Structure                  the frameworks established by the six governments shared common
                           elements, such as criteria for selecting activities to privatize, methods for
                           cost comparisons, and procedures for monitoring the performance of
                           privatized activities.

                           Responding to the need for such a centralized structure, H.R. 716 requires
                           OMB to issue regulations and to establish a new “Center for Commercial
                           Activities,” which is given responsibility for

                       •   implementing the requirements of the legislation;

                           Page 3                                                       GAO/T-GGD-97-185
    Privatization and Competition: Comments
    on H.R. 716, the Freedom From Government
    Competition Act

•   ensuring compliance by agencies; and
•   providing guidance, information, and assistance to both private and public

    OMB is given wide latitude as to what regulations it will issue and what they
    will contain. This grant of broad authority affords OMB flexibility in
    implementing the legislation. However, given the wide latitude that OMB is
    afforded by the bill, issues will inevitably arise during implementation that
    will have to be dealt with by OMB. These issues could include such
    questions as

•   Whether government corporations, federally funded research and
    development centers, state governments, or even the U.S. Postal Service
    should be included within the definition of “private sector sources” and
    thus eligible to compete for the government’s contracts.
•   Whether public buildings would need to be sold to the private sector in
    order to house federal employees.
•   How OMB will incorporate congressional views when significant or highly
    sensitive conversions are proposed.

    Given concerns such as these, Congress will need to oversee OMB’s
    performance of its responsibilities. The strategic and annual performance
    plans and annual report that OMB is to produce under the Government
    Performance and Results Act, provide a mechanism for such
    accountability. OMB could include in its strategic plan an objective and
    strategy for implementing the bill’s requirements.3 The strategy could be
    developed in consultation with Congress and could describe major
    priorities as well as specific milestones for implementing the bill’s
    provisions. In addition, OMB through its annual performance plan could
    provide a schedule for changing current policies and systems that would
    be necessary to accomplish the bill’s purposes. Such a schedule would
    provide greater direction for agencies as they go through the process of
    identifying potential activities to be included in their annual performance
    plans. It could also provide a firm basis for Congress to assess OMB and
    agency activities as they relate to the bill’s requirements.

    To effectively carry out the role envisioned for it under the bill, OMB will
    require additional resources or will need to reallocate existing resources
    from other mandated responsibilities. We reported in 1995 that we were
    concerned about OMB’s capacity to carry out its already numerous

     The Results Act: Observations on the Office of Management and Budget’s July 1997 Draft Strategic
    Plan (GAO/AIMD/GGD-97-169R, Aug. 21, 1997).

    Page 4                                                                         GAO/T-GGD-97-185
                             Privatization and Competition: Comments
                             on H.R. 716, the Freedom From Government
                             Competition Act

                             management responsibilities, which have been expanded significantly in
                             recent years.4 Such a plan might be an appropriate vehicle for addressing
                             such resource issues.

Implementation of H.R. 716   The experiences of other governments as well as of major private firms
Would Be Helped by           indicate that, when the outsourcing of functions is contemplated, answers
Integrating It With          to fundamental questions about the purpose and mission of an
                             organization should precede any major outsourcing activities. The bill has
Agencies’ Strategic and      significant implications for the ongoing implementation of the Results Act;
Performance Planning         the Act focuses on what activities the government should or should not be
Activities                   performing from the perspective of overall contributions to missions and
                             goals, while the bill addresses how and by whom those activites should be
                             performed. Under the provisions of the Results Act, agencies are required
                             to set their strategic direction through multiyear strategic plans, develop
                             annual goals, and report on performance against those goals. Agency
                             strategic plans and performance measures are intended to provide
                             Congress with a vehicle for asking fundamental questions about federal
                             functions and their performance. In our recent reports on the
                             implementation of the act, we have found that many agencies are not yet
                             well positioned to specify their plans and strategies in terms of tangible

                             If enacted, the bill’s implementation will occur as agencies are going
                             through their first cycle of planning, measuring, and reporting on program
                             performance, as called for under the Results Act. The bill would amend
                             the Results Act by requiring, among other things, that agencies include in
                             the annual performance plans and reports that they submit to Congress
                             (1) inventories of functions that are and are not subject to the Freedom
                             From Government Competition Act’s provisions and (2) a schedule for
                             converting to private sector performance those functions capable of, but
                             not currently, being performed by the private sector. Requiring agencies to
                             specify the activities they would perform directly, and those they would
                             convert to private sector performance, is consistent with the Result Act’s
                             strategic planning requirements.

