Legislature(1999 - 2000)
09/20/1999 09:10 AM Senate PRI
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
COMMISSION ON PRIVATIZATION DELIVERY OF GOVERNMENT SERVICES
Anchorage, Alaska
September 20, 1999
9:10 a.m.
COMMISSION MEMBERS PRESENT
Representative Cowdery, Co-Chair
Senator Ward, Co-Chair
Bill Allen, Former Mayor of Fairbanks
Tom Fink, Former Mayor of Anchorage
Mike Harper, President, Kuskokwim Corporation,
Kathryn Thomas, Former Chair of Alaska State Chamber of Commerce
George Wuerch, Alaska Municipal League
Don Valesko, Business Manger of Public Employees Local 71
COMMISSION MEMBERS ABSENT
Representative Brice
Senator Adams
William Prosser, Chairman of the Board - Cook Inlet Region, Inc.
OTHER HOUSE MEMBERS PRESENT
Representative Richard Foster
COMMITTEE CALENDAR
Introduction of new commissioner, Mike Harper
Presentation: Competitive Sourcing & Privatization in the Federal
Government
PREVIOUS ACTION
See Commission on Privatization minutes dated 7/20/99 and
8/16/99.
WITNESS REGISTER
COLONEL MICHAEL SANDBERG, Director of Logistics, US Army, Alaska
MARK BRYANT, Chief of Management Services, USARAK
MAJOR BRIAN HILFERTY, Public Affairs Officer, USARAK
GREGORY ENDSLEY, Deputy Director for the Directorate of Logistics
JOHN TOENES, Deputy Director for the Directorate of Public Works
POSITION STATEMENT: Each of the above provided information on
competitive sourcing & Privatization in the Federal Government.
ACTION NARRATIVE
TAPE 99-5, SIDE A
CO-CHAIR COWDERY called the Commission on Privatization and
Delivery of Government Services meeting to order at 9:10 a.m.
Members present at the call to order were Representative Cowdery,
and Senator Ward, and Commissioners Allen, Fink, Wuerch, Thomas,
and Valesko. Senator Adams, Representative Brice, and
Commissioners Prosser and Sandvik were not present.
CO-CHAIR COWDERY introduced a new commissioner, Mike Harper.
MIKE HARPER, President, Kuskokwim Corporation, informed the
committee that the Kuskokwim Corporation is one of the village
corporations under the Alaska Native Land Claims Settlement Act.
He noted that he has some background in business and government.
He expressed his pleasure in being able to serve in the state in
this capacity.
There was a motion for approval of the minutes from the last two
meetings. There being no objection, it was so ordered.
MARCO PIGNALBERI, Legislative Assistant for Representative Cowdery,
Alaska State Legislature, noted that the commission's packet should
include a staff report that would be reviewed at the conclusion of
the meeting. Mr. Pignalberi introduced the following special
guests: Colonel Michael Sandberg, Director of Logistics, US Army,
Alaska (USARAK); Mark Bryant, Chief of Management Services, USARAK;
Major Brian Hilferty, Public Affairs Officer, USARAK. He reviewed
the backgrounds of Colonel Sandberg and Mr. Bryant.
COLONEL MICHAEL SANDBERG, Director of Logistics, USARAK, introduced
the committee to Gregory Endsley, Deputy Director for the
Directorate of Logistics and John Toenes, Deputy Director for the
Directorate of Public Works. He noted that both gentleman are
intimately involved in commercial activities studies that are
ongoing on the post.
COLONEL SANDBERG specified that he and the others were requested to
discuss what the U.S. Army and the federal government is doing with
regard to commercial outsourcing and privatization at Fort
Richardson. He clarified that he wasn't present to make any
recommendations, although he would be open to general questions.
MARK BRYANT, Chief of Management Services, US Army Alaska,
presented a slide presentation which began with an overview of the
history of competitive sourcing and privatization. In 1955, the
Bureau Budget Bulletin indicated the basic fundamental policy of
the federal government to rely on the commercial sector whenever
possible. That was subsequently embodied in the Office of
Management and Budget's OMB Circular, A-76, which continues to this
day. Of course, the Department of Defense's and the Army's
strategy or core responsibility is war fighting. Therefore,
readiness is critical in order to provide the best performance of
that mission in the field. To that end, the core processes have
been identified. Anything beyond that should be reviewed for
potential outsourcing or privatization. Mr. Bryant noted that this
program has been referred to as competitive sourcing or commercial
activities. He stressed that the program is not outsourcing. He
explained that the program is the determination of the location of
the best value to conduct a particular service or product: is it
in-house with the government or outside with a private contractor?
MR. BRYANT informed the committee that there have been 468
competitions completed which were A-76 studies. He specified that
almost all of their studies today are multi-function studies in
which an entire organization and its functions are reviewed. The
push for this began in the early 1980s. In 1987, there was the
Nichols Amendment which gave the commander of an installation the
prerogative to discontinue commercial activities and competitive
sourcing studies.
CO-CHAIR WARD inquired as to the meaning of the reference to 25,305
positions on the slide.
MR. BRYANT clarified that there were 25,305 positions under review.
He also pointed out that the 28 percent savings were linked to
dollars which is a projected amount. There are reports by the Army
Audit Agency (AAA) and the U.S. General Accounting Office (GAO)
which indicate that the actual savings are unknown. In 1995,
Colonel Cohen came out with the Quadrennial Defense Review (QDR)
which basically discussed how to obtain more dollars for
modernization. The report reviewed competitive sourcing studies
which were initiated throughout the Department of Defense. At the
same time, the anticipated savings have been shifted from
sustainment to modernization. He noted that the Nichols Amendment
moratorium was lifted in 1995, and therefore allowed the
reinvigoration of the competitive sourcing program.
