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make a survey marker the way the Government said it had to be made.

The story did not stop there. The packing instructions for the survey markers were so explicit, I was told, that the markers had to be packaged as though they were medals, one on top of the other, each in a separate compartment.

As a result, it took several deliveries to complete the order, an order that could have been delivered in a single truck in a single delivery. As a consequence of all of this, the contractor had to charge $4 for a survey marker he would otherwise price at $2.50. Even at $4 he said he was losing money. The contractor told me he had had it. He was likely not to bid on the next Government contract that came his way. It was not worth the trouble. So, the Government lost its low bidder and competition for Government contracts declined once again. The problem is a serious one. The example is not far-fetched.

At the hearing in St. Louis, one defense contractor told me the Government propensity for telling contractors how to make a product it buys, instead of just telling the contractor what it wants to buy, costs the Federal Government $20 billion a year. That is the state of the procurement system today. It is needlessly complex. It discourages competition. It badly needs to be overhauled.

In 1979 Congress gave the Office of Federal Procurement Policy 2 years to develop a proposal for a uniform procurement system. In so doing, we were asking that OFPP do something Congress had proved unable to do-namely, to write a single procurement statute establishing a unified procurement policy for the U.S. Government. That proposal is due in October of this year.

Over the next several months the Subcommittee on Federal Expenditures, Research, and Rules intends to hold a series of oversight hearings concerning the Federal procurement system. At these hearings we hope to identify the current problems which afflict the procurement process. These are problems that must be addressed if we are to have a procurement system that is efficient and fair and a system which promises the American taxpayer the best value for the hundreds of billions of dollars we spend every year procuring goods and services.

Today's hearing is intended to provide the subcommittee with a very broad overview of the procurement system. We are fortunate to have two very distinguished panels of witnesses.

The first panel appears on behalf of the public contract law section of the American Bar Association. It is chaired by Mr. O. S. Hiestand of Washington, D.C.

Thank you very much, sir.

TESTIMONY OF O. S. HIESTAND, CHAIRMAN, PUBLIC CONTRACT LAW SECTION, AMERICAN BAR ASSOCIATION, WASHINGTON, D.C.; DAVID L. HIRSCH, CHAIRMAN-ELECT, PUBLIC CONTRACT LAW SECTION, AMERICAN BAR ASSOCIATION, LONG BEACH, CALIF.; AND PAUL G. DEMBLING, CHAIRMAN, FEDERAL ACQUISITION REGULATION COUNCIL, PUBLIC CONTRACT LAW SECTION, AMERICAN BAR ASSOCIATION, WASHINGTON, D.C. Mr. HIESTAND. Thank you, Mr. Chairman.

As you said, I am the chairman of the public contract law section of the American Bar Association.

I have with me, to my right, David Hirsch, who is the chairmanelect of the public contract law section, and on my left is Paul Dembling, who is chairman of the Federal acquisition regulation council of the ABA public contract law section.

Mr. Hirsch is the senior corporate counsel for Norris Industries. Mr. Dembling is with the law firm of Schnader, Harrison, Segal & Lewis and was formerly general counsel of NASA and GAO, respectively.

I have a prepared statement which I would like to request be inserted in the record in its entirety.

Senator DANFORTH. Without objection, so ordered and it will be inserted following the testimony of this panel.

Mr. HIESTAND. We are appearing today on behalf of the American Bar Association. We are very pleased to have this opportunity to discuss the Federal procurement process.

Both our public contract law section and the ABA have been active for a number of years in regard to needed reforms in Federal procurement.

Mr. Hirsch, Mr. Dembling, and I, as well as other members of our section, were personally involved in the study of Federal procurement conducted by the Commission on Government Procurement.

Mr. Hirsch was a member of one of the study groups. Mr. Dembling was a principal adviser to the Comptroller General of the United States, who was a member of the Commission. I served as General Counsel to that Commission.