                             If Congress chooses to enact H.R. 716, an opportunity exists to further
                             integrate implementation of the bill’s provisions with the Results Act. A

                              Office of Management and Budget: Changes Resulting From the OMB 2000 Reorganization
                             (GAO/GGD/AIMD-96-50, Dec. 29, 1995).
                              Managing For Results: Critical Issues for Improving Federal Agencies’ Strategic Plans
                             (GAO/GGD-97-180, Sept. 16, 1997); The Government Performance and Results Act: 1997
                             Governmentwide Implementation Will Be Uneven (GAO/GGD-97-109, Jun. 2, 1997).

                             Page 5                                                                          GAO/T-GGD-97-185
                           Privatization and Competition: Comments
                           on H.R. 716, the Freedom From Government
                           Competition Act

                           key provision of H.R. 716 requires OMB to create a methodology for making
                           determinations on what types of activities should and should not remain in
                           government. This provision, if integrated with the strategic planning and
                           annual performance planning requirements of the Results Act, could avoid
                           the potential situation of agencies inadvertently replacing unneeded
                           federal functions with unneeded private sector contractors—a concern we
                           have expressed regarding Department of Defense depots.6 By making clear
                           that, as part of their strategic planning and performance measurement
                           activities, agencies should review potential outsourcing candidates in light
                           of their contribution to mission accomplishment, the bill could reduce the
                           possibility of such an outcome.

Incentives May Be Needed   Encouraging the magnitude of change that this bill contemplates will
for Implementing Change    require incentives if it is to be effective. We believe that integrating the
                           bill’s requirements with those of the Results Act is one of the best
                           incentives Congress could use to ensure successful implementation. The
                           Act should, if successfully implemented, expand opportunities for
                           congressional oversight of agency performance, including, for example,
                           closer scrutiny of agency budget requests for specific activities in the
                           context of expectations about program performance. Another incentive
                           could be to allow government agencies to use savings gained from
                           eliminating duplication and unnecessary non-core functions to further
                           improve operations or satisfy other priorities such as modernization.7
                           However, such proposals need to be carefully examined as they raise
                           questions of congressional oversight and the allocation of scarce financial

                           State and local governments that we reviewed used incentives to
                           accomplish their goals. In Virginia, officials said department managers
                           were allowed to retain savings garnered through privatization and
                           restructuring for use in productivity and technology improvements.8 This
                           practice, according to the Director of Virginia’s Commonwealth
                           Competition Council, provided the incentive needed and helped solve the
                           question often asked by managers of “what’s in it for me”? In Indianapolis’
                           managed competition process, if the public sector won a competition and

                            Defense Depot Maintenance: Privatization and the Debate Over the Public-Private Mix
                           (GAO/NSIAD-96-148, Apr. 17, 1996).
                            See for example: DOD High-Risk Areas: Eliminating Underlying Causes Will Avoid Billions of Dollars
                           in Waste (GAO/T-NSIAD/AIMD-97-143).
                            S. 959, Workforce Transition Act of 1995, Chapter 811 of the Acts of Assembly, Commonwealth of

                           Page 6                                                                         GAO/T-GGD-97-185
                      Privatization and Competition: Comments
                      on H.R. 716, the Freedom From Government
                      Competition Act

                      the union-management team performed the activity at the desired level of
                      performance for less than it had bid, the team would receive a share of the
                      savings at the end of the year. The city, after tracking performance over a
                      period of years, could place a moratorium on bidding for areas for which
                      city employees had demonstrated performance excellence and in which
                      they had consistently outbid private competitors. In addition, Indianapolis
                      built community support by taking some cost savings achieved through
                      outsourcing and managed competitions and allocated it to hiring
                      additional police, lowering tax rates, and increasing infrastructure
                      projects. According to the Deputy Mayor, this approach built community
                      support and provided further incentives for managed competition and

                      In contrast, Georgia’s Governor instituted a budget redirection program
                      that required all agencies to prioritize their current programs and activities
                      and identify those programs that could be eliminated or streamlined. The
                      agencies were required to make at least 5 percent of their total
                      state-funded budgets available for redirection to higher priorities.
                      According to a Georgia Privatization Commission official, agencies were
                      given a 6-month notice that their budgets would be cut by 5 percent. State
                      officials said these budget cuts required managers to rethink how they
                      could perform the same activities for a lower cost. This action provided
                      the incentive for agencies to contract out more activities, such as vehicle
                      maintenance and management services for a war veterans facility.

