The Business of Government Hour


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The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. The executives discuss their careers and the management challenges facing their organizations. Past government executives include Administrators, Chief Financial Officers, Chief Information Officers, Chief Operating Officers, Commissioners, Controllers, Directors, and Undersecretaries.

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Join the IBM Center for a weekly conversation about management with a government executive who is changing the way government does business.

Stan Soloway interview

Friday, May 10th, 2002 - 20:00
Stan Soloway
Radio show date: 
Sat, 05/11/2002
Intro text: 
Stan Soloway
Complete transcript: 

Arlington, Virginia

Thursday, May 9, 2002

Mr. Lawrence: Welcome to The Business of Government Hour. I�m Paul Lawrence, a partner at PricewaterhouseCoopers and the co-chair of The Endowment for The Business of Government. We created The Endowment in 1998 to encourage discussion and research into new approaches to improving government effectiveness.Find out more about The Endowment by visiting us on the web at

On this show, we�ve traditionally talked to government officials about their jobs and their leadership and management experiences. Today, however, we are doing something different. We�ll be talking with two members of the Commercial Activities Panel.This panel was set up by law and was convened by David Walker, the Comptroller General of the United States.Its purpose was to study the policies and procedures governing the transfer of commercial activities for the federal government from government personnel to a federal contractor.

On April 30, 2002, their final report was released. With us today to talk about the results of the report are Colleen Kelley, the national president of the National Treasury Employee�s Union. 

Good morning, Colleen.

Ms. Kelley: Good morning, Paul.

Mr. Lawrence: And Stan Soloway, the president of the Professional Services Council.

Good morning, Stan.

Mr. Soloway: Good morning, Paul.

Mr. Lawrence: Colleen, let�s start with you. Could you give us a little perspective about your present position and a highlight of your career?

Ms. Kelley: Sure. Currently, I am the national president of NTEU. We are the largest independent federal sector union, representing over 150,000 federal employees in 26 agencies across the country.I�ve been the national president for the last 3 years. Prior to that, I was the national executive vice president, both elected positions in the union, and I was on a staff position at NTEU for 8 years before that.

But probably most important in my career is that I was a federal employee.I worked for the IRS for 15 years in Pittsburgh, and in that capacity, I became involved with NTEU and was a local officer. I bring my 15 years of federal employee experience to every day of my work as NTEU�s national president.

Mr. Lawrence: How do you summarize the results of the panel�s work?

Ms. Kelley: I think it was a success from the standpoint that all opinions had an opportunity to be viewed and I believe were listened to.All of the panel members actively participated in discussion. There were surely disagreements, but I think we all did listen and we came to at least understand each other�s positions even if we did not agree.So from that standpoint, I think it was a success.

Obviously, I was one who did not agree with the final vote on the recommendations of the panel. I did agree with the principles, but not with all of the recommendations.But I think it was a successful discussion of a very difficult issue.

Mr. Lawrence: Stan, let me ask you to tell us about your position, and tell us about your career.

Mr. Soloway: I�ve been serving as president of the Professional Services Council for the last 15 months. PSC is the largest and principal trade association of government services providers, IT, engineering, operations, maintenance, all kinds of companies; about

130-plus companies in the marketplace.

Prior to that, I spent 3 years in the Clinton Administration as the Deputy Under Secretary of Defense for Acquisition Reform, and ran the Defense Reform Initiative, which was a broader re-engineering initiative that Secretary Cohen undertook, and for many years prior to that had been in the public-affairs field, the last decade or more focusing on government issues related to outsourcing, procurement policy, and so forth. 

But I think clearly without any doubt, the highlight for me and the greatest learning experience was the 3 years I spent at the Department of Defense, not only on the policy side, but the opportunity to work very closely with the leadership of an acquisition community of over 150,000 people at DoD for whose education, training, and career development our office had the responsibility.I visited every buying command and facility we had in the department, and the learning curve of that and the learning experience was extraordinary.  And also, the exposure to some extraordinary people; the front-line work force that Deputy Secretary Hammer used to call the force behind the force, really was remarkable.

Mr. Lawrence: How do you summarize the results of the panel�s work?

Mr. Soloway: Well, I think Colleen covered it quite well.I guess the only thing I would add is that I think -- I shouldn�t speak for all the panelists because we never spoke to this explicitly, but I think underlying the whole report is a feeling on all of our parts that it�s time to get past the debate over the methodology by which we make sourcing decisions, to find some common ground and a method that everybody could buy into and feels has integrity so that we can focus on the much more critical issue of overall performance and outcomes.

Our mission statement of the panel was to deal from each stakeholder�s perspective with the fairness and the integrity of the process of sourcing, which is important.But actually, if I had to rewrite it today, I�d actually like to say that our panel�s goal or mission was to try to find a process that enabled outcomes in performance.And one of the ways you do that is to take the focus off of this sort of vitriolic debate that we�ve been having and the disagreements we still have over A76 and the methodology and focus instead on sort of the strategic mission and outcome perspectives which I think are actually more important.

