I might mention a report that was issued on August 19 that I think vividly portrays some of the concerns the Chair expressed earlier in the discussion with your colleagues who joined you at this table. It highlighted that agencies not only acquire consulting services to meet congressionally mandated reporting requirements but too often do not disclose to the Congress who is actually involved in the development and preparation of that report, so that the Congress in considering the report really does not know the degree to which consultants may have contributed to the study. As pointed out in our June 1980 overview report, a critical first step toward assuring the Government's proper use of consulting services is to resolve the confusion among the agencies and the Congress surrounding the current OMB definition of consulting services. It appears that the bill's definition of report is intended to cover those kinds of services that the committee views as consulting services. We suggest that this be clarified in the bill. It would help to clear up the confusion surrounding the definition of consulting services and assure that such services are subject to the controls prescribed by OMB Circular A-120.

A major purpose of title I is to clarify the authority for appointing and compensating experts and consultants. We generally support title I. As early as 1961, we recommended that section 3109 of title 5, United States Code, be amended to provide greater uniformity in the compensation of experts and consultants and to clear up the confusion agencies experienced with the authority. However, as discussed more fully in the attachment, we believe the language in section 101(g)(2) may be misinterpreted as a procurement authority and therefore should be deleted.

Turning to the issue of organizational conflict of interest section of the bill, section 205, which requires all contractors bidding on Federal contracts to disclose all relevant facts relating to an existing or potential conflict and requires the agencies to take certain steps to protect the Government's best interest before and after the contract is awarded.

Organizational conflict of interest is an extremely complex issue. It requires a careful balancing of the Government's need for private sector expertise with the need for reasonable controls to prevent a conflict of interest that could affect a contractor's ability to give impartial advice.

It is uncertain what impact this section would have on the Government's ability to obtain private sector expertise.

In addition, we are concerned about the disclosure requirement being placed on all contracts for goods and services and the possible problems that may result.

On the other hand, we believe that agencies should pay more attention to preventing or mitigating organizational conflicts of interest, particularly where the potential for conflict is the greatest.

For these reasons, we believe this provision of the bill should first be tested at selected agencies for a 2-year period. OMB could monitor the agencies' experience, and at the end of the test period, prepare a report to the Congress on whether the legislation should be applied Governmentwide.

We would also like to see the scope of the disclosure requirement changed from applying to all contracts for goods and services to just those categories of contracts where the potential for conflict is the greatest, such as consulting service and management support

contracts.

This change would preclude an agency from requiring a disclosure statement when awarding contracts for products and services where the potential for a conflict is practically nonexistent.

Section 207 requires agencies to evaluate all contracts exceeding $50,000 which provide for the preparation or submission of a report. The evaluation shall include a description of: One, the conclusions and recommendations in the report, two, the actions taken by the agency in response to the report or the reasons why no action was taken, and three, a summary of the contractor's performance in meeting the contract specifications.

We believe it is critical for agencies to assess the quality and use made of consulting services, including an appropriate justification for failing to use the results of these services.

Findings presented in our March 20, 1980, report on consulting service contracts support the need for such evaluations. We found that one-third of the 60 completed contracts reviewed were of questionable or marginal value to the agencies.

Previous GAO studies, dating back to 1961, as well as the Commission on Government Procurement, have found that many Federal agencies do not, for various reasons, maximize the use of reports prepared under Federal consulting service contracts.

We suggest that the bill specify that evaluations be approved by an agency official at least two levels above that of the program manager responsible for monitoring a contractor's performance. We believe that if the evaluations are required to be approved at this higher level it will help to assure their objectivity and quality. That concludes my remarks, Mr. Chairman. I would be happy to answer any questions at this time.

I do want to stress, however, that we support the basic objectives of the bill. It deals with issues of longstanding concern to us, we applaud the Chair and this committee for providing a forum for discussion of these issues, and would be more than happy to work with this committee and the Senate committee in making further suggestions or in assisting in bringing this legislation forward. [The attachment to the statement follows:]

COMMENTS ON H.R. 7674

TITLE I

A major purpose of title I is to clarify the authority for appointment and compensation of experts and consultants. To preclude future statutes from inadvertently compromising the uniformity in the compensation of experts and consultants that this bill is intended to provide, we suggest that title I be amended to provide that a subsequent statute may not be held to supersede or modify this section except to the extent that it does so expressly. This would permit the Congress to expressly authorize necessary exceptions but would preclude any inadvertent exceptions to the general provisions of this title.

There is undoubtedly a need for better control over the use of appointed experts and consultants in the executive branch. The proposed legislation would appear to be a step toward achieving this objective. However, the inclusion of our Office in the coverage of this bill would abolish the special authorities which the Congress has granted to the Comptroller General in recognition of our unique responsibilities and the great diversity of highly technical and complicated programs with which it must deal in a completely competent and frequently expeditious manner. The need for

the capability provided by these special authorities is greater today than it was when it was granted, and this need will continue to grow with the emergence of every new Federal program. In short, our Office, more than any other agency of which we are aware, must be able to obtain, without delay, highly qualified talent in a wide variety of fields and to retain that talent for as long as necessary to accomplish the purpose for which it is needed if we are to effectively and efficiently discharge the obligations imposed on us by the Congress. Accordingly, we urge that our Office be excluded from the coverage of the proposed legislation.