                      In our state and local work, we found that all five states and the city of
The Relationship of   Indianapolis used some combination of legislative changes and resource
H.R. 716 to Other     cuts as part of their privatization initiatives. These actions were taken to
Relevant Laws Is      encourage greater use of privatization. Georgia, for example, enacted
                      legislation to reform the state’s civil service and to reduce the operating
Unclear               funds of state agencies. Virginia reduced the size of the state’s workforce
                      and enacted legislation to establish an independent state council to foster
                      privatization efforts. These actions, officials told us, reduced obstacles to
                      privatization and sent a signal to managers and employees that political
                      leaders were serious about implementing it.

                      While providing a statutory basis for competitively contracting out
                      government functions, H.R. 716 has implications for certain existing laws.
                      As currently drafted, the bill is broad in its application, and how it will
                      relate to existing laws and policies is not entirely clear. For example, H.R.
                      716 prohibits agencies from beginning or carrying out any activity to

                      Page 7                                                       GAO/T-GGD-97-185
                             Privatization and Competition: Comments
                             on H.R. 716, the Freedom From Government
                             Competition Act

                             provide any products or services that can be provided by the private
                             sector, and it prohibits agencies from providing any goods or services to
                             any other governmental entity. This could conflict with the “Economy Act
                             of 1932” (31 U.S. 1535-1536), which authorizes interagency orders for
                             goods and services, as well as with the General Services Administration’s
                             (GSA) authority to provide agencies with goods and services. GSA was
                             created, and still exists, to provide goods and services to agencies, such as
                             office space, consolidated purchasing, air fare contracts, and excess
                             property disposal. Its role under H.R. 716 is unclear.

                             In addition, the bill does not contain language limiting judicial review of
                             management actions taken under its provisions. The possibly unintended
                             effect of subjecting management decisions to judicial review could slow
                             implementation and increase costs due to litigation.

                             In the governments we visited, reliable and complete cost data on
Reliable and                 government activities were deemed essential in assessing the overall
Complete Cost                performance of activities targeted for privatization, in supporting informed
Information Needed           privatization decisions, and in making these decisions easier to implement
                             and justify to potential critics. Most of the governments we surveyed used
for Privatization            estimated cost data because obtaining complete cost and performance
Decisions                    data, by activity, from their accounting systems was difficult. However,
                             Indianapolis, and more recently Virginia have used activity based costing
                             (ABC)9 to obtain more precise and complete data on the cost of each
                             separate program activity.

H.R. 716 Requires Cost and   A notable feature of the draft legislation is the provision describing the
Past Performance             criteria that are to be used in contracting for goods and services. The
Information in Making        legislation requires OMB to prescribe standards and procedures that are to
                             include the analyses of all direct and indirect costs, and to be performed in
Privatization Decisions      a manner consistent with generally accepted cost accounting principles as
                             well as with past performance of sources. We have found in the past that
                             the widespread absence of this type of information has compromised
                             effective public-private comparisons. This provision of the bill is

                              ABC is a methodology that assigns costs to products or services based on the resources they
                             consume. It assigns functional costs, direct and indirect, to the activities of an organization and then
                             traces activities to the product or service that caused the activity to be performed. ABC gives visibility
                             to how effectively resources are being used and how all relevant activities contribute to the cost of a
                             product or service. Such information may be key to making decisions about whether to restructure or
                             privatize an activity. See Glossary: Terms Related to Privatization Activities and Processes
                             (GAO/GGD-97-121, July, 1997).