MR. BRYANT turned to a GAO audit performed in February 1999 which
is somewhat incomplete. Out of 53 studies, there was an average
savings of 42 percent, $528 million. In the 1970s and the 1980s,
the government was winning about half the time and private
contractors were winning about half the time. Currently, the
private contractors are winning about 60 percent of the time. He
noted that of the 53 studies, 18 of those had to rewrite their
performance work statements (PWS) after the contract was awarded.
He informed the commission that 32 competitions were won by the
private sector. Of those 32, four were terminated based on poor
performance. He specified that even after a contract is awarded,
things must be modified and there may be appeals, protest, and poor
performance.
MR. PIGNALBERI inquired as to the meaning behind the term
competitions.
MR. BRYANT clarified that competitions are studies. He explained,
"We developed documentation to tell us what ... particular
functions we're going to study ... and how many personnel and
material belong to those functions. ... It's what we term a single
function or a multi-function." For example, a single function
would be something like snow plowing while a multi-function would
be snow plowing, grass cutting, facility maintenance, supply,
services, and administration. There are few whole base studies.
CO-CHAIR WARD recalled Mr. Bryant's comments regarding the 50-50
split between the federal government and the private sector in the
1970s and 1980s. That breakdown has since leaned more heavily to
the private sector which Co-Chair Ward interpreted as government
being less efficient. He asked if there have been any
determinations as to why that turn in efficiency.
MR. BRYANT commented that Mr. Pignalberi has a copy of the GAO
report which reviewed those studies. The GAO report said that
there is not enough statistical information to determine why the
turn to the private sector other than its increase in efficiency.
He explained that, basically, the private contractor has to beat
the in-house government work force bid by ten percent or up to $10
million of the personnel costs. In other words, if the government
bids $1 million and the contractor bids $899,000 for the labor
portion, all things being equal, the private contractor would win.
The ten percent is built-in to cover the costs of transitioning the
work force to the private industry. The GAO report also cites a
12 percent overhead factor which is also inconclusive. When the
government determines its bid, 12 percent is added for the
overhead. He believed that whether the overhead is the same as the
private industry or less could be determined upon the review of
some upcoming studies.
MR. BRYANT, in response to Mr. Pignalberi, clarified that MEO is
the acronym for most efficient organization. The contractor's bid
is the in-house bid, the government work force bid.
COLONEL SANDBERG interjected that there isn't a central database
which houses how other installation bids were developed so that
another base could utilize that information. He believed that this
army, governmental coordination is improving which was not the case
earlier. Some of these large contractors have means and have
determined how to share data in order to produce a better bid.
COMMISSIONER VALESKO asked if the military monitors the contractors
with regard to requiring the same requirements the government work
force would be required to follow. For example, would contractors
be required to follow the same minority hire and veterans'
preference rights and provide health insurance? He inquired as to
whether there has been review as to whether contractors are meeting
the standard of living. He commented that the standard of living
for those in Alaska has been decreasing over the last dozen years.
MR. BRYANT explained that when there is competition, the private
contractor must comply with the Fair Labor Standards Act which
specifies for the positions in the government the contractor would
have to pay a certain wage. Secondly, there is the "right-of-
first-refusal." He explained that if the private contractor wins
and has to write this in his bid document, the contractor must
provide the current government employee the "right-of-first-
refusal" over the job he needs to fulfill, so long as the employee
is qualified and the position is necessary. With regard to the
veterans' preference and other areas mentioned, Mr. Bryant wasn't
familiar with those nor was he sure if there would be a tax
advantage for a private contractor who allows those. There are
many rules and regulations a private contractor must follow.
MR. BRYANT turned to competitive sourcing of inherently
governmental activities. There are certain areas that a taxpayer
would not want the government to contract out, the most fundamental
of those is combat forces. He explained that, in general, the
studies have two time limits which must be followed. The OMB
Circular A-76 says a single function study must be completed in 18-
36 months or there must be a report as to why more time is
necessary. Furthermore, Congress doesn't allow funding to complete
a study. For a single function study the time is 24 months and for
a multi-function study the time is 48 months. In response to Co-
Chair Ward, he stated the aforementioned time lines are the two
major ones, but there are others.
MR. BRYANT commented that there is somewhat of a misunderstanding
of competitive sourcing and privatization. He explained that
competitive sourcing is when the government retains ownership and
control of the operation. That control would be maintained through
oversight of contractor performance or the government running the
operation. If the government does it, in-house personnel or
another government service will be utilized. He turned to
privatization in which the government decides to sell the asset and
take a service from that point forward. For example, utilities at
Fort Richards as well as the Department of Defense are being
reviewed for such.
MR. BRYANT turned to the determination of the core government in
nature functions (GIM); what is inherently governmental? The
Office of the Secretary of Defense provides the criteria and
definitions regarding the determination of what is inherently
governmental and what can be competitive. He highlighted the
following examples of what federal functions can be studied: food
services, security, transportation, and management support
services. Those areas that can't be studied are those inherently
governmental which he defined as follows: "...if it has to make a
decision that the commits the government to a particular course of
action, that is inherently governmental." He provided the
following examples of inherently governmental activities:
intelligence, public affairs, and inspection contracting. Mr.
Bryant said they are always reviewing whether they can do it better
or if someone else can. From the Office of the Secretary of
Defense's perspective, savings can be spent more on modernization
versus sustainment.