Section 101

We believe section 101(g)(2) should be deleted. This section contains language that is inconsistant with one of the bill's objectives-to make section 3109 an appointing authority only by eliminating all reference to procuring by contract the services of experts and consultants.

Title 1, section 101(b) of the bill accomplishes this objective by specifying that section 3109 is only an authority to appoint experts and consultants. Section 101(g)(2), however, speaks to obtaining the services of experts and consultants by contract. We believe this language may be misinterpreted as a procurement authority.

TITLE II

Title II of the Bill-contracts-prescribes various requirements pertaining to the procurement of goods and services. The bill will require an agency to make public its intentions to award a contract, to make the contract available to public scrutiny, and require consultants to disclose the role they played in preparing reports under Government contracts. In addition, the bill requires consultants to fully disclose any conflicts of interest they have that could result in biased advice when writing reports. It will also require agencies to disclose in their budgets sent to the Congress the amount of funds requested for the procurement of goods and services and would require agencies to evaluate the contractor's performance in certain contracts which provide for the preparation of a report. It would make Federal managers accountable for their procurement actions by linking the determination of senior executive service bonuses and merit pay to managers' compliance with this bill's provisions. Finally, it would limit the amount of funds that agencies can spend in the final quarter of a fiscal year.

Section 202

We would like to see certain changes made to title II that will emphasize the agencies' responsibility to manage contract services properly and to safeguard the public's interest. For example, we are concerned that the paperwork required by section 202(c) may overwhelm the Appropriations Committees. At the same time, it may cause the agencies to spend an inordinate amount of time preparing written notifications.

However, we share the Senate Committee's concern that contracts are modified all too frequently. Our March 1980 report found that modifications to contracts were commonplace. Modifications were made in 70 of the 111 contracts reviewed, increasing the original contract values by 31 percent. Futhermore, modifications were frequently made for work not contemplated in the original contract. Use of such modifications thwarts the competitive bidding process and can result in the Government paying more than it should. Accordingly, we suggest that section 202(c) be amended to limit the reporting requirements to contracts for consulting service only. Furthermore, we believe that the written notifications should be sent to the appropriate agency Inspector General rather than to the Appropriations Committees.

On July 2, 1980, the Director, OMB, assigned to the Inspectors General direct oversight responsibilities for consulting service contracts. This new responsibility includes an evaluation of the progress made by each agency to institute effective management controls as recommended in our June 5, 1980, report and implemented in section 307 of the 1980 Supplemental Appropriations Act. We believe the Inspectors General are in a better position to review specific contract modifications. Futhermore, results of such reviews could be reported to the Congress together with information on progress made in instituting effective management controls as required by the 1980 Supplemental Appropriations Act.

Section 203

We recommend section 203(a)(1) be revised to make the Federal Procurement Data Control, rather than each agency, responsible for preparing the list of contracts entered into by each agency within the preceding 24 months. This change recognizes that the data center already maintains all but one of the data elements

required by this section. We believe that the data center can provide this information more economically since each agency will not have to maintain a separate capability for this purpose. The only data element not currently available from the data center is the name of the Government employee who authorized the award of the contract. It may be more economical for each agency to maintain this information.

Section 204

Section 204 requires that each written report prepared by a contractor contain various information, including the name of the contractor that prepared the report, the dollar amount of the contract, and the type of procurement used in awarding the contract. We believe that such information is essential and should be readily available for those who want to scrutinize the expenditure of public funds.

At the request of the Chairman, Senate Subcommittee on Civil Service and General Services, we obtained information from seven agencies on their use of consultants to prepare congressionally mandated reports. These reports are either specifically required by statute or requested in committee reports. Results show that consulting services were used in preparing responses to meet over forty percent of the agencies' congressionally mandated reporting requirements.

Agencies did not disclose or inadequately disclosed consultants' assistance in preparing appropriately 60 percent of the reports. The types of disclosures ranged from full descriptions of work performed by a consultant and its relationship to the overall study to simply citing the consultant's name in the acknowledgement, in an appendix reference, or as a footnote with little or not information on the consultant's role. Since congressionally mandated studies have the potential to influence the congressional oversight process and future direction of Government programs, it is important that the Congress be fully apprised of consultants' assistance.

We suggest that an additional reporting requirement be added to this section of the bill, requiring disclosure in the reports of any organizational conflict of interest as determined by the agency in accordance with section 205 to title II. In our opinion, the existence of an organizational conflict of interest by a contractor preparing a Federal report is vital information to all report recipients. Without this information, the readers may not be aware of the potential for biased conclusions and recommendations.