Mr. Lawrence: Let me go back a year and get some history here. What prompted the forming of the panel?  What was the state of sourcing at the time when you began in 2001?

Ms. Kelley: It was required by legislation, and it was aimed primarily at the A76.Where most of that occurred is in Defense, which I don�t represent any employees in Defense, and so my experience is with the civilian agencies, and Stan�s of course is with Defense, so you might have other insight into how --

Mr. Soloway: We�d gone through a number of years, a decade or more, of increasingly contentious debate over what the government should be doing, what the government shouldn�t be doing; how one decides where the work should be located; whether it should be a government source or a private source; how you get there; how you make decisions, and so forth. The debate had continued to spiral upward to the point over the last couple of years where it�s become extraordinarily intense and contentious.I think what Congress finally decided is they would like to step back from sort of the political edge and try to -- through the auspices of the General Accounting Office and its

independence -- to get some supposedly -- I hate to say this because we were on it, but it sounds self-serving -- expert views and consensus from the various stakeholder communities on how to move forward with this because it was getting very difficult.

We had at the Defense Department numerous cases of very, very large requirements for which there were no bidders, and there were from the private-sector perspective tremendous problems with the process.  Similarly, and I won�t speak for the federal employees, but there were clearly issues on the federal employee side about the fairness of the process, as to whether or not the right strategic decisions were being made and so forth.

I think one of the things that the panel agreed on is that there were equity issues on both sides that needed to be dealt with.  In fact, one of the key principles, if you look at the principles, and I know we�re going to talk about that more later, it starts with the focus on strategy, agency mission, and outcome that leads you into discussing things like what are the human capital realities of the agencies.It leads you into equity, making sure that all parties, including federal employees as well as the private sector, are treated the same and fairly, and that�s the overarching principle.

I would argue that this is true on both sides of the issue, not the current status.I don�t think anybody believes that the current A76 is fair and equitable to both sides, and I think that was what was getting such a heated level of debate that they had to do something.

Mr. Lawrence: Let me just ask a question about how the panel worked together, because the issues are contentious.You have people on both sides of these issues. How did the panel work together? I noticed, for example, that proposals had to be agreed to by a supermajority.How did it all really happen?

Ms. Kelley: Well, it really started off with a lot of briefings.We saw the need for a lot of shared information to make sure that since we each brought different experiences to the panel, that we could kind of share those, put them all in one place and draw from them. So that was the beginning of the process. Then of course, the field hearings that were held brought a lot of other information forward that, again, we may not have individually experienced but was important to us for consideration.

After that, then the discussions started about principles, should there be principles, because that wasn�t even necessarily agreed to or even thought about up front; it was as this volume of information came in and we took a step back, we realized we probably needed to start at a pretty high level on principles because we knew where the disagreement would come would be in the details, and that�s what happened. 

The supermajority issue was discussed at the first meeting.There was not a vote on whether we have a supermajority. There was an interest on the part of David Walker, as the chair, to do this.He explained why and all the reasons, and the panel went along with that to kind of see where we went.In the end, it ended up being a vote, at least on the principles, and then on the three recommendations as a whole.So you were not voting on separate recommendations because there actually are some things that I agree with in the recommendations, which I know we�ll talk about later, but as a whole, in my opinion, getting from the principles to the detail didn�t go far enough, and that was why I did not vote with the supermajority.

Mr. Lawrence: Let me ask you now what kind of feedback are you getting on the report now that it�s out?

Ms. Kelley: I would say as many questions as anything else, trying to figure out if there is more to come; what the next steps will be.  One of the disputes among the panel members is whether this should all be acted on by the Administration or how much action Congress should take.I�m of the school that I think Congress needs to be very much engaged in this issue.It�s a very serious issue for the federal government. Where the expertise of the government comes from -- if the government maintains the expertise or is dependent upon the private sector for expertise in these areas I think are critical issues, and I believe Congress needs to be engaged in this.

There are others who believe that based on the report, implementation should just move forward. So there are still disputes, I think that�s fair to say.

Mr. Lawrence: Stan, what kind of feedback are you getting?

Mr. Soloway: I think Colleen hit it quite well.  The meetings we�ve been having over the last week or so, the ironic timing of the report�s release was with the markup of the House Armed Services Committee�s version of the Defense Authorization Bill, and some issues in there related to the report and outsourcing and so forth.And a lot of discussions with members on both sides of the aisle -- I�ve been presently surprised by the degree not necessarily to which they�ve read the entire report, but they�re aware of sort of the general tone and focus of the report and are interested in some sort of further engagement on it, and good, interesting, serious questions and discussions of a much higher level, frankly, than we saw a year ago.

The only other point I�d make about the way the panel worked, and I think it�s an interesting lesson in change management, if you will, is that the chairman, Dave Walker, about a third of the way through the process, essentially stopped using the working group model -- we had staff working groups -- because you had in there a bunch of very smart, capable, dedicated people who were not really empowered to move forward. 

