Championing Responsible National Security Policy

Testimony of POGO's Danielle Brian for the House Government Reform Subcommittee on Technology and Procurement Policy Legislative Hearing on H.R. 3832, The Services Acquisition Reform Act of 2002 (SARA)

Testimony of Danielle Brian, Executive Director

Project On Government Oversight

before the

House Government Reform Subcommittee on Technology and Procurement Policy

Legislative Hearing on H.R. 3832, The Services Acquisition Reform Act of 2002 (SARA)

March 7, 2002

The Project On Government Oversight (POGO) investigates, exposes, and seeks to remedy systemic abuses of power, mismanagement, and subservience by the federal government to powerful special interests. Usually, as we consider which public policy issues we will pursue, we return to this mission statement to ensure that it would fall in one of those three categories. In the case of Acquisition Reform it is easy. It falls into all three.

George Orwell would be proud of the Acquisition Reform community. It has created such Orwellian concepts for the acquisition of goods as "competitive" one-bid contracting; "commercial items" that are only bought by the government; information about cost and pricing that "need not be current, accurate, and complete;" and "indefinite delivery, indefinite quantity" contracts. Only those who have sipped from the acquisition reform well could believe that these "reforms" benefit the taxpayer.

At the Subcommittee's last hearing, one of Acquisition Reform's most vigorous cheerleaders, Stan Soloway testified that POGO's 1998 report contained "errors" and "misconceptions as to what's going on" but declined to articulate what those were. He asked to be allowed to submit a challenge to our findings for the record. We're still waiting. In the meantime, I am introducing for the record our newest report on the damage caused by Acquisition Reform.

We have found that, in fact, Acquisition Reform has been extremely detrimental to oversight and accountability of federal procurement. Examples include:

One-bid contracts that have been labeled "competitive" have clearly proven wasteful: a May 2001 DoD IG audit of 145 sole-source and "competitive" one-bid contracts discovered that overpricing had occurred in more than 1/3 of the contracts, totaling $23.1 million. In the vast majority of the remaining cases, the DoD IG was unable to determine whether overpricing had occurred, due to inadequate data. 1

The term "commercial" has been weakened so much that it is practically useless. For instance, C-130J military transport aircraft have been offered for commercial sale in the past, and while not a single sale was ever made to civilians, oversight was loosened. Similar attempts are being made to classify the C-17 cargo plane. By thus categorizing the airlifter, the Air Force would be allowed to bypass important pricing oversight which is only intended to be lifted for items which are truly commercial and whose prices are set by free market forces. A $232 million outsize cargo carrier with 173,300 lbs. capacity is clearly not a mass-market item which is sufficiently affected by the free market.

Although using Indefinite Delivery Indefinite Quantity multiple award contracts frequently reduces the length of the acquisition process by as much as 90 percent, they actually stifle competition. A 2001 DoD IG audit reported that, "The underlying goal of multiple award contracting was to obtain the best value while sustaining competition throughout the contract period. . . . However, the large percentage of sole-source orders demonstrates that most DoD contracting organizations continued to be increasing the risk to the Government and losing the benefits of price competition. 2

A GAO study of micropurchase credit cards revealed that purchase cards have been used for "fraudulent [personal business] transactions for pizza, jewelry, phone calls, tires, and flowers." Perhaps the most telling example is that of one cardholder indicted for making over $17,000 in fraudulent personal transactions who "commented that illegal use of the card was 'too easy' and that she was the sole authorizer of the card purchases. 3 A recent DoD IG audit found that overcharging occurred on no fewer than 42% of the audit sample. Not surprisingly, the DoD IG recommended "replacing [i.e. eliminating] the electronic commerce interface" or, at the very least, "improv[ing] management controls on micro-purchases. 4

We are not alone in our concern. As is included in our report, the GAO and DOD IG have repeatedly warned that Acquisition Reform efforts have worked counter to the interests of the taxpayers. In fact, the IG, using atypically colorful language concluded that Acquisition Reform-endorsed multiple award contracts have resulted in an "anemic level of competition."

We are now here to witness the beginning of the infection of services contracting with the Services Acquisition Reform Act (SARA).

The first provision of SARA that alarms us is Section 221, the increased threshold for "micropurchases" from $2,500 to $25,000. Perhaps some of the Members of this Subcommittee are unaware of Representative Horn's fine work in the Government Efficiency Subcommittee of this very same Government Reform Committee. He held hearings last year entitled, "The Use and Abuse of Government Purchase Cards: Is Anyone Watching?" It would appear from Section 221 that this Subcommittee is not. Senator Charles Grassley, who had initiated the investigation of the federal purchase card program testified that, "The GAO reports that purchase cards are being used to buy expensive items for personal use – with no accountable records. There were over 500 known purchase card fraud cases in the last two years alone. And with just a small sample, GAO found some more. And the worst part about it, Mr. Chairman, no one seems to care. The Defense Finance and Accounting Service simply pays the bills in full – no questions asked." At this hearing, Representative Horn concluded that, "the cost of this program may far outweigh its benefits." Why on earth then, would this Subcommittee expand ten-fold a program that has already been found to be so replete with abuse?

Section 301, Revisions to Share-in-Savings (SIS) Initiatives, greatly expands SIS contracts to be used government-wide without a SHRED of evidence that they can be successfully used beyond energy-savings. As we testified last November, projected contractor profits from this program are far more concrete than projected savings. Of particular concern will be how benchmarks will be established to prove that savings have in fact been realized. It is certainly premature and irresponsible to expand this initiative before there has even be an evaluation of the Department of Education's pilot SIS program.

In circular logic, Section 401 of SARA encourages the use of performance-based contracting, yet in the very next section, Section 402, this bill encourages the use of what is essentially the polar opposite – Time and Material and Labor Hour contracting. These types of contracts pay for time or money spent, not for milestones reached or work completed. Anyone who has hired a lawyer knows what happens when you pay by the hour – the customer, in this case the taxpayer, will pay more for less. The government should not be encouraging the use of a class of contracts with as clear a disincentive to produce as are provided in Section 402.

We are also very concerned about Section 404 – the designation of "Commercial Business Entities." Again Orwell would give a thumbs-up to the concept of pretending that the free-market had set the prices of goods and services when, in fact, they had not. Why should the government waive the Truth In Negotiations Act or Cost Accounting Standards when it buys Sikorsky Black Hawk military helicopters from United Technologies, simply because it also sells Otis elevators?

Overall, Acquisition Reform has been destructive to accountable, responsible federal acquisition practices. The acquisition reform community has slowing chipped away the safeguards that protect the public fisc by hiding behind the rhetoric of "cutting red-tape." This SARA legislation is a continuation of these damaging "reforms" and would appear to be evidence that political contributions are swaying the direction of public policy.


1 "Contracting Officer Determinations of Price Reasonableness when Cost or Pricing Data Were Not Obtained." Office of the Inspector General, Department of Defense, Report No. D-2001-129, May 30, 2001.

2 "Multiple Award Contracts for Services," Office of the Inspector General, Department of Defense, Report No. D-2001-189, September 30, 2001.

3 "Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse." Statement of Gregory D. Kutz, Director, Financial Management and Assurance, and Robert H. Hast, Managing Director, Office of Special Investigations, before the Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations, House Committee on Government Reform. GAO Report No. 01-995T, July 30, 2001.

4 "Buying Program of the Standard Automated Material Management System Automated Small Purchase System: Defense Supply Center Philadelphia." Office of the Inspector General, Department of Defense, Report No. D-2001-077, March 13, 2001.