MR. BRYANT acknowledged that A-76 competitions are difficult and
controversial. However, the notion that A-76 competitions always
lead to appeals isn't necessarily true. For example, of the 53
studies previously mentioned, only 10 were appealed with only one
winning the appeal. Since 1989, 174 cost comparisons were
completed, of which 40 lead to appeals and two appeals had the
original decision overturned. Whether such a record would be
maintained in the new revised program will require a few more years
and the completion of a few more studies.
COMMISSIONER ALLEN inquired as to the time delay caused by an
appeal.
MR. BRYANT explained that an appeal must be filed within 30 days.
He believed the appeal must be answered within 60 days.
COLONEL SANDBERG interjected that those time lines are in
accordance with federal acquisition regulations and procurement
laws, not the A-76.
MR. BRYANT then turned to the federal employee and union roles. He
informed the commission that federal employees, through their
union, are involved in all parts of the study. These employees
actually participate in the team developing the PWS. He said that
without the employees who actually perform the functions, this
process can't be accomplished. The employees help document the
work load, review the performance work statement, and identify
areas for improvement. However, the employees can't be involved in
the final decision which is ultimately a management decision
regarding what the Department of Defense wants to buy. He noted
that there is a source election board which formalizes the process
of evaluation with regard to the contract proposals. Again, the
employees would not participate in this area.
CO-CHAIR WARD recognized that the employees providing input in the
study is important and inquired as to how that was facilitated. He
asked if there was any opposition.
MR. BRYANT said, in general, there wasn't any opposition. He
commented that there is a good relationship with the union.
Furthermore, the commanding general is very instructive that the
employees participate in all meetings.
MR. BRYANT continued with the slide presentation and reviewed the
federal A-76 cost competition process. There is much preparation
before the study with regard to the identification of what is under
review. By law, what is under review must be announced to
Congress. The largest portion of the preparation is the
development of the PWS which determines all the functions that are
to be purchased. The PWS goes to the management review team and
out for solicitation. The management review team takes what the
government wants to purchase from the commercial sectors and
attempts to develop a management study to streamline it. He noted
that the multi-function studies are performed in order to review
the entire organization, not just the portion to be competitive.
There is an attempt to streamline the entire organization. The PWS
is also given to the procurement director of contracting for
solicitation of contract offers. Furthermore, the AAA performs an
independent validation and review of the PWS and MEO documents.
Those proposals are received and a formalized process is
established to evaluate the contract proposals. The information
regarding the cost, how it will be performed and processed result
in a cost comparison form. The initial decision is made and the
process automatically moves on to appeals. A specified amount of
time is allowed for appeals and those appeals and protests are
processed. If the result is successful, then Congress is notified
within 30-60 days of the initial decision. Then it takes about six
months - a conservative figure - for implementation.
CO-CHAIR COWDERY inquired as to the difference between selecting
the lowest bidder and the best value proposal.
MR. BRYANT explained that private industry has the option during
bidding to inform the government that it can do better than what is
desired with a little more cost. That is the consideration of the
best value. The least cost is a fixed price in which there is no
offer to do what is desired any better.
MR. ENDSLEY clarified:
On the least cost, technically acceptable, it is a price
competition - the lowest cost wins. Best value, a higher
bid may win because of some things that they're offering
that may exceed the requirements of the contract, but the
government determines that that is in the best interest
of the government to go with that. ...There is a process
that they go through to get to that determination, but it
all has to be approved by the government, ultimately.
MR. BRYANT reiterated that the contractor has to beat the in-house
proposal on the personnel, manpower costs by at least ten percent
which was built-in to cover all the transitional costs. Mr. Bryant
moved to the milestone requirements or time lines. He explained
that single and multi-function studies must be completed within 24
months. The Office of the Assistant Chief of Staff for
Installation Management has a 13-24 month goal. The Cost and
Academic Analysis Agency says that certain sized studies should
take between 13-21 months. He reminded the commission of the
congressional and reporting requirements. He pointed out that AAA
has performed a review of completed studies and has indicated about
the time line that is being utilized now. For large multi-function
studies, it takes about 33 months for completion.
CO-CHAIR WARD inquired as to the meaning of the reference to spaces
on the slide entitled, "Federal A-76 Study Milestone Requirements."
MR. BRYANT explained that the term refers to manpower spaces as
opposed to positions. There may be 100 spaces that the Army
authorizes, but only 90 are filled by positions.
COMMISSIONER ALLEN inquired as to whether there is a spending cap
on the fiscal note for the studies.
MR. BRYANT answered that there is no spending cap.
JOHN TOENES, Deputy Director for the Directorate of Public Works,
explained that the only cap related to the federal appropriation
law is that first line of the slide entitled, "Federal A-76 Study
Milestone Requirements." The first line of that slide refers to
Congress' time requirements for single function and multi-function
studies. He specified that appropriated funds may not be spent on
a single function study the duration of which exceeds 24 months.
Similarly, on a multi-function study federal appropriated funds
can't be used on such a study with a duration of more than 48
months. Mr. Toenes clarified that is the cap on the time limit,
not on the dollar amount.
COMMISSIONER ALLEN asked if the cost of the study is deducted from
the appropriations.
MR. PIGNALBERI understood Commissioner Allen to be aiming towards
the question of how these studies are funded. Are the studies
funded in the overall appropriations from Congress or is the cost
of the study taken out of the overhead?
MR. BRYANT responded that both scenarios are utilized. He noted
that consultants are primarily used to perform these studies.
However, the Army has realized that it must participate 100 percent
as well. Therefore, in-house teams which complete the study have
been developed. Now there is a partnership with the consultant and
the private contractor performing the studies. He noted that the
private consultant contractor is funded centrally by the
headquarters portion of the Army.
