TESTIMONY OF TOM MORRIS, COMMISSIONER, AND HERBERT MCCARTHY, DEPUTY COMMISSIONER, FEDERAL SUPPLY

SERVICE

Senator CHILES. I was hoping your appearance today would be to provide an interim report on your struggle to get the Federal Supply back into some semblance of working order. Now I understand you are returning to the General Accounting Office. I am frankly disappointed to hear that you are leaving. I am sure that your services will be welcomed by the General Accounting Office but I hate to see you leave the Federal Supply Service at this time. Mr. MORRIS. I want to say I think Mr. McCarthy, who is with me today, is one of the ablest men in this field that I have ever worked with, and I wouldn't dare think of leaving were I not to be succeeded by such an able person.

Senator CHILES. We are delighted to hear that. We have made some rough calculations and have found that the average term of a Commissioner of Federal Supply is around 8 months. Over the last 10 years there have been 13 Commissioners of the Federal Supply. Mr. McCarthy will be the 14th. You told me that you had planned to be Commissioner of Federal Supply for a long time and Mr. Morris, and I took that to mean longer than 8 months. I take it there is no particular reason that you are leaving now, but I would like-

Mr. MORRIS. Mr. Staats asked me to come help him and I had 20 years working with Mr. Staats off and on. I just didn't feel I should turn him down. As you know, he is finishing his term of office this year.

Senator CHILES. Yes. I understand that. You certainly have a most distinguished reputation in the Federal Government for troubleshooting. I have said and others have too, that if Tom Morris can't clean up the Federal Supply Service no one can. I realize Herb McCarthy has equally distinguished credentials. I am glad to hear that you are saying you are not leaving because you don't think the mess can be cleaned up. I hope that is what you are saying.

Mr. MORRIS. That is exactly what I said. I think it is well on the way to being cleaned up.

Senator CHILES. From what the General Accounting Office said this morning, it appears that we are trying to move a mountain with a teaspoon. How can the self-service stores be in such a mess after being so much in the spotlight for the last 2 years? Do you have any confidence at all in the people that are running that program?

Mr. MORRIS. Mr. McCarthy and I just finished the last 3 days conferring with our field managers. We call them assistant regional administrators. We spent perhaps at least a day of that period talking about self-service stores. I feel that in the field, that is outside of the District of Columbia, we have always been on top of those stores pretty well. The scandal area that we have been talking about occurred in this region a few years ago where we have the biggest concentration of stores. But I think we have put in place in the past year and a half the controls that are needed for better security, except for line item accounting, which you so well brought out here in the last few minutes; such an accounting must

absolutely go into effect as fast as possible. We have a schedule now which will get it in in the coming fiscal year.

We hope to have 48 stores on line item accounting by next June. The equipment is largely in place. What we need to do is put in the system. We will be doing that with field teams, store by store, starting in the near future. I think we have very able people in the field. We have not had enough management talent in the stores themselves. We have tried to staff them with pretty low-graded people; GS-9 has been about the highest grade you found in these stores, whereas we need people at perhaps grade 11 or 12, managers who will not only watch the stock, but who will go out and survey customer needs and find customer stockrooms that ought to be closed-people who will really be total managers.

So I think we are on the road now to a real cleanup.

Senator CHILES. While we are sort of accounting for your stewardship, where are we in trying to develop a manageable multiple award schedule?

Mr. MORRIS. Sir, as you know, I am particularly proud of the effort started here in the spring. I must say this committee gave us a great impetus to get that started. We reported to you on May 1 of where we hope to go. We are giving you now a quarterly report. The first one was submitted in August. The second one will be sent in November. Our goal in the first year is to cover schedules equal to about $1 billion of purchases.

That will be the top 40 schedules. We have laid out the numbers we must cover each quarter. Thus far we have surveyed 23. We are finding it possible to convert to competitive procurement in a good percentage of the cases. To me that is the real key to better buying in lieu of the multiple award approach where we have no quantities, and no specifications. It is no wonder that we do not get the best deal from our suppliers when we don't give them any guarantee of quantities, timely shipments or specs against which to bid. So I think we are well on the way to covering that billion dollars this fiscal year as we promised you we would. We will keep reporting to you on a quarterly basis.