                             Page 8                                                                              GAO/T-GGD-97-185
                      Privatization and Competition: Comments
                      on H.R. 716, the Freedom From Government
                      Competition Act

                      consistent with current efforts aimed at improving federal financial

                      In the past, when competitive contracting has been done at the federal
                      level under the provisions of Circular A-76, the absence of workload data
                      and adequate cost accounting systems has made the task all the more
                      difficult. Given that most agencies do not have cost accounting systems in
                      place at this point, the bill’s requirement to use past performance and cost
                      data will be difficult for many federal activities to meet.

                      Efforts are under way to develop the type of cost and performance data
                      that would be necessary to compare public versus private proposals, as
                      could occur under the provisions of H.R. 716. The Federal Accounting
                      Standards Advisory Board (FASAB) has developed standards that are
                      designed to provide information on the costs, management, and
                      effectiveness of federal agencies. These standards require agencies to
                      develop measures of the full costs of carrying out a mission or of
                      producing products and services. Such information, when available, would
                      allow for comparing the costs of various programs and activities with their
                      performance outputs and results. To help agencies meet these standards,
                      the Joint Financial Management Improvement Program (JFMIP) plans to
                      issue guidance to facilitate the acquisition and development of managerial
                      cost accounting systems needed to accumulate and assign cost data
                      consistent with governmentwide data.10

                      We found that governments we visited needed to develop strategies to
H.R. 716 Recognizes   help their workforces make the transition to a private-sector environment.
Federal Workforce     Such strategies, for example, might seek to involve employees in the
Transition Needs      privatization process, provide training to help prepare them for
                      privatization, and create a safety net for displaced employees. Among the
                      six governments we visited, four permitted at least some employee groups
                      to submit bids along with private-sector bidders to provide public services.
                      All six governments developed programs or policies to address employee
                      concerns with privatization, such as the possibility of job loss and the need
                      for retraining.

                        The JFMIP is a joint cooperative undertaking of the Office of Management and Budget, the General
                      Accounting Office, the Department of the Treasury, and the Office of Personnel Management, working
                      in cooperation with each other and with operating agencies to improve financial management
                      practices throughout the government. An exposure draft of the system requirement was issued in
                      April 1997, and final issuance is projected for later this calendar year.

                      Page 9                                                                        GAO/T-GGD-97-185
                          Privatization and Competition: Comments
                          on H.R. 716, the Freedom From Government
                          Competition Act

                          The bill’s findings section states that it is in the public interest for the
                          private sector to utilize government employees who are adversely affected
                          by conversions of functions to the private sector. The legislation does not
                          create any new benefit or competitive job right that does not already exist.
                          It does, however, assign to the Director of OMB the function of providing
                          information on available benefits and assistance directly to federal
                          employees. This would be a new and possibly burdensome function for
                          OMB—a function that probably could be better handled by the Office of
                          Personnel Management, which already has responsibility and experience
                          in this area.

Competitive Contracting   Involving employees in the privatization process by letting them compete
Helped Attain Employee    for the right to provide the service was a strategy used by state and local
Cooperation               governments to gain employee cooperation during the privatization
                          process. H.R. 716 neither encourages nor prohibits public-private
                          competitions. However, it does give implicit authority to OMB to implement
                          such a program, by requiring that the implementing regulations include
                          standards and procedures for determining whether it is a private sector
                          source or an agency that provides certain goods or services for the best
                          value. While the question of how such determinations would be made is
                          left up to OMB, competitive contracting has been the traditional method for
                          making such determinations both at the federal level and the state and
                          local level.11

                          When a government’s direct role in the delivery of services is reduced
Effective Monitoring      through privatization, we found that, at least among the state and local
and Oversight of          governments we visited, the need for aggressive monitoring and oversight
Contractor                grew. Oversight was needed not only to evaluate compliance with the
                          terms of the privatization agreement, but also to evaluate performance in
Performance Are           delivering goods and services in order to ensure that the government’s
Essential                 interests were fully protected. Indianapolis officials said their efforts to
                          develop performance measures for activities enhanced their monitoring
                          efforts. However, officials from most governments said that monitoring
                          contractors’ performance was the weakest link in their privatization

                           Under competitive contracting, also referred to as managed competition, a public-sector agency
                          competes with private-sector firms to provide public-sector functions or services under a controlled or
                          managed process. This process clearly defines the steps to be taken by government employees in
                          preparing their own approach to performing an activity. The agency’s proposal, which includes a
                          proposal for cost-estimation purposes, is useful in competing directly with private-sector offers.