So all of the major discussion ended up starting to take place at the panel level and filtering down, rather than waiting for staff to bring stuff up.I think that was a very smart thing for him to do because it enabled us to have Colleen, myself, Bobby

Harnage, Pete Aldridge from DoD, other members of the panel, to really have a very active, engaged, and as Colleen said, very direct discussions.There were no secrets kept at the table.

Mr. Lawrence: That�s a good stopping point. Stick with us through the break, and rejoin us in a few minutes as we continue discussing the final report of the Commercial Activity Panel with panel members Colleen Kelley and Stan Soloway.

This is The Business of Government Hour. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour.  I�m Paul Lawrence, a partner at PricewaterhouseCoopers, and today�s conversation is about the final report of the Commercial Activities Panel.

Our guests are Colleen Kelley, the national president of the National Treasury Employee�s Union, and Stan Soloway, the president of the Professional Services Council.

One of the things that came up in the last segment, it�s clear in the report there are 10 sourcing principles, and these were agreed to unanimously by the 12 panel members.I�d like to highlight a couple of them.

Sourcing Principle Number 6 talks about that there shouldn�t be, I believe, arbitrary FTE or numerical goals for contracting out or outsourcing. I�m curious about this, and I�m wondering does this mean the panel really pushed back against the Administration�s view that certain percentages of jobs should be contracted out?

Mr. Soloway: We�re going to have a disagreement on this.First of all, where we did agree, and I think it�s very critical, is that principle links to the very first principle, which says sourcing across the board. 

I point out that you read earlier the mandate for the panel.What the panel decided was that the mandate was not an outsourcing question, it was a question of sourcing.We didn�t use the word "insourcing" or "outsourcing," we were looking broadly at the question.So to that extent, we slightly altered what the Congressional language was, if you will, establishing the panel.But the first principle to which everybody agreed was that sourcing policy needs to be based on a strategic look at mission need, mission focus, outcomes, and so forth.

When we talk about arbitrary numerical goals, quotas, I think that every member of the panel -- at least as far as I can tell, every member of the panel agreed that arbitrary FTE ceilings are a bad idea; they are not smart management.Frankly, as much input on that came from private-sector witnesses, whether they were government contractors or not, but people who understood the outsourcing question, the sourcing question.No company does that.They don�t arbitrarily say you can have 15 people before they�ve even figured out what it is they do, how they want to do it, what they�re trying to get to and so forth.I think we all agree that arbitrary FTE ceilings or ceilings of any kind like that, quotas of any kind, without some considered thought and analysis, are inappropriate.

The question has been raised by a lot of people, is this a direct shot at the President�s management agenda and his competitive sourcing goals?I would argue it�s not, because I think there is a significant, substantive difference between an arbitrary goal or quota that presumes the outcome. In other words, it presumes you�re going to outsource or presumes you�re going to insource, as opposed to a goal that simply is trying to impose or inject the use of what I think the panel widely agreed, as covered in other principles, is that one of the great management tools, which is competition, where you have competition and you can use it as a driver for high performance.

So I think there�s a significant difference between an arbitrary quota that presumes outcomes, FTE ceilings. Arbitrary limits on contracting, whatever it is, I think that�s one thing, but it�s very different than the use of a management tool, trying to bring a management tool to where it doesn�t currently exist.  So I don�t think it necessarily is a shot at the President�s management agenda. Others, and I suspect Colleen will speak to this, actually think it is, because they see the linkage differently.

Mr. Lawrence: Colleen, let me ask you about that.

Ms. Kelley: I actually think it was a very important principle and a very important message to the Administration because what was very disappointing was when this panel was convened by legislation to look at the question of sourcing, in fact, the Administration had a 15 percent goal out there mandated for every agency to meet by 2003 to competitively source 15 percent of the positions on the FAIR list. It gave no consideration to what other issues the agency might be facing; if they were going through major reorganizations, if they had other management issues, employee issues, issues that the American public would be very interested in; it took none of that into consideration. 

And even while this panel was convened, the Administration did not back off of the 15 percent goal, and I think that was wrong because it sent a very clear signal to me that they didn�t really care much what this panel said, that they were going to issue their management agenda and target the 15 percent regardless of the advice, the counsel, or the wisdom of this panel that was convened by legislation.

So for me, this was a very important principle.  And the other disappointing thing to me, which you will hear from me often throughout this as we get from principles down to the recommendations, is that I agree with the principle wholeheartedly, but it didn�t go far enough when it came to the recommendations, to take any kind of an action or recommend action to stop the 15 percent.

Mr. Soloway: If I could just add one thing.  Actually, in many ways, I fully agree with Colleen relative to the President�s competitive sourcing goals in the sense that I am not a big fan of those kinds of quotas and goals, even to bring competition. because as Colleen said, in each agency, it�s going to be different and it�s going to focus on agency missions, human capital capabilities, where they�re going as an agency, and so forth. For some, it might be 40 percent; others, it might be 5 percent.  It depends on what the agency�s requirement is.