In the Administrator's testimony today, he will relate several specific examples, paper and typewriters, where we already have success stories to tell you about.

Senator CHILES. If you have changed some 23, have converted some 23 of the possible 8,000 multiple-award contracts. Why is the industry baying like a wolf saying you are destroying small business by this reform program? Are you doing that, and if not, what provisions have you made to protect small business?

Mr. MORRIS. First of all, sir, the numbers get very tricky in this business. There are actually 113 multiple-award schedules. Each schedule may have many, many contractors participating, 20 or 30 in some cases.

Senator CHILES. This 8,000 multiple-awards are contained in 113 schedules?

Mr. MORRIS. Yes.

Senator CHILES. So you have actually changed 23 schedules of the 113?

Mr. MORRIS. We have actually finished our initial studies on the 23. Some situations are going to remain multiple-award; we believe

they properly should remain this way because we are dealing with high-technology items or because the varieties and types required are so great that it isn't practical to get competition. But wherever possible, we are breaking out items for competition. We are very aware of the fact that we must give small business full consideration, as the law requires.

I am very pleased that our first competitive procurement converted from multiple-award was Xerographic paper, an item on which we spend almost $40 million a year. Here we found we could break the country into several zones, five zones, and within each zone ask for bids on various quantity brackets-we have an aver age of three brackets per zone. So we are dealing with over 15 offerings on a competitive basis.

Some of the winners were small businesses. The biggest winner, Nashua Paper, a very reputable supplier, has a national network of distributors and dealers through whom the sales will be made; these are mainly small business concerns. So in that case I think we are doing very well in keeping small business involved, and this will be our objective wherever we can do it.

Senator CHILES. The Government will be better off by virtue of that competition?

Mr. MORRIS. I have no doubt of it, sir. Thus far we have made awards of $30 million worth of product For 6 months, getting a 10percent better price than we had previously obtained. That is a savings of $6 million per year from this one schedule.

Senator CHILES. We are also dealing in a time which generally everything is going up by virtue of the inflation.

Mr. MORRIS. That is right.

Senator CHILES. That certainly would be good sales. As you recall, we have had quite a battle with furniture over the last year. Where do we stand now? Have the agencies taken proper inventories and submitted the results of those to you?

Mr. MORRIS. Sir, I guess Mr. McCarthy and I have spent as much. as half our time in our months here together on furniture and all that it signifies. We started out with a five-part plan which we told you about on March 18. That plan was first to put in place in the agencies a network of property management officials who would take the responsibility and have the authority to help their agency better oversee the use of furniture. Today there are more than 70 of these people. I am proud to tell you Mr. Chiodo addressed this group at Charlottesville, 3 weeks ago. He did a masterful job of helping them to see the importance that you gentlemen attach to better management of this type of property.

The second objective was to take all the requisitions we had on hand and send them back to the agencies for revalidation. That happened largely in February and March, when some 18 percent were canceled.

I might say the validated requisitions have been frozen by the OMB freeze and the rescission legislator. Whether we should fill these requisitions is dependent on OMB's approval of expense plans

for 1981.

The third thing we did, and one of the best, because this committee demonstrated some of the techniques, was to visit sites where agencies themselves had furniture in storage, not in use. They had

bought it, but they weren't using it. We have inspected 1,300 such. locations throughout the United States. We have found some 29,000 pieces that will be reused or rehabilitated and reused in lieu of procurement. I think that is an excellent payoff. The procedure is so good that we plan to continue its use in the future on a planned basis.

The most difficult and dramatic action is the requirements and expense plan that OMB has required every agency to prepare and submit for fiscal 1981 before that agency will be permitted to buy any office and household furniture. Of those plans 205 will have to be approved. Thus for we have processed 149 for OMB, after very extensive analysis in our office. This will pay great dividends. The committee again deserves a tribute for putting us in the posture of learning how to control and plan the use of this type of commodity. The fifth and last part of our plan is to better control quality. We have done many things which give me confidence that in the future we are going to have more dependable supplies of these commodities.