MR. PIGNALBERI asked if the congressional appropriation is
enumerated as a line item in the budget.
MR. BRYANT replied no. These are Department of Defense management
prerogatives to spend its resources from some pot of money, what is
referred to as operations and maintenance of the Army funds.
COLONEL SANDBERG interjected that it is important to understand
that. He explained the funds appropriated to support these studies
through the hiring of contractors have been found to be
insufficient, in the Army's case, to complete the study in the time
frame allotted. Therefore, each directorate at Fort Richardson
that is under study has dedicated many in-house employees to help
write the PWS. In the case of Fort Wainwright, there are upwards
of 20 individuals who occupy between 30-90 percent of their time
working to write the PWS.
MR. TOENES informed the commission that Army Public Works, which
involves Fort Richardson and Fort Wainwright, currently has 20
full-time management and nonmanagement people developing the PWS.
Those folks have been moved to a separate building with their own
database systems due to the secure nature of the PWS.
TAPE 99-5, SIDE B
[Tape begins midspeech.]
MR. TOENES said, "...the completion of funds to complete the Public
Works Study is going to run about $8 million over about a 38 month
period."
UNIDENTIFIED SPEAKER (COLONEL SANDBERG) commented that that doesn't
take away from the requirements to complete the normal job.
COMMISSIONER VALESKO understood that there is a 24 month period in
which to complete the study. That requirement is from the USARPAC.
If there is the decision to do a study on a function, and the
decision is to contract out the function. He understood then there
would be study of that for the 24 month period. What happens at
the end of the 24 month period? For instance, take snow removal
which would be studied. He assumed that the snow removal is
currently done in-house and now a contractor is awarded a bid to
perform the snow removal. At the end of the 24 months, is the
contractor done and the function goes back in-house or does the
contracting continue on and no study is done beyond that 24 months.
COLONEL SANDBERG said he believed there is confusion regarding the
different contractors. There is a contractor to help perform the
study itself. If the successful bidder is a commercial contractor,
that's when the contract for snow removal would be awarded to that
contractor who would then begin performing that particular
function.
COMMISSIONER ALLEN asked if at some point there is a performance
review of the contractor.
MR. BRYANT stated that these are the goals by the bosses. At the
end of the time, there will be the determination as to whether the
function will be performed in-house or by private contract. If a
private contract is awarded, the contract is normally awarded for
five years - one year plus four review years. Each year that
contract will come up for review and may be succeeded by four
additional years. He pointed out that government oversight is
built into this process. If the function does go to a contract,
then the government determines what it actually would cost to
continuously review the contract on a daily basis. The cost of the
contracting officer's representative (COR) is built into the
estimates. Mr. Bryant indicated agreement that the 24 month
requirement is merely study before there is a determination as to
whether the function will continue in-house or become a private
contract. He noted that the contracting officers are located in
the Directorate of Contracting. However, if the Public Works goes
to contract, the additional people will be hired to represent the
contracting officer in Public Works in order to daily monitor the
performance of the contract. Yearly, the contract would come up
for review by the entire Directorate of Contracting Staff in order
to review if the performance is as projected.
MR. BRYANT continued with the slide presentation and reviewed the
key success factors. He expressed the need to ensure communication
from the planning stage to the completion of the process. There
are no controls on communication, save certain areas that are
sensitive to procurement actions. Staff and employees are involved
from the beginning and everyone must work as a team. He noted that
the union plays a key role on the management study team and are
actually a team member. He reviewed the various methods utilized
to keep the employees involved in the process and keep
communication open. He restated that current civilians have the
right-of-first-refusal.
MR. BRYANT pointed out that it has been learned that business can't
be performed as usual. One must continue to benchmark what the
best practices are. He said that USARAK is attempting such in the
management study. With regard to performing the study, the best
people to perform it must be obtained. He commented on the need
for training in the A-76 experience as well as continued
communication. Mr. Bryant informed the commission that the four
largest USARAK organizations are under study: Directorate of
Logistics(DOL), Directorate of Public Works(DPW), Directorate of
Community Activities(DCA), and Directorate of Plans, Training,
Security, & Mobilization(DPTSM). Those organizations, both the
military and civilian aspects, comprise 78 percent of the nonwar
fighting installation work force. He clarified that although those
organizations are under study, it doesn't mean all those positions
are being competed. As stated earlier, multi-function studies are
performed in order to review the commercial activity as well as the
inherently governmental activity.
MR. BRYANT turned to the slide which illustrated the USARAK's time
lines. He noted that the two largest organizations, DOL and DPW,
take the longest amount of time. The studies on the DCA and DPTSM
are being reviewed in order to determine if merely a management
study should be performed. If the management study occurs, then
there wouldn't be a solicitation although there would be attempts
to streamline the organizations at all levels.
JOE HENRI, Chair, Privatization Subcommittee on the Department of
Administration, requested that Mr. Bryant provide a rough estimate
of how much the most expensive the four studies may cost over the
next 24 months.
MR. BRYANT answered that the DPW study would result in a total in-
house cost of about $8 million. He clarified that cost would
include the many associated administration things.
CO-CHAIR WARD inquired as to the total budget of the function being
studied.
MR. TOENES informed the commission that the DPW appropriated budget
for this year is about $150 million.
MR. BRYANT specified that the $8 million for the study is for
multiple years; it is the total over the course of the study. The
maximum time allowed is 48 months.
CO-CHAIR WARD surmised then that it would be $2 million per year
and in total $600 million over a four year period. Therefore, it
is a $600 million increment as compared to $8 million for the
study.