I think the problem is in this particular issue -- and, frankly, this is not a case where the panel had a lot of active, specific discussion -- but the problem clearly is in my view that we haven�t had across the board this kind of, as a friend of mine who just recently retired from federal service says, belly button contemplation going on enough. So what the Administration is trying to do is more an enforcing function than as an arbitrary assumption of where the work is going to be performed.Ideally, you wouldn�t have these quotas because this would be something that was done as a matter of routine and course. I don�t believe personally that it�s being done enough, and I�m not going to suggest that it�s a great idea, but I think in the circumstances of what they were trying to accomplish, it made some sense. 

But the other piece is that the goal for 2002 I believe was 5 percent competitive, and that doesn�t mean that it�s going to be outsourced; the presumption is that the bulk of this is going to be publicly-privately competed, and for 2003 another 10 percent. So it gets you to the 15 percent. Five percent is a pretty small cut. This is 5 percent, not of all federal positions, this is only 5 percent of those positions identified in the FAIR Act inventories that exist in the subcategory of those that are commercially available. We�re talking about 5 percent of -- I think it�s, what�s the number, 400,000 total?

Ms. Kelley: No, it�s 5 percent of 850,000 jobs.

Mr. Soloway: I�m sorry. You�re right, it�s 5 percent of the FAIR Act inventory.  You�re right.

Ms. Kelley: It�s -- 42,000 jobs is 5 percent.

Mr. Soloway: But across 30-some-odd agencies. My point is, I don�t know that that�s such an enormous hit.It�s not like saying everybody has to be competed the first year or two, and so forth.But we do have a disagreement on that.

Mr. Lawrence: Let me move off of the President�s management agenda, back to the sourcing principles.Number 10 talked about accountability, and I�m curious, what did the panel have in mind here?

Ms. Kelley: I would say it�s fair to say there was a disagreement when you got to the details. NTEU believes there needs to be more accountability on work that is contracted out of the federal government. We have proposed and supported legislation in the past to make that happen.We were hoping for some additional specifics and support from this panel on that issue.

When I think of experiences that we have had -- and this is not to imply that all contracts result in action like this, but a very visible contract that was not properly monitored and managed -- and there was no accountability or this couldn�t have happened, was the Mellon Bank lock box problem with the IRS, where over 70,000 tax returns were shredded and $1.2 billion in tax receipts were destroyed or lost. This was done by a contractor, and it took entirely too long for the agency to figure out this was happening.

I attribute that to a lack of accountability and monitoring, not having the systems in place, not having a work force in place to appropriately be trained and to monitor. This is true from an acquisition standpoint of acquisition staff to look at the competition issue and to appropriately run not arbitrary quotas or competitions, but what would be an appropriate competition to determine the best value for federal employees and for the federal taxpayers, which is really what this is all about.

So when I think about the Mellon Bank situation, it highlights for me the need for this principle and the need to stay focused on it and not to allow a system that has no accountability to just let a contract and then not monitor it, and hold the contractors accountable as federal employees are held accountable.So for me, this principle, and for NTEU, was one that is the beginning, but it is not the end of this discussion.

Mr. Lawrence: Were there other dimensions of accountability?

Mr. Soloway: My perspective on it is that the principle -- I agree entirely with Colleen that it�s a critical principle, and secondary to the issue of the first-level decision of strategy and human capital and so forth, you have to have a system that provides accountability. I think the key here is that accountability cuts both ways.I�m not going to defend the Mellon Bank situation; I don�t have all the facts, Colleen knows it far better than I do, but we certainly have tremendous internal accountability problems.

It�s not just a question of accountability of people, although that�s constantly an issue or challenge for anybody in business, whether it�s government or a company or

what-have-you.  We had 700-and-some-odd Navy employees who abused a credit card.Some of them have been promoted since; rather significant abuse. I�m not suggesting that that�s an indictment of the federal work force, it�s an issue both ways.

I think what the GAO in its own studies and analyses independent of the panel has identified is a whole series of areas where we have issues.We clearly have contract administration challenges in government, and I�ve been probably as strong and outspoken an advocate for much more aggressive training and opportunities for the acquisition work force at DoD. We spent 3 years fighting with various members of Congress who wanted to have arbitrary reductions in the acquisition community, even though we were having increased work loads and increased complexity of work for them.

At the same time, we have tremendous internal financial management challenges, human capital management challenges, general management challenges in government that the Senate Government Affairs Committee and others have talked about, sort of a crisis of management. I think what the principle clearly states is that whatever your sourcing process is, it has got to have an accountable tail to go along with it, whether it be internal or external.

Frankly, I don�t believe -- obviously Colleen and I disagree on this -- that contractor work is unaccountable. The vast majority of it according to the federal data systems is competitive.There are clearly issues that have arisen. Inspector General reports or GAO reports have identified problems; the Mellon Bank situation.We could play tit-for-tat on that all day and look at internal versus external.  The key point is that competition I think the panel generally agreed, and as Colleen alluded, is a very good guarantor of ongoing performance, and you need to use that tool wherever possible to keep people�s feet to the fire whether they be organic federal organizations or contractors.