                          Page 10                                                                          GAO/T-GGD-97-185
Privatization and Competition: Comments
on H.R. 716, the Freedom From Government
Competition Act

The essential foundation for effective oversight is good cost and
performance data. H.R. 716’s analytical requirements call for the
consideration of all direct and indirect costs, qualifications, and past
performance as well as other technical considerations. These
requirements, along with the authority and flexibility given to OMB in
implementing the legislation, provide the necessary foundation for
effective performance monitoring and oversight, but they do not resolve
capacity problems.

Converting government activities to private-sector performance will
increase the contracting workload on federal agencies. Conversion to
contract performance requires considerable contract management
capability. An agency must have adequate capacity and expertise to
successfully carry out the solicitation process and effectively administer,
monitor, and audit contracts once they are awarded. In past reports on
governmentwide contract management, we identified major problem
areas, such as ineffective contract administration, insufficient oversight of
contract auditing, and lack of high-level management attention to and
accountability for contract management.12 Some federal agencies have
recognized the problem and have taken actions intended to improve their
contract management capacity. The Department of Energy (DOE) and The
National Aeronautics and Space Administration (NASA) provide examples
of the challenges agencies face in overseeing contractors.

DOE—the   largest civilian contracting agency in the federal
government—contracted out about 91 percent of its $19.2 billion in fiscal
year 1995 obligations. We designated DOE contracting in 1990 as a high-risk
area, vulnerable to waste, fraud, abuse, and mismanagement, because
DOE’s missions rely heavily on contractors and DOE has a history of weak
contractor oversight; however, it has been working to improve its contract
management practices. As we recently reported in our high-risk report on
DOE,13 changing the way DOE does business has not come easily or quickly.
DOE has taken various actions in the past to improve its contracting, and a
recent contract reform effort that has received high priority and visibility
appears promising; however, much remains to be done to ensure effective
oversight of contractors.

   Government Earns Low Marks on Proper Use of Consultants (GAO/FPCD 80-48, June 16, 1980);
Civilian Agency Procurement: Improvements Needed in Contracting and Contract Administration
(GAO/GGD-89-109, Sept. 5, 1989); and Federal Contracting: Cost-Effective Contract Management
Requires Sustained Commitment (GAO/T-RCED-93-2, Dec. 3, 1992).
  Department of Energy Contract Management (GAO/HR-97-13 Feb. 1997).

Page 11                                                                      GAO/T-GGD-97-185
           Privatization and Competition: Comments
           on H.R. 716, the Freedom From Government
           Competition Act

           NASA’s contracting reforms demonstrate what can be accomplished when
           an agency places high priority on contractor oversight. NASA spends about
           90 percent of its budget on contracts with businesses and other
           organizations. NASA’s procurement budget is one of the largest among
           federal civilian agencies, totaling about $13 billion annually in recent
           years. NASA first identified its contract management as vulnerable to waste
           and mismanagement in the late 1980s. Since then, it has grappled with a
           variety of contract management problems. NASA has made considerable
           progress in developing ways to better influence contractors’ performance
           and to improve oversight of field centers’ procurement activities. It has,
           for example, established a process for collecting cost, schedule, and
           technical information for all major NASA contracts to assist management in
           the tracking of contractor performance, and it also has restructured its
           policy on award fees to emphasize contract cost control and the
           performance of contractors’ end products.

           In conclusion, Mr. Chairman, striking a proper balance between the public-
           and private-sector provision of goods and services to the American people
           is among the most enduring issues in American politics and public policy.
           The Freedom From Government Competition Act would redirect current
           policy, which does not now have the weight of legislative authority and
           significantly affect the operation and management of the federal
           government. We believe that Congress is the proper forum to address such
           fundamental questions, and we hope that our testimony today has been
           helpful by raising some issues for the Subcommittee to consider in its
           deliberations on the proposed act.

           That concludes my prepared statement. I would be pleased to answer any
           questions the Subcommittee may have.

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