MR. BRYANT returned to the time line slide. He returned to DCA and
DPTSM. He informed the commission that other army organizations
that tried to compete child development services received no
offers. In that case, the government performs that function
cheaper than others. From a postmortem on that function, he
believed that since the government has such standards and doesn't
have liability insurance costs, no one would compete against those
functions. He indicated that a similar situation arose with the
Director of DCA which is such a mixture of military and civilian
employees as well as volunteers. The mixture was such that it
couldn't be determined how to break it up and put it back together
while maintaining efficiency. Therefore, a management study
resulted in order to streamline the functions. The same result
occurred with DPTSM; it wouldn't be a good return on the investment
to perform a full study on that organization.
MR. BRYANT provided an example of the difficulties involved in such
a process. He posed a situation in which a contractor was told to
mow and trim the lawn, as necessary, in order to maintain a good
appearance. The contractor was also instructed to water the lawn
as necessary. Mr. Bryant stated that more detail is necessary. He
presented a slide which gave exact specifications as to the height,
pH, sprig density, and use of water with a rain correction table.
MR. ENDSLEY commented that the four studies mentioned, with regards
to competition, are all or nothing. A contractor can't pick and
choose portions of a multi-function activity. The entire activity
must be bid on and the contractor either wins or looses that
contract.
COLONEL SANDBERG clarified that in the lawn maintenance example, a
contractor may be able to perform the function to the
specifications better than the government. However, the contractor
may not be able to perform the plumbing, heating, road clearing, et
cetera as efficiently, and therefore the contractor doesn't
necessarily win the contract.
COMMISSIONER ALLEN asked if there is any encouragement of a joint
venture.
MR. ENDSLEY said that they don't encourage contractors to bid on
any part, and therefore it is left to the contractors. In fact,
other installations have utilized joint ventures as proposed by the
contractor. From the government side, a joint venture could be
proposed as well and a subcontractor could be part of the
government's, in-house, bid.
CO-CHAIR WARD inquired as to how "cherry picking" is avoided. How
was the total package to bid on determined.
MR. ENDSLEY clarified that the PWS or contract includes all the
functions within the current directorates. Within DOL, there are
the Division of Supply and Services which consist of a multitude of
functions in the various classes of supply. There are also a
variety of service type functions within that division as well. He
noted that the DPW is probably three times larger than DOL with
regard to the number of functions.
MR. TOENES commented:
There might be a yet unspoken, overarching question: why
would normal people performing any of these commercial
activities or functions go through a protracted cost
comparison in order to determine whether they wish to go
contract? As part of federal appropriation law, which
this portion of it reenacted with each Congress. In this
current year, Public Law 105262 Section 8104 prescribes
that if more than ten federal civil service people are to
be involved in a decision to contract out commercial
functions, appropriated funds may not be used to do that
unless there is a form of cross comparison. And that's
what does it.
He posed the following example. In Canada, absent a treaty,
legislation or a labor contract there is no requirement to go
through a cost comparison adventure in order to determine whether
to privatize. Such would be the case for mayoralties and state
governments that aren't bound by the federal appropriation
regulation, unless there is a treaty, legislation, or a labor
contract requiring privatization initiatives to go through a cost
comparison. Mr. Toenes specified that the decision within the
defense department to choose to privatize is latent in the
executive branch. When that occurred in the 1950s, Congress
legislated under what terms competition would take place. In
reaction to the Congress, the president had the Office of
Management and Budget build a set a rules that have resulted in
Pamphlet A-76 in its current form. The A-76 pamphlet was most
recently modified in 1966. Those rules have been approved by the
appropriations subcommittees over the years. From those rules, the
process here was born.
MR. BRYANT returned to the slide presentation and said that the
source selection authority (SSA) is the Commanding General. The
Commanding General will have an entity evaluate the proposals. He
indicated that the Source Selection Advisory Council and the Source
Selection Evaluation Board evaluate the proposals which takes about
six to eight weeks. He noted that this is a core team. For each
of the organizations under study, the technical evaluation team is
rotated; various experts are pulled from various organizations
within the Army in order to review the proposals for the DOL, DPW,
DCA, and DPTSM. Mr. Bryant noted that pending approval, those will
be management studies rather than cost competition studies.
MR. PIGNALBERI commented that it is difficult to equate the state
structure in the executive branch with the structure illustrated on
the slide entitled, "SSEB Structure." He understood the ultimate
authority in the Army to be the Commanding General. In the state
structure, would that be the governor or a commissioner of one of
the departments.
MR. BRYANT indicated that he didn't have enough background in
Alaska's state structure and thus would hesitate to make a
recommendation.
MR. TOENES interjected that in the Army's structure the Commanding
General would be similar to a commissioner with regard to the
number of people involved and horizontal dissimilar functions.
MR. BRYANT moved on to the next slide which included a definition
of privatization. He informed the committee of some of the on-
going utility and housing studies.
CO-CHAIR WARD turned to the subject of utilities and the
deregulation of utilities. He noted that he has heard discussion
that once a contractor takes over a utility and the other
organization is dismantled, the new contractor can begin to
increase the costs.
MR. BRYANT said that he didn't believe so, because the cost has to
be amortized over many years. He believed the cost had to be
amortized for minimum of ten years. He agreed with Co-Chair Ward
that if the power agreement went through, it would be a long-term
agreement. Mr. Bryant stressed that the agreement would have to be
economical.
MR. BRYANT, in conclusion, stated that this process would make a
big impact on people and culture. Therefore, caution should be
taken and the process should be well planned. He specified that
ASARAK's ultimate goal is mission performance that is, hopefully,
accompanied by some cost savings.