Mr. Lawrence: That�s a good stopping point. Stick with us through the break as we continue our conversation about the final report of the Commercial Activities Panel with panel members Colleen Kelley and Stan Soloway.

This is The Business of Government Hour. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour.  I�m Paul Lawrence, a partner at PricewaterhouseCoopers.Today�s conversation is about the final report of the Commercial Activities Panel.  Our conversation is with Colleen Kelley, the national president of the National Treasury Employee�s Union, and Stan Soloway, the president of the Professional Services Council, who were members of the panel.

One of the last things I wanted to get through on the sourcing principles was Number 9, which talks about ensuring both quality and cost factors in competitions, which seems like a change from the current process. What was the panel thinking about here?

Ms. Kelley: One of the terms that was used is "best value," and that�s a term that I disagree with, and not because I believe quality and cost shouldn�t both be considered, but you�re right, the current system is based on cost.And one of the concepts in cost of course is innovation and creativity to kind of raise the bar, which is a good thing. It�s a good thing not just for competition, it�s a good thing for the federal government.It�s exactly what the government needs to do.

The problem for federal employees comes in on creating a level playing field to enable them to do that. My background when I worked at the IRS was in accounting.  I�m an accountant, I�m a CPA, so when I think of cost, quality, measuring things and making determinations on what�s the best, matching apples to apples is very important. 

One of the problems with the report as I see it is that it will put federal employees in a position where they will not be being measured apples to apples because they don�t have the resources to put new technology in, they don�t have the resources to hire personnel that would bring expertise or ingenuity or creativity to a process. So the current process provides that you bid on a performance work statement that is work that the government defines it needs done, and that�s what is bid on by both private and the public sector. 

Moving to this new process raises a lot of questions about how that determination will be made and what opportunities, what resources, what commitment from OMB and from the Administration is going to be made to provide that level playing field to employees. We were not able to get that commitment from the Administration as a part of this panel recommendation, and I�m very concerned about it.

Mr. Lawrence: Is best value truly subjective?

Mr. Soloway: Well, it�s not truly subjective, but I think Colleen raised a number of other issues that are important and that merit some further discussion.I think, first of all, the question of resources and people is a critical question, and potentially, you do have kind of a dichotomy in terms of competitive position in a situation like that.But, again, you have to link it back -- these principles are intended to be taken as a whole, not as individuals -- and it links back to the strategic mission of an agency and an agency determining where its resources are going to go, not relative to people or specific functions, but what it is that I as an agency really am about, what are my core missions, where are my resources going to go.

One of the reasons that you see so much outsourcing in the private sector company to company is largely for the reason that Colleen just identified, which is that there are many functions in the companies that not considered absolutely core to their mission, so they put their resources into those areas that they really do consider fundamentally core and not into those that are what they consider secondary. And that�s not to say that people are secondary, but the mission or the function is, and I think that links to this question of if the government and the agency or the component does not have the resources to do what it needs to do, and if the resource owners have made a strategic decision that that�s just not where we can afford to put our money -- we�re in an incredibly constrained budget environment right now and will be for I think the rest of our natural lives -- then that does lead you to looking at alternatives. From that perspective, it�s a fair point, but I think it kind of divorces the best value question from strategic management, and I think they are linked.

Secondly, there has been a lot of concern raised about the subjective nature of what we call best value contracting, and of course, best value has been around for decades, but it�s really the last decade that it�s become a major focus, and 98 or 99 percent of all government contracting is conducted under the rubric of what�s called best value. What best value says is that there is a spectrum of strategies, from what we call low bid or low cost technically acceptable, all the way up to almost the exact opposite of that, that is determined by what your requirement might be.If you have a highly complex, new, never-been-done-before type of requirement that requires unique scientific and technical capability, cost is much less of an issue than it is -- does that technical capability exist, does that innovation exist, and so forth.It�s a spectrum of strategies that you can tag to the actual requirement.

What people miss, and I�ve had a lot of discussions with people about this, and they�re surprised to hear this, is that the way best value actually works is that a contractor or an offeror, in this case, even a government entity bidding, because -- in a public-private competition, would be told in advance when the solicitation comes out what the relative weights of different factors will be, so they know going in, and that cannot be deviated from.More importantly, in the contract file itself, when the source selection team is doing the source selection, they have absolute numerics assigned to each category, whether the cost is 41 percent and on down, from which they cannot deviate. 

So it is flexible and subjective at the front end to the extent that it enables you to devise an acquisition plan or an acquisition strategy that really links to what the requirement is, but it is very tightly bounded, and we have decades of experience with it, plenty of case law to govern it.Frankly, many of the issues that Colleen and others have raised were issues industry was raising 10 and 15 years ago saying, oh my God, I hate the subjectivity, am I going to be just sort of willy-nilly shunted off to the side with no redress and so forth?

