2. IMPROVING SCHEDULE NEGOTIATIONS

For items with truly significant variances in quality and features we will continue to provide an array of items, if required, such as where technology is changing rapidly or where Federal users justify a requirement for broad scope product ranges.

3. PRICE REDUCTION CLAUSES

Another area of concern, both to us and to this committee, has been the need for prompt and effective action to seek a refund and lower price from a supplier after the award of a multiple award schedule if the supplier provides more favorable prices to other customers for similar quantities, terms, and conditions.

Our clauses have unfortunately been open to differing interpretations and are not as effective as they should be. I have recently issued orders to the Commissioner of the Federal Supply Service and the Assistant Administrator for Acquisition Policy to restructure both the price reduction clause used in multiple award schedules, and the defective pricing clause, and to institute a rigorous review of each audit finding. My directive to this effect will be provided for the record.

MANAGEMENT REFORM PROGRAM COVERING SELF-SERVICE STORES, AND OTHER SMALL ORDER (RETAIL) SERVICES TO FEDERAL AGENCIES

On August 28, the GAO issued its latest review of our efforts to make this program more cost-effective. Let me say at the outset that this set of problems, which surfaced in the 1977-78 time period, are the most disgraceful in the history of the Federal Supply Service-with some 47 convictions reported by the U.S. attorney in Baltimore, based on investigations in our former region 3.

Early in my administration at GSA, I requested the Inspector General, as well as the Commissioner of Federal Supply, to give priority attention to this area. While the GAO report quite properly calls attention to many continuing problems which it found in a review of nine stores about 1 year ago, our own intensive studies, which began last March, give us confidence that we have made substantial progress. We have a blueprint of actions to continue to seek significant improvement in the future.

One, phase A is aimed at restoring integrity to the operations of the self-service stores by minimizing opportunities for fraud and abuse. Twenty actions have now been but in place to meet this objective. These actions are covered in my detailed statement.

Two, phase B is aimed at upgrading the operating efficiency, economy, and service effectiveness of the 69 stores. This is the phase to which we are currently devoting our major management efforts. It is designed to improve the service and increase the efficiency of the stores while instituting further measures to prevent future abuse. It is based upon the practices of modern supermarkets and retail stores.

Three, phase C is aimed at developing plans to meet the small order (retail) needs of all Federal customers, in each market area and region, based on comprehensive market surveys.

OTHER AGENCY INITIATIVES-RECOVERY UNDER CONTRACT AUDITS

GSA's Inspector General reported to the Congress May 1, 1980, that some 140 reports had been issued by his office that identified prospective or recommended savings of $26 million. I want to emphasize that the term "recommended savings" used in the IG report must be used in the right context. For example, contract audit recommendations are advisory in nature. The questioned costs are set aside for consideration by the contracting officer in pricing contracts and should not be construed as being absolute savings. Other factors known to the contracting officer may negate some of the audit recommendations during the negotiation process. Historically, 60 percent of contract audit recommendations are being sustained by our contracting officers. I have no idea how to measure that particular figure as being good or bad.

Senator CHILES. Let me just say, if we are talking about historic things of what happened in GSA, I don't get any comfort.

Mr. FREEMAN. I am sorry you don't because I have had a great deal of experience in claims settlement and the auditor is not the oracle of wisdom that says because there are set-aside costs it automatically means you are correct.

If you will allow me to finish my statement, Senator, I will be glad to respond to questions.

I would like to address our management-

Senator DANFORTH. Admiral, excuse me, I didn't understand that last comment. Would you explain it to me?

Mr. FREEMAN. Which is that, sir?

Senator DANFORTH. That you will be happy to entertain statements, questions after your statement.

Mr. FREEMAN. After I finish my statement, I will be happy to entertain questions. I would like to have the opportunity to finish. my statement, if I could.

Senator DANFORTH. I think that is up to Senator Chiles.

Mr. FREEMAN. I asked him if I could finish my statement and he nodded his head, Senator.

Senator CHILES. Go right ahead, Admiral.

Mr. FREEMAN. Thank you.

I would like to address our management coverage of three of the 11 types of audits identified on page 14 of the IG report. These three areas or types comprise over 80 percent of the $26 million identified therein.

First, all audits dealing with claims receive management overview. These account for $10.7 million of the $26 million. This review has been accomplished by a GSA order requiring the establishment of a Claims Review Board in the operations offices located in both headquarters as well as all regions. This order was issued on February 5, 1980, and most offices have established or are in the process of establishing their respective boards.

Second are the audits dealing with price reduction/defective pricing. An area, Senator, you are most familiar with as it involves multiple schedule awards. These audits account for $4.1 million of the $26 million. In order to facilitate our response to price reduction and defective pricing audits, we recently issued an amendment dated August 25, 1980, to our contract clearance order.

This amendment places our contract clearance activity in the office of acquisition policy in a key role. They will be responsible for reviewing and approving actions taken in response to audits of this type prior to the time any settlement is agreed upon with a contractor.

Third, and last, lease escalation audits have been a problem, and will continue to be until our current backlog of reviews is cleared up. These audits account for $6.5 million of the $26 million. We are confident that such disputes should not reoccur in the future, as we have revised our lease escalation provisions.

GSA DISCIPLINE PROGRAM

There have been some unwarranted critical generalizations concerning the administration of discipline in the General Services Administration. It may be useful for the subcommittee to have the following record of GSA disciplinary actions for the period beginning July 1, 1979, and ending August 31, 1980: 795 formal warning notices or reprimands were issued, 269 employees were suspended for a day or more without pay, 150 employees were removed, 69 employees resigned while disciplinary action was pending, 13 employees retired while disciplinary action was pending.