COLONEL SANDBERG informed the commission that he would now present
a portion of the briefing which was presented to the work force at
Fort Richardson and Fort Wainwright just as the study began. This
is a director's perspective on what could be expected over the next
two to three years. The presentation began with a slide indicating
that USARAK is now at war with potential commercial bidders and
doesn't want to see a headline indicating hundreds of jobs lost.
The work force was told it would have to help identify what they do
in order to ensure that the PWS was reality.
MR. PIGNALBERI said that the problem is that all the information is
on USARAK's side, while the contractors would have to develop a bid
on the basis of the information put out in a request for contract.
All the analytical data available is within the expertise of the
work force. Therefore, he asked how the private sector could
compete with that.
COLONEL SANDBERG clarified that the private sector would receive
everything developed. He stressed that he wanted to make sure that
what is developed is what is actually performed in the directorate.
Everything written would be placed in the PWS which is provided to
each potential bidder. The key is that the PWS is all inclusive.
CO-CHAIR WARD asked if Colonel Sandberg had found that employee's
tasks had not been identified to this point.
COLONEL SANDBERG replied that he didn't believe the tasks had been
fully documented.
MR. ENDSLEY interjected that tasks are being performed that one
doesn't realize he/she is doing. There are also tasks that aren't
being performed which should be. This process really fleshes out
the functions and those areas which aren't currently being
performed which should be and should be included in the contract.
COLONEL SANDBERG pointed out that in order to do this process, the
employees had to be trained to some degree. Each employee was told
that he/she must be brutally truthful in their tasks in order to
ensure that PWS covered their function appropriately. Furthermore,
the employees were told to be brutally efficient. Colonel Sandberg
said, "We [USARAK] have to be prepared to cut off an arm to save
the body." He believed that everyone understood that not everyone
would remain on board at the conclusion of the study. Therefore,
employees were asked to "think out of the box." In response to Co-
Chair Ward, Colonel Sandberg clarified that every employee was told
this from the employee who received four hours of training to the
employee who received 30 hours of training. He noted that through
each process a union representative sat through the training.
MR. PIGNALBERI observed that the employees would then receive two
bites at the apple. First, the employee would get to compete for
his/her position and if the competition is won, the employee would
be fine. If the employee looses the competition, that employee
would have the first-right-of-refusal before the position goes to
the contractor.
COLONEL SANDBERG specified that would be correct to a certain
level, certain management employees are not included in the right-
of-first-refusal.
MR. ENDSLEY explained that those employees involved in the
development of the in-house cost proposal, cost estimate, technical
proposal are precluded from being able to work for the contractor.
Therefore, the employees involved in the management study are
restricted to those management employees whose jobs are not in the
commercial activities part of the directorate that will perform the
management study to completion. Everyone is involved to a point,
after which people must be disconnected so as not to jeopardize
their right-of-first-refusal. The team completing the study
becomes very small and very secretive. The team develops the most
efficient organization and the in-house cost estimate. Those few
folks are the only ones who have jeopardized the right-of-first-
refusal. He noted that those folk's jobs were probably government
in nature to begin with and wouldn't be part of the contract - they
may be effected, but aren't in a competition.
COLONEL SANDBERG continued by saying that the end result was to
allow the employees in his directorate to compete efficiently and
win this competition. From the management standpoint, there is a
push toward getting the employees behind this as well as performing
the study properly. All of which would provide the best chance for
competition.
CO-CHAIR COWDERY asked if a union member ends up working for a
contractor who has prevailed in a competition, would that union
member carry his benefit and retirement package.
COLONEL SANDBERG stated that all the government employees who have
the right-of-first-refusal to work for the contractor lose their
government status and become contractor employees.
CO-CHAIR COWDERY understood then that the employees know what the
contractor has to offer.
COLONEL SANDBERG agreed, but pointed out that the contractor has to
offer a competitive wage, according to the Davis Bacon wage which
is determined by local wages.
AN UNIDENTIFIED SPEAKER reiterated that the right-of-first-refusal
doesn't apply to those on the management study team.
COMMISSIONER VALESKO surmised that unlike the Canadian system, this
system can fully justify outsourcing. He asked if the presenters
felt confident that the results could be supported by
documentation.
MR. ENDSLEY informed the commission that the end of this process is
a cost comparison which lays out the costs for both the contractor
and the government work force bid. The government work force has
to perform the same steps as the contractor such as a writing a
technical proposal and determination of the costs to perform the
contract. After cost comparison, both parties can review each
other's bid.
CO-CHAIR WARD asked if the same process would apply for a five year
contract with several reviews, when the governmental entity winning
the contract.
MR. ENDSLEY said that when the governmental entity is awarded the
function, the review process would be slightly different because
the function would still be a government function. The government
is not obliged to fulfill some of the requirements required of a
contractor from the private sector. Mr. Endsley noted that there
is a review process performed by an internal firm which reviews the
governmental organization. The firm reviews the governmental
organization in order to ensure that it has organized as specified
and utilized the work force specified. The costs are also
reviewed. Such a review occurs annually for the five year period.
COMMISSIONER WUERCH commented that thus far much of the discussion
has focused on the decision-making process. He indicated his
interest in implementation successes or failures in Alaska. He
recalled that in the mid 1980s, two major contracts were awarded
under A-76. One contract was for the maintenance of the Kodiak
Coast Guard Base and the other being a contract awarded to Brown
and Root(ph) for Army public works functions. He asked if those
contractors remained and if not, what changes have occurred.
Furthermore, he inquired as to the cost performance of those jobs
that were outsourced.