In fact, it�s actually matured quite well and I think the vast majority of folks, certainly in the marketplace, but most people believe we don�t buy in our own lives on a low bid basis, and A76 is specifically designed to strip away all of these things and get down to a cost-to-cost comparison, and I think that disadvantages the government. And frankly, I think it disadvantages the federal work force.

Ms. Kelley: But I would say in response to that, Stan, that it disadvantages the federal government and federal employees if in the end, the government is willing to pay more money because it�s more innovative, more creative, it raises the bar, which is a good thing for the government.  But if they�re willing to spend that money to pay to a private contractor to do the work and not willing to spend that money to give the innovation opportunity and the creativity opportunity to the federal employees doing the job who have the potential to be able to do that but the government won�t spend the money on the federal employees but will spend it on the contractor with the higher bid; that�s where part of the problem is.

Mr. Soloway: I think the logic of what you said is clear.  I�m not arguing the point.  But I think the other side of this is there are many cases that I�ve seen and I�m sure Colleen has seen, where the government doesn�t have the resources and is unwilling to put the resources into what would be a technology or other innovative upgrade that would drive performance. It may also be a case, and there are plenty of them, where the government cannot attract and retain the people needed to do the work because the government is not, unfortunately, for a whole slew of other reasons an employer of choice, which the report talks to a little bit, and I think the government has a generational problem right now in trying to make itself an employer of choice, which has to do with investing in people and supporting people and so forth.

But what happens in many of those cases, and what I believe should happen in a case such as Colleen is talking about where the money doesn�t exist but a contractor can come in and offer something that the government doesn�t have to necessarily directly pay for in terms of a direct outlay, for instance cost sharing or capital investment. We saw an Army logistics modernization or Navy-Marine Corps Intranet and other cases where there is actually a leveraging of private capital, I believe that we have to be much more aggressive in those cases with the federal work force, because the realities may be that they can�t the resources, but we don�t do very well by the government work force in a situation like that.

We have done the best by them, frankly, in the case like Navy-Marine Corps Intranet or Groundbreaker at the National Security Agency, or Army logistics modernization where, in effect, the federal government�s message to the proposers, the contractors, is, you want our business, our biggest asset is the people.So if you want to get this contract, you�ve got to demonstrate to us how far you�re going to go to take care of our folks.

If you look at what�s been done on the Navy-Marine Corps Intranet, and on NSA Groundbreaker in particular, it�s been extraordinary, and I don�t think we do enough of that. We actually treat the people in the process as the pawns rather than the assets in the process, and there are realities. There are limits to resources, limits to capabilities, but in the process of trying to solve those and settle those out, we can do a whole lot more for the work force involved.

Mr. Lawrence: Let me shift to some of the recommendations. The first one was adopt the sourcing principles which we�ve talked about.The second one talked about public and private competition. I�m curious, what does the report mean when it recommends a FAR-type system for those competitions?

Mr. Soloway: Basically, if you take all of those principles, the 10 principles, and as Colleen said earlier, there was some disagreement after we got past that point as to what the outcome was, but a lot of us looked at that and said every time we try to align a process to the principles, it began to look increasingly like the Federal Acquisition Regulation, because the underpinning of the Federal Acquisition Regulation is all bidders have the same rights and the same responsibilities, which is really the essence of the sourcing part of the principles. So it became clear that the FAR provided the framework.

You can�t just jump in and say we�re going to do this under the Federal Acquisition Regulations, because they do not contemplate a public bidder; they do not deal with the work force issues. And so there are elements of A76 that you would migrate with it, whether it�s into the FAR or a new A76 that is based on the FAR or what-have-you, but the whole concept was tied back to the principle that speaks to, again, treating all bidders the same and giving all bidders the same rights and responsibilities, which is the underpinning framework of the FAR.

Mr. Lawrence: This wasn�t unanimous?

Ms. Kelley: This was not.

Mr. Lawrence: Is there more behind that?

Ms. Kelley: Well, the FAR process has never been used for private-public competitions, as Stan said, and to merge two systems or take pieces of two systems is one that I supported from a pilot perspective.  Let�s try this, let�s see what happens, it�s an unknown process.And rather than move full steam ahead and impose this on every competition and on all of the work that�s being looked at for competition in the federal government, there is a lot at risk here if this doesn�t work.

So one of the discussions was about doing pilots on this, on the combination of some A76 aspects as well as FAR. But this recommendation goes too far in my opinion because it does not adopt the concept of pilots and just assumes that it�s going to be okay.There were even concerns raised by the Administration on moving full steam ahead without having results.

Mr. Soloway: I think the recommendation though does talk to a phase-in period, a recognition that there will be midcourse corrections.  It also talks to the point that we have done 75 public-private competitions under the FAR through the depo competitions, and cities like Minneapolis and elsewhere do all of their public-private competitions under their regular procurement regime.  So I think there�s a lot of experience that enables us to move forward in a phase-in process.