Section 205

Section 205 prescribes various controls to prevent or mitigate organizational conflicts of interest. As discussed in our statement, we believe that section 205 should be tested for a 2-year period at selected agencies. As noted in our June 5, 1980, report, there have been several audit reports that found agencies had awarded consulting service contracts where there was an appearance of conflict of interest that could (1) affect the contractor's ability to give impartial advice or (2) result in the contractor being given an unfair advantage when competing for other contracts. Additionally, we recently reviewed the potential for conflict of interest involving consulting service contracts at six agencies and testified on the results before the Subcommittee on Oversight and Investigation of the House Committee on Interstate and Foreign Commerce. The specific issue focused on the potential conflict of interest which may arise when consulting firms employed by Federal agencies to do regulatory analysis also perform similar studies for the industry subject to regulation. The Subcommittee is continuing this investigation.

Our analysis of contract files identified potential conflict of interest in 101 of 156 contracts reviewed. It is important to recognize, however, that identifying a potentially conflicting situation does not necessarily mean that a conflict of interest actually exists. There is at times a valid need to obtain the expertise of knowledgeable individuals to assist in improving the many varied operations and activities of the Federal Government. We believe that if agencies see a need for this expertise, they should evaluate the risk of adverse impact from either a potential or actual conflict of interest and take steps to deal with this risk.

Section 206

Section 206 states that agency heads shall include, within their request for regular appropriations for each fiscal year, an itemized statement of the amounts requested by the agency for the procurement of goods and services, separately classified, and that this same information be included with the President's budget transmitted to the Congress. This would in effect call for additional special analyses in the budget.

The fiscal year 1981 budget contained 11 special analyses on subjects such as Federal credit programs, Federal aid to State and local governments, and civil rights activities. There are many demands for information and limited resources

available to meet these demands. The existing system appears to be strained already. We believe that new requirements should be justified in relation to competing needs. Increased reporting may require eliminating some currently reported data. We are concerned about the ability of the budget formulation system to cope with this new requirement.

The 1980 Supplemental Appropriations Act requires agencies to provide a special budget analysis of the funds requested for consulting services in the fiscal year 1982 budget. This new congressional requirement will provide part of the budget analysis information required by this bill.

If the Congress believes the President's budget should contain a special analysis for procurement of all goods and services, we believe the requirement should be temporary-perhaps only for 2 or 3 years. In our opinion, special reporting should be used to determine the nature and scope of an identified problem and should continue only until improvements are put into effect. At the end of the temporary period, the costs and benefits of preparing this special budget analysis could be determined and, if justified, continued. Furthermore, we would suggest that the Congress, in reviewing this section of the bill, justify the need for this new requirement against the competing requirements for other budget analyses.

Section 208

Section 208 requires that the criteria for performance appraisals of the senior executive service and managers subject to merit pay include the degree of compliance with rules, regulations, and procedures applicable to the contracting out of agency functions and the promotion of policy in section (2) of this bill. We believe this section is unnecessary since section 4313 of title 5, United States Code, already contains five factors that must be considered in preparing performance appraisals for senior executive service officials. Several of these factors, such as cost efficiency and timeliness of performance, are broad enough to include many of the factors called for in section 208 when performance appraisals are prepared. In addition, we believe this provision could act as a precedent for adding other criteria which, if carried to the extreme, could make the performance appraisal system unwieldy and cumbersome.

Section 209

Section 209 requires the Director, OMB, to insure that no more than 20 percent of the total appropriations made available for procurement are obligated in the last 2 months of fiscal years 1981, 1982, and 1983. The language in this section closely parallels language in H.R. 7287 which we have supported. It does, however, differ in that it applies to appropriations for procurement of goods and services rather than total appropriations made available for each agency for any such fiscal year. We believe that a broader Government management perspective is needed and, therefore, recommend that this section be revised to apply the year-end spending limitation to all appropriated funds.

Normally, we do not favor the type of limitation in section 209 because it is difficult to administer and because it addresses a symptom rather than correcting underlying management problems. We wish OMB would manage budget execution voluntarily and aggressively, but we have seen no evidence of its willingness to do so. For this reason, we would support a modified section 209 because we believe that a temporary limitation, with flexibility to adjust the limitation to avoid program disruption, is the most appropriate means available to the Congress to force OMB to pay more attention to budget execution and to do a better job of planning and managing it.

Section 210

Section 210 codifies the principle of the Federal Procurement Data System by requiring the Director, OMB, to issue a regulation establishing a data system for the collecting, processing, maintaining, and disseminating of information on the procurement activities of the Federal Government and of each agency. Under the system, each contract is to be classified as primarily for goods or services and, if for services, whether the services are primarily for the preparation of a report.

We have several reservations concerning the requirements of this section. It will require the data center to significantly expend the data elements currently collected on each Government contract. Furthermore, some of the requested information is available from other sources. We hesitate to endorse this additional requirement on the data center without knowing the additional costs that would be incurred.