MR. TOENES addressed the Brown and Root(ph) contract for which he
was involved in the writing of the specifications of that contract
as well as the evaluation of contractor proposals. That contract
wasn't a competitive sourcing action. He explained that as the
Defense Department drew down, decisions regarding how to reduce the
civilian work force were necessary. The civilian work force had
become quite large at Fort Richardson and Fort Wainwright. The
determination was to package project-like work into a bundle.
Large reductions in the work force were run because there wasn't
the funding available to pay those employees. Therefore, a
contract form solicitation, a task-order-type contract, was put
out. Brown and Root(ph) was the successful offerer. The contract
included a base year plus five option years. Mr. Toenes informed
the commission that since that time, the contract has been re-
advertised and is now in the second full contract, near the end of
that term. Therefore, Brown and Root(ph) has performed those
functions for almost a decade. Mr. Endsley commented that the
result with Brown and Root(ph) has been excellent in all areas.
CO-CHAIR COWDERY asked if Brown and Root(ph) hired any of the
employees who were performing the job before Brown and Root(ph) was
awarded the contract.
MR. TOENES replied no. This contract wasn't covered under the
commercial activities program nor did it precipitate the previously
mentioned legislation. He explained that the work force had to be
reduced under any circumstances and an alternative had to be found
for those functions. Therefore, the Brown and Root(ph) contract
wasn't a commercial activities review and didn't have the right-of-
first-refusal or any other features of the commercial activities
review.
COMMISSIONER WUERCH asked if there are any examples of use of the
A-76 by the Army in Alaska.
MR. TOENES informed the commission of one of the most disastrous
situations. In 1975, a commercial activities study was put out on
the central heat and power plant at Fort Wainwright which was won
by a large utility provider.
TAPE 99-6, SIDE A
MR. TOENES discussed how the contractor's staff left the plant. He
informed the commission that twice now, there have been attempts
at individual function studies on refuse collection. There have
not been responsive bidders on refuse collection. Therefore,
refuse collection is being bundled in the whole public works study.
He noted that no other DPW functions have gone to contract,
primarily because of nonresponsive offerings.
AN UNIDENTIFIED COMMISSIONER commented that perhaps, the Coast
Guard could inform the committee of its experience with the A-76
project. He noted that he was running a company that was going to
bid on the Kodiak Coast Guard project. He discussed how that
project was an emotional and difficult adjustment for Kodiak.
Kodiak's experience could be instructive in reviewing functions in
remote areas, where there aren't many alternatives to the employee
structure.
MARYANN PEASE, Chair, Privatization Subcommittee on the Department
of Revenue, asked if there is any preferred list of subcontractors
that expedites the process. For example, is there a set of
criteria or contractors that have applied and have been approved
and could automatically step in and take over a privatized
function.
MR. TOENES pointed out that the aforementioned statutes would
preclude automatic takeover, except under three very limited
circumstances. Those three circumstances are as follows:
businesses owned by persons of which 51 percent are severely
disabled persons, businesses owned by persons of which 51 percent
are blind, businesses owned by persons of which 51 percent Native
American corporations. Those are the only exceptions to a cost
comparison under the federal statute which is reenacted each year.
He reiterated that this year it is PL 105262 Section 8104.
MS. PEASE asked if once there is a cost comparison, is there then
a preferred subcontractor list.
MR. TOENES explained that the prime contractor who is the
successful offerer puts together a package for evaluation which can
consist of subcontractors. One of the source selection teams will
study the subcontractors. However, the government doesn't have, in
its technical area or its contracting office, a list of preferred
subcontractors.
MR. ENDSLEY noted that if one were looking for a list of companies
that do this, one could inquire of the purchasing officer as to who
bid on the last job. Such information is public and a list of
companies could be obtained in that manner.
MR. PIGNALBERI understood Mr. Toenes to have said that once a
contract has been identified for competitive procurement, an Alaska
Native corporation could make a proposal and take it out of the
competitive procurement process.
MR. TOENES clarified that there are some conditions attached in
such a case. The Commander would have to perform a study that
would indicate that the Alaska Native corporation would likely
produce the most cost effective solution.
CO-CHAIR WARD said that he had understood that the American Native
corporation had to be part of the original bid process.
MR. TOENES stated that he didn't know the answer to that.
AN UNIDENTIFIED SPEAKER interjected that those exceptions would
have to be early in the process. Those exceptions were placed into
the Authorizing Act this past year. He explained that if the
process hasn't started yet, then those three exceptions would have
the first right. He said that those exceptions wouldn't affect the
studies at USARAK.
FRANK DILLON, Chair, Privatization Subcommittee on the Department
of Transportation and Public Facilities, indicated that the
discussion had provided some clarification into the process which
may be useful in Alaska's efforts to privatize. Mr. Dillon
commented that his approach has been to only privatize if it makes
sense to do so. He posed a situation in which the task was to
change light bulbs. He asked, "Is the mission, in other words
changing the light bulb, what you look at when the contractor bids
on it or what people [employees] are telling you it takes to change
that light bulb. ...is being busy what you're looking for or
getting the mission accomplished?"
MR. ENDSLEY explained that a contract would be written that
specifies the light bulbs have to be changed or rather that light
has to be provided within a specific time frame. Then a management
study would review that, go to the work force, and determine the
most efficient manner to provide light. That review could find
that changing the light bulb may take 15 minutes due to some things
imposed by management. Therefore, the team would determine what
could be changed in order to allow the light bulb to be changed in
three minutes rather than 15 minutes. That would become the
organization's bid.