Mr. Lawrence: That�s a good stopping point. Rejoin us in a few minutes as we continue discussing the final report of the Commercial Activities Panel with panel members Colleen Kelley and Stan Soloway.

This is The Business of Government Hour. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour.  I�m Paul Lawrence, a partner at PricewaterhouseCoopers, and today�s conversation is about the final report of the Commercial Activities Panel, with panel members Colleen Kelley, who is the national president of the National Treasury Employee�s Union, and Stan Soloway, who is the president of the Professional Services Council.

Another recommendation touched on A76. I�m curious, what was that recommendation in terms of A76?

Mr. Soloway: There were two recommendations relative to A76, again, approved by a supermajority, a minimum of two-thirds of the panel, not necessarily unanimous. One was that the end state should be a replacement of A76 with this FAR-based process.It�s what�s called the integrated process, if you will, in the report, for the reasons we�ve already discussed.

The specific A76 recommendation really was a list of 10 or 12 immediate changes you could make, essentially administratively done without having to go through a whole regulatory or legal process, to improve the A76 process in the short-run, because everybody recognized, whether it�s a pilot program or a phase-in process or whatever, that you don�t just jump right into this, that it�s going to take a number of months to develop the new methodology.Then you�re going to have a phase-in, some midcourse corrections, and so forth.  In the meantime, you don�t want to stop utilizing the competition tool in government. I think the report is fairly clear on don�t stop what you�re doing.

So the panel identified, and actually did not spend a lot of time on these interim changes, recognizing that our focus was really end state.But there was a set of changes that were designed in the interim to make A76 at least a little bit better, with the recognition that A76 was in the end unfixable.

I think one of the critical points with A76 which is contained in the front end of the report is, you can talk about the weakness of the process relative to accurate cost accounting, inequitable treatment of offerors, whether they be a government entity or a private-sector entity and so forth.There was a whole set of issues that are on both sides of the table. But you also have a process in A76 that is designed to measure the cost of discrete functions. It is not designed, and specifically not designed, to look at not only a best value look at the requirement, but to also look at sort of an enterprise-wide kind of a perspective, which is really kind of the rule of thumb in most organizations today.

One quick example: If I�m running a logistics information system for the Army and I have 400 people involved in running that system and it costs me $40 million a year to do it in the government, A76 requires you to compete what it costs to run that system in the government versus what it would cost to run that system function-to-function in the private sector. That would be an A76 cost comparison.

The real issue for the Army is what can I do to my logistics information system that will drive savings throughout the supply chain, and where the savings might occur could be way down at the far end of the supply chain, and they far exceed added costs of that function, if you will. A76 doesn�t let you get to that kind of enterprise-wide integrated look, and that�s why the report early on makes the statement that it�s really a process for another era, because almost everything now we�re doing in government has that kind of integrated, complex requirement associated with it.

Mr. Lawrence: Is A76 dead?

Ms. Kelley: It�s not dead. At least for the interim, it�s still alive. And that�s why these changes were important.  I think in general they were sound changes that the panel proposed for the interim, especially when it talked about a new emphasis on communication with federal employees in the process, on labor-management cooperation in the process, on providing employees with the support to have a real opportunity to build a most efficient organization, which was really missing from the current process. So from that standpoint, there were even some improvements I believe that were made in the recommendations of the panel for this interim process.

But there were two big things missing from those recommendations, and they were, again, the accountability from a standpoint of tracking the true costs of what contracts involve once the contract is let and the work moves outside the federal government. There needs to be a better way for the agencies to track costs, and also the quality of the services that are provided. The other thing that continues to be missing is appeal rights for federal employees and the unions who represent them in appealing if they disagree with the results of one of the results of the competition, and that requires legislation to make that change.

Mr. Soloway: There is no doubt that if you�re going to ask or give the opportunity to a federal unit to compete for something, they deserve to get the resources to be competitive and to be supported and so forth.I think the report does speak to the need to do that, but it is a continuing challenge within the process.

The issue of protest rights is a very complicated one, and let me just be clear that in the principles and in the end state FAR-based process, we all agreed that all parties to the process would have the same appeal and protest rights.The federal work force only has appeal rights at the command level or the agency level; they don�t the right to go to the legal system, GAO, or on to the courts.

The reason it�s not included in the interim changes is, number one, you can�t do it in the interim. It�s an actually fairly complicated legal process. As Colleen suggested, they really get into a whole series of statutes.You have civil service statutes, you�ve got the Competition in Contracting Act defining bidders, and so it gets fairly complicated.

The second issue is our strong belief, and I think we all agreed with this, is that you need to take this, again, look at the whole and not take individual pieces here and there, but really deal with the whole, with all of the principles and link them all together. I do not object, in fact, we supported principles that would have provided those appeal and protest rights under the new FAR-based process, because then you have a system where all the bidders have the same responsibilities and thus are entitled to the same rights. 