The Procurement Commission, as you know, was established by Congress to make a study of the Federal procurement process and to make a report to Congress, which was done in 1972.

Our formal statement discusses four aspects of the procurement process. One is the need to reform the statutory framework for procurement; two, the Office of Federal Procurement Policy; three, the uniform procurement system and the central management system, which the OFPP is to prepare; and four, it discusses selected problem areas which we believe should be examined.

With regard to the statutory framework, we note that this was a principal recommendation of the Procurement Commission in 1972 and the need is as great today as it was then.

The existing procurement statutes have inconsistencies and the proliferation of statutes has continued unabated. As you know, the Senate has considered several bills to establish a single Government-wide procurement statute.

The American Bar Association adopted resolutions supporting S. 3005 in 1976, and S. 1264 in 1977. We testified on the latter bill. A copy of that testimony is attached to our formal presentation. S. 1264 would establish basic policies and procedures for procurement by all executive agencies. It provided for procurement by competitive sealed bidding as well as competitive negotiations under criteria which remove the existing stigma on the latter. We note in our statement that a better name for the latter is "Competitive Sealed Proposals." This method of procurement is the

desirable and even preferable method of procurement, in many

cases.

Our statement also notes a concern regarding the management of major systems acquisitions and recommends that the fundamental policy governing such acquisitions should be embodied in the procurement statute.

Our prepared statement also recommends making the procurement statute applicable to nonappropriated fund activities.

I want to make a comment on that because just 1 week ago I was attending a symposium at which I heard a senior Department of Defense official discuss the fact that he handled construction with both appropriated and nonappropriated funds.

He stated it was his experience that nonappropriated fund construction was accomplished in one-half the time and at two-thirds the cost of construction using appropriated funds.

I guess the initial reaction to that perhaps ought to be to leave the nonappropriated funds situation alone. I think the point of it is the need to examine why it costs more money for the Department of Defense to do a construction job with appropriated funds than it does with nonappropriated funds and to try to reach an objective through which we can achieve the same efficiencies and economies in construction, using appropriated funds as the military finds it can do when it is using nonappropriated funds.

Our statement then discusses the Office of Federal Procurement Policy. Of course, this was the first recommendation of the Procurement Commission. The Office was created in 1974.

The American Bar Association endorsed the creation of OFPP and we still believe that this Office is a vital link in improving the Federal procurement process.

In 1978 the OFPP initiated a project to develop a set of procurement regulations which would replace the Defense acquisition regulations and the Federal procurement regulations.

These regulations were referred to as the Federal acquisition regulations. For the past 22 years the public contract law section has devoted considerable resources to the FAR project.

I have a copy of the section's comments on draft materials which have been issued for public comment. I would be pleased to make it available to the subcommittee. This is the document [indicating]. As you know, the charter of OFPP was amended in 1979 removing its authority to issue procurement regulations. In our view this action impairs the ability of OFPP to bring into existence a single set of Federal procurement regulations and exercise the overall direction of procurement policy.

We hope the subcommittee will carefully study the proper role and functions of OFPP when legislation on the UPS is being considered.

Our statement then notes that the OFPP is in the process of developing a uniform procurement system as mandated by the Congress.

We believe that this is a positive sign but we have some concerns about the mandate and the designation of the system. The mandate does not define exactly what is intended. Moreover, the word "uniform" has caused unnecessary confusion.

We note in our statement that procurement is a dynamic process and that the statutory framework needs to provide flexibility to adapt procurement techniques to changing marketplaces and needs for goods and services.

It is important to recognize that procurement is not an end in itself, but is a means to enable agencies to accomplish their functions.

We have suggested that a better title for the system would be unified procurement system, if one wants to keep the letters UPS. Or, OFPP's suggested phrase, the Federal procurement system. Our statement notes that Congress mandated OFPP to develop a UPS and a central management system. In our view, the management system is a part of the procurement system inasmuch as its procurement process involves both the authority for and restrictions on procurement, as well as the responsibilities and resources for contracting.