To help put this total discipline program into perspective, you should know that only 7 percent of these 1,296 actions resulted from Inspector General reports. We do not have reliable statistics for other agencies that can be used as a basis for comparison, but we have some reason to believe that GSA has taken a greater number of removal actions per capita than most other agencies. Furthermore, although it is true that a preponderant number of disciplinary actions were taken against wage grade employees, 53 percent of removals affected employees in the general schedule.

PROGRAM ACHIEVEMENTS-THE FEDERAL SUPPLY SERVICE

Earlier in the statement, I discussed our efforts in the management of furniture, the multiple award schedules program, and the self-service stores. In addition to these efforts, FSŜ launched, starting last fall, new initiatives in many other key areas.

The Uniform Procurement System. FSS is involved in implementing this supply management system under the leadership of the Office of Federal Procurement Policy.

Survey of all FSS commodities to improve requirements planning and acquisition strategies.

Formation of fully integrated commodity management centers, in major areas such as furniture, tools, office supplies, office equipment, and others. We now have in place two major centersfurniture and tools-fully accountable for performance from requirements determination through procurement, quality assurance, distribution and disposition. We plan to gradually form several additional centers.

Modernization of contract management. Our past practices in the oversight of contractor performance have left much to be desired. To remedy this we have put in place in the past year a team of 71 contract administration specialists throughout the United States to supplement cur quality assurance specialists. We are now giving

much closer day-to-day attention to timely contract performance as well as to onsite inspection of commodities at both source of production and indepot stocks.

Warehouse modernization and consolidation. This is an ongoing effort to reduce the large space and manpower requirements of these facilities through mechanization, and to shrink the number of depots whenever possible. We now have 16 depots after the recent closure of the Bayonne, N.J. facility.

Over time we should be able to reduce this number working in close collaboration with other Federal depot managers, particularly the Department of Defense. This program will also be facilitated by our efforts to use commercial distribution sources as much as possible in the furnishing of our supplies.

Modernization of our management information and computer systems is taking place, and while definite progress is now in process, we still have far to go to fully automate our inventory management, requisition processing, shipping document preparation, and other activities related to our supply functions.

Work force development. The 4,500 members of the Federal Supply Service staff must be kept fully abreast of changing technology so as to improve their knowledge and skills, and opportunities for personal growth and advancement.

Working with GSA's central personnel office, career development plans are being developed for each occupational group-and extensive training courses are being offered, with initial emphasis on contracting and contract administration. Every functional and occupational area in FSS will receive such attention. Our goal is to make the Federal Supply Service a model of best practice and competent performance in every aspect of procurement and logistic management.

THE AUTOMATED DATA AND TELECOMMUNICATIONS SERVICE (ADTS)

Our programs in this area are designed to improve Government operations through the application of modern data processing and communication technology. Increased application of existing information processing technology can achieve cost reductions and improve productivity.

TRANSPORTATION AND PUBLIC UTILITIES SERVICE

I am extremely proud of the numerous travel cost reduction and energy savings initiatives which have been undertaken by GSA in the past year. We have signed airline contracts for reduced fares for Government travelers on trips between 11 cities; these reduced fares-which range from 35 to 69 percent of the standard industry fare levels-will result in estimated savings of some $7 million. This contract coverage will be expanded in January 1981. We also have entered into an agreement with Amtrak for a 20-percent discount on Metroliner coach fares between Washington, DC. and New York City. This agreement will result in savings of about $650,000 per year. Travel costs have also been reduced through: (a) the use of half-fare airline coupons; (b) the negotiation of hotel discounts in 13 Southeast cities; and (c) the introduction of a centralized program for the shipment of household goods of civilian

Federal employees being transferred from one duty station to another.

FEDERAL PROPERTY RESOURCES SERVICE

We are now actively preparing for the increased levels of stockpile activity expected as a result of the passage of the Strategic and Critical Materials Stock Piling Act of 1979-Public Law 96-41that act is designed to insure the revitalization and restructuring of the strategic stockpile program.

NATIONAL ARCHIVES AND RECORDS SERVICE

During the last year, critical reviews aimed at improving the cost effectiveness of NARS operations and the protection and preservation of documents have taken priority. Many of these reviews and initiatives were undertaken at my direction, shortly after my arrival at GSA. They are continuing, and new ones have been initiated under the direction of the recently appointed Archivist of the United States, Dr. Robert M. Warner.

PUBLIC BUILDINGS SERVICE

During the past year we have worked with the Congress on new legislation that emphasizes construction over leasing and requires long-range planning. A nationwide contracting system has been established, centralized in the 11 PBS regional offices.

OFFICE OF PLANS, PROGRAMS, AND FINANCIAL MANAGEMENT

Planning and financial management had received very low priority prior to my arrival at GSA. As a consequence, the Agency had no clear picture of its resources nor the levels of activity that could be accomplished within these resources.

This serious deficiency was corrected by the creation of an Office of Plans, Programs, and Financial Management. This enabled us to institute a 5-year planning mechanism in GSA. We have also established a management information system, which will insure that problems will be brought to the attention of the appropriate executives, and that cost analyses performed throughout the Agency are validated by another office. Finally, we have also instituted strong financial management and sound budgeting policies for the Agency.

OFFICE OF HUMAN RESOURCES AND ORGANIZATION

The Office of Human Resources and Organization was established in July 1979 to provide the Agency with clear lines of accountability for improving the management of human resources. Perhaps our most critical need was to begin to remedy years of inadequate training.

New staff hired to upgrade the work force often were placed under inadequate supervisors; journeymen did not possess the tools of their trade; managers could not use the control systems necessary to eliminate fraud and insure against its recurrence.

In the last 10 months, we have given expanded procurement training to over 1,000 employees; provided management courses to