Getting to that protest issue, which is a big issue and a very contentious issue, is very difficult. I don�t believe, for instance, that a labor union should have standing to protest, because there�s a whole slew of labor-management issues associated with that.I�m not an anti-union person; I�m just saying I don�t think that�s the appropriate way to go.I don�t think individuals -- we have a long history in government in a variety of areas having nothing to do with competitive sourcing, where we don�t have individual right of action.But defining an entity, that work force that�s affected and giving them the opportunity to appeal, at the GAO in particular, sourcing decisions that affect and disadvantage them, much like any other bidder, is something I fully support provided it�s done in the context of the broader set of equities.

Mr. Lawrence: Let me ask about the last recommendation, about establishing

high-performing organizations.What are those?

Ms. Kelley: They are something that NTEU supports.  Every federal agency needs to move towards that.The problem again comes down to resources, and there was not a willingness by the participants from the Administration to ensure that resources would be available for agencies or functions within the agencies to strive for high-performing organization status. So, again, with that recommendation, the NTEU absolutely supports HPOs and the move towards them, but you can�t expect a movement towards them without the support, the resources, and the encouragement and the tools so that employees can move towards that.

The employees have the intelligence, they have the talent, they have the experience, they want to do this. They cannot do it if it�s not appropriately funded. And there was once again a total lack of commitment of resources to that end.

Mr. Soloway: As a matter of public policy and good government, the idea of a

high-performing organization and providing incentives to drive optimal performance with or without competition in the mix is clearly appropriate. The issues with HPOs really come down to several, and without even getting to the resource question which Colleen appropriately raised is, number one, this is something that�s never been done in government, and it�s not been terribly successful outside of government in the sense where you don�t have a competitive pressure.

The idea with HPOs is not just to create a system that provides the incentives and so forth, but to also exempt an entity that qualifies from competition.The question is, how rigorous, what benchmark level, how are you really going to do this?It�s never been done.So that actually more than anything else in the report is the newest of the new in the sense of experience with it.That�s number one.

The second thing is, and this is a personal view, I think it�s a great idea, but I think if I were managing an organization, and I do run an organization, where I have the opportunity to use the competitive marketplace, and in the case of government that would include where work is currently being performed by government employees, including them in that competition, that�s where I will go to drive my performance and use the HPO, whatever resources, on those functions for which a competition is not available; inherently governmental, other residual requirements which may not be inherently governmental by definition, but which I�m clearly not ever going to outsource. 

Companies do this all the time, they retain a certain degree of residual skill and so forth. They�re never going to bring the competitive market to bear on that because they consider it core to their mission. That�s an area where you don�t have the competitive tool where I think the concept even has greater legs, because I think the issue of whether it should be competed or not is not on the table, and then you really have a high incentive on the part of the resource owners, whether it�s OMB or the agency budgeteers, to really resource is to drive high performance.

Mr. Lawrence: We�re almost out of time and I want to get a final thought from each of you in terms of where are we and where do we go from here.

Ms. Kelley: We have to stay focused on the issues that brought us to this panel and to ensure that they get addressed appropriately through implementation of anything that comes to pass from the panel, whether through the Administration or legislatively, we have to ensure that arbitrary quotas are not used.

We talked a lot about the issue of competition and how good it is for the government, and yet there is a provision that allows for what�s called direct conversion of jobs, where employees don�t have the opportunity to compete and the work can just be moved to the private sector.  That should be eliminated.  And the panel dealt with that and did not adopt it.In the overriding principles, it�s there, but it did not roll down and would not commit to no direct conversions. The issue of accountability, of knowing that the taxpayers are getting the quality of services and that the costs are being appropriately monitored is one that has to stay in the forefront.

I have to say just as a final note, the idea that a labor union who is elected by employees to represent employees who is a legal entity would not have standing in the courts on behalf of the employees who they were elected to represent I find appalling.

Mr. Lawrence: Stan?

Mr. Soloway: It�s not meant as a personal attack, Colleen, it�s just a matter of public policy disagreement. But I feel the report covered a lot of the issues Colleen is talking to;I think it addressed a lot of them.It was never designed to get into the level of detail -- in a year, in all the meetings we had, we were never going to get to the detail that anyone would like or need in some areas.

My hope is that the report now creates a framework for a cooler, more substantive debate, if you will, and discussion in Congress and the Administration or wherever so that we�re not dealing with a lot of the vitriol that has dominated this debate for a long time. The issues are on the table and they are well discussed, or at least raised in the report, and I think now we have to move forward with a much more rational discussion than has been in the case in the past.

Mr. Lawrence: I want to thank you, Colleen and Stan, for being with us today.

Mr. Soloway: Our pleasure.

Ms. Kelley: Thank you.

Mr. Lawrence: This has been The Business of Government Hour featuring a conversation about the final report of the Commercial Activities Panel with panel members Colleen Kelley, the national president of the National Treasury Employee�s Union, and Stan Soloway, president of the Professional Services Council.

Be sure to visit us on the web at There, you can learn more about our programs and get a transcript of today�s very interesting conversation. Again, that�s 

This is Paul Lawrence.See you next week.

Stan Soloway interview
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