The congressional mandate directed OFPP to consider four components of the UPS-statutes, regulations, work force, and research. Our prepared statement, while acknowledging that these are important elements, notes that they have been examined and suggests that Congress build on the recommendations already made.

We further note that Federal procurement has become increasingly adverse and that better training of Government procurement personnel and more career opportunities can assist in reducing this problem.

Accordingly, we suggest that Congress examine both the training of procurement officials and procurement research and provide adequate funding for these activities.

Our prepared statement then identifies seven particular matters for your consideration.

The first is the broad category of socioeconomic policies which are implemented by the procurement process. Some of these requirements were established before the development and use of cost principles, improved techniques for analyzing cost and pricing data, and the existence of good audit capability.

Some were in response to economic conditions that do not now exist. We are not suggesting the goals or purposes of such statutes are inappropriate, but only that Congress should consider the current impacts on the procurement process and decide whether changes are appropriate.

We also recommend that Congress examine how the Department of Labor implements the statutes under its jurisdiction that impact procurement-namely, the Davis-Bacon Contract Work Hours and Service Contract Act.

Second, we suggest Congress should consider a statute limitation on claims by the Government against its contractors.

Third, we recommend that the statutory framework authorize and encourage the use of unsolicited proposals to better capitalize on creative ideas which will aid in satisfying R. & D. needs.

Fourth, we discuss the need to improve the existing procurement for handling bid and award protests. S. 1264 expressly established the GAO as the principal forum for deciding such protests. The ABA endorsed this approach.

Our principal disagreement with S. 1264 on this point was the elimination of the de novo judicial review of the GAO decision by the protestors.

The matter of bid protests has plagued the procurement community for many years. I understand the executive branch has a task force study in this matter. I can also report that the public contract law section has had an ad hoc committee at work for nearly 1 year with a charter to recommend a plan for handling bid protests. We hope to discuss the committee's progress tomorrow at the spring meeting of the public contract law section council. I am sure we will be back in touch once we have a position.

Next, our statement calls your attention to section 511 of S. 1264 which would require the Government to pay interest on late payment invoices. We supported that provision of S. 1264 and still do. It is very important, particularly to the small business companies. Next, our statement again endorses a provision in the procurement statute authorizing all agencies to make multiyear contracts. We believe that this is a sound procurement practice and that it can save substantial dollars for the taxpayers.

Last in our prepared statement, but certainly not least in importance, we recommend a review of the procedures for suspending and debarring contractors. This is and has been for a long time a very serious and troublesome area, both because of the hodgepodge of statutes and procedures and the way they are administered. We do not have a recommendation at this time, but I can report that we have a very well-qualified committee studying this situation. That committee hopes to submit a report with recommendations to our council later this year.

I would like to briefly mention one other topic which I will not directly relate to the procurement process per se. It has a significant impact on procurement. This is the matter of contractor liability to third parties for supplies and services furnished to the Government.

At present most contractors are exposed to unlimited liability and lawsuits in connection with such products and services because of sovereign immunity, statutory and policy limitations on the authority of contracting agencies to provide indemnification, and the broadening of product liability doctrine.

The public contract law section has testified this year in support of legislation introduced in the House of Representatives which would provide for indemnification of contractors in situations where they were not the party responsible for injury or loss.

Although the American Bar Association at this time has no position on that legislation, I believe that the impact of third party liability on the procurement process warrants an examination of the problem by this subcommittee and the Congress.

That gives you a summary, Mr. Chairman, of what is in our prepared statement. I would now like to ask Mr. Hirsch to make a few comments.

Senator DANFORTH. Mr. Hirsch, welcome.
You may proceed.

Mr. HIRSCH. Thank you, Mr. Chairman.

I am going to speak about three points. One is the reauthorization of OFPP, which will be before you all too soon. The others are

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