COMMISSIONER WUERCH commented that the PWS is terribly important,
from the contractor's standpoint, because that is what is being bid
upon. If the employees didn't define all the work, the
contractor's bidding on the statement could have the competitive
advantage. He stated, "The importance of defining the work that is
to be done is the element that protects the existing employees from
the contractor whose looking for a leverage or looking for an
opportunity."
AN UNIDENTIFIED SPEAKER(COLONEL SANDBERG) posed a situation in
which the employee says that light must be provided, but doesn't
note that every time the light bulb is changed it must be recorded
in order to capture the cost of the bulbs. In such a situation,
the contractor will not record when the light bulb is changed and
won't capture the cost.
AN UNIDENTIFIED SPEAKER(MR. BRYANT) informed the commission that
Colonel Brandt, the head of commercial activities studies for the
Army, performed a postmortem regarding why the private industry
wants some of those competitions. He discovered that about 80
percent of the time there were poorly written PWS. Therefore, it
is critical to provide the detail of a function.
MR. TOENES noted that USARAK has guidelines, a booklet produced by
the Army, based on very sound industrial engineering techniques.
There are detailed work load analyses which allow the individual
motions and activities of each function. Those are cataloged in a
formalized fashion and distilled into a PWS.
COMMISSIONER VALESKO echoed the importance of identifying that work
in order to determine the costs.
CO-CHAIR COWDERY noted that he has been in the contracting business
and reviewed the specs closely. If a road job is being performed,
and contaminated soil is found then those costs are negotiated. He
didn't know any other way to deal with such a situation.
MR. HENRI referred to the profiles that refer to the manpower
required for a job; is that a time-in-motion study?
MR. TOENES explained that a time-in-motion study would be one type
of those activity analyses. Additionally, every single activity
performed by an employee must be collected which is accomplished
through group meetings. Specialist then review it to determine if
there are any steps missing. He said that it ultimately becomes
time-in-motion type studies when costing each activity.
JAN FREDRICKS(ph), Small Business Development Center, University
of Alaska, understood that the Brown and Root(ph) contract wasn't
an-76 contract. She said that it sounded as if there were
specifications for use of local business, small and disadvantaged
businesses. However, she understood the A-76 guidelines to have no
criteria at all with regards to local preferences or
subcontractors. She asked if, included in the study, there is any
study on the affect to the local economy.
AN UNIDENTIFIED SPEAKER stated that socioeconomic factors are not
a decision factor in these studies.
MR. FREDRICKS(ph) commented that the state may have different
concerns when using such a model for the state. After the 24
months to complete the study, how long does it take to reach the
release of the solicitation.
MR. ENDSLEY clarified that the release of the solicitation is
included in the 24 months. The 24 months takes the process to the
point of cost comparison. The award is made on the day of cost
comparison when the bids are opened. He noted that there is a
transition period of up to six months.
AN UNIDENTIFIED SPEAKER interjected that after the initial cost
comparison, the appeal process begins. Once the appeal process is
completed, the transition period begins.
ANDRE McCLOUD(ph) asked if the detail of the work load analysis is
necessary or can the various objectives and mission statements of
the departments dictate that.
MR. TOENES stated that the contractors will base their bid on the
details of the services. He pointed out that in addition to the
PWS, there will be a performance requirement summary which details
what is a successful completion of that element of the PWS. He
referred to the aforementioned detail of the lawn mowing function
as presented in the slide presentation. Mr. Toenes didn't know of
an alternative to the detail.
COMMISSIONER WUERCH commented that performance standards are
valuable. In the example where the function was to provide
illumination, that contractor could by choice replace all the light
bulbs on a schedule on the same night. Performance standards have
a very definite place in certain functions.
MR. PIGNALBERI observed that the PWS seems to be the lion's share
of the work. He recalled that one of the slides said that PWS was
revised in 18 of 53 competitions, within 15 months after the award
of the contract. What happens when the changes in the PWS change
the economics of it?
AN UNIDENTIFIED SPEAKER said that in such instances perhaps
everything involved in the function wasn't captured or maybe there
was some unknown such as contaminated soil.
MR. ENDSLEY noted that those PWS changes were major and significant
changes. He indicated that the changes were, perhaps, rewrites of
the PWSs.
MR. PIGNALBERI asked if a competitive procurement would be reversed
if changes to the PWS were significant.
MR. ENDSLEY said that he believed that it would have to be appealed
in order to reverse the competitive procurement.
CO-CHAIR WARD thanked the guests for bringing clarity to the
process.
CO-CHAIR COWDERY complimented the guests and staff on their
preparedness.
MR. PIGNALBERI announced that a revised schedule is being proposed.
After the next scheduled meeting, October 20, 1999, the commission
would meet weekly through November because the subcommittee reports
will begin to appear.
CO-CHAIR WARD announced that his staff would contact the Canadian
government with regard to their privatization efforts. That
information will be distributed to all commissioners.
MR. PIGNALBERI pointed out that the commission's packet should
include an interim status report which may stimulate discussion.
COMMISSIONER WUERCH referred to page 2 of the "Interim Status
Report" and highlighted the statement: "..it is somewhat amazing
that most departments cannot relate their expenditures of money,
manhours and resources to specific work tasks that fulfill their
mission." Today's presentation stressed the importance of a PWS.
Perhaps, the PWS process should be adopted as mandatory, before any
new employees are added to the state payroll.
COMMISSIONER VALESKO noted that he is a former employee of the
Department of Highways and Transportation. He related his
experience in having to detail the routes and equipment utilized in
his job. The detail can go over board and leave a frustrated
employee and an increased office staff.
ADJOURNMENT
There being no further business before the commission, the
Commission on Privatization and Delivery of Government Services
meeting was adjourned at an unspecified time.
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