That summarizes the program of reforms that is continuing. I consider it a success.

Senator CHILES. Would you say now that we are in control of the excess in surplus stocks?

Mr. MORRIS. I would say we are in better control than we have ever been. There are two facets to that problem. One is the stocks which the agencies declare excess through the normal procedures. Then we have current surveillance throughout the United States to make further use of that furniture wherever possible, rehabilitating it where necessary. But what Operation Clean Sweep did when we went out to the 1,300 sites was to find furniture which had not been declared excess when it should have been, and see to it that it got back into the mainstream of reutilization. That is a new technique which we must continue to work with in the future.

Senator CHILES. You said that of these plans that have been approved, how many of those were rejected?

Mr. MORRIS. Sir, thus far OMB, which is the final approving authority, has processed, I believe, only 8 out of the 149 we have sent over. This review will be going on for the next several weeks. We are doing the initial analytical work by going back to the agencies, asking them questions and reducing quantities if appropriate before we send the plan on to OMB. We will be able to give you a report card after the whole process is complete.

Senator CHILES. The new fiscal year starts tomorrow-no, it has already started.

Why have the agencies been sitting on this since February? Mr. MORRIS. Sir, they really haven't been. We started working with the agencies last March on how to do this. The goal, then, was to get plans in during July and August and to OMB by the first of September. It turned out to be a far more difficult and technical task than any of us had imagined. I have 50 people on my own staff dedicated to analyzing those plans as we receive them.

Many of the agencies had to go to field activities and ask them for estimates where this has never been done before. So some agencies may have 18 or 20 plans coming in to us from their own constituencies. It has been a learning process and a very difficult

process, but I think it is a very useful discipline that we have now learned to apply.

Senator CHILES. How many agencies have not yet submitted plans?

Mr. MORRIS. I believe the count of that, as of this morning, is about 14, most of which are quite small. There are two cabinet agencies that are still due to come in. The Department of Education very frankly told us they were so new that they had to do a grass roots job, and that it will be another week or so before they finish. Interior is still to come in with most of their plans. They, too, had a difficult time compiling their requirements from many decentralized activities.

Senator CHILES. Have we got the cork in the bottle on systems furniture? As far as I know, no one has yet developed a rational plan for deciding when or if systems furniture in a particular case is a better deal for the Government than regular furniture.

Mr. MORRIS. The Administrator did suspend all future purchases of systems furniture, I believe, last March; he has had a high level committee under his deputy helping PBS and our office to come up with criteria for evaluating the future use of this furniture. Those criteria are still in preparation and the freeze is still on. It may be relaxed in very special situations by the Administrator personally. I think we are going to come out of this with a far greater understanding of when this type of new technology has an application. Thus we can be better managers and better educators of the agencies.

Senator CHILES. Mr. McCarthy, I would like to welcome you here today. I am not sure if I should congratulate your coming appointment as Commissioner or not. Since you will be the 14th Commissioner in the last 10 years, I hope you are not too worried about job security. [Laughter.]

Mr. MCCARTHY. No, sir.

Senator CHILES. Tom Morris told us that he planned to be around GSA for some time. Now I realize that 8 months in Federal Supply might seem like 8 years. So I will try to be a little more specific. How long do you expect to stay with the Federal Supply?

Mr. MCCARTHY. As long as the Administrator desires me in that job.

Senator CHILES. How far away are you from retirement?
Mr. McCARTHY. Eight years. [Laughter.]

Senator CHILES. It looks like you are going to have a lot to keep you busy. Let's start with multiple awards. We have been testing our thesis that the multiple-award program is not under the control of the General Services Administration. If a contractor withholds pricing data from the contracting officer, there is almost no way the contracting officer is ever going to find out the Government is paying more than a commercial customer without an audit. Is that a fair statement?

Mr. MCCARTHY. That is right.

Senator CHILES. GAO says, I guess, if we had marketing research that will be another way.

Mr. MCCARTHY. We are well into the marketing research and that is this entire schedule review program that we are going through. We are going to be expanding upon it, not only doing it