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Office of the Press Secretary

                          BACKGROUND BRIEFING

                           October 26, 1993

The Old Executive Office Building

11:21 A.M. EDT


Q On that crime -- the $4 to $5 billion for crime, is that to come out of the first $10 billion-plus that you know CBO will accept, or from the rest that gets you to the $22 or $30 billion?

SENIOR ADMINISTRATION OFFICIAL: Our estimates are that the first year of procurement reform will yield $5.6 billion in savings. And the estimate is that that $5.6 billion is a very conservative number, it can easily can be saved. It represents -- think of it -- it's $5.6 out of $200 billion. If we can't save that amount of money, then we've really got problems, particularly if we loosen up the system. And that that should be sufficient to pay for the crime bill.

Q You promise $10 billion in cuts --


Q Now, if you have $10 billion in deficit reduction.

SENIOR ADMINISTRATION OFFICIAL: Yes, that's deficit reduction.

Q Now the $5 billion is beyond that?


Q But it's not counted in the CBO scoring?

SENIOR ADMINISTRATION OFFICIAL: No. Well, CBO hasn't scored this yet because Senator Glenn is just introducing his bill this afternoon.

Q You said you knew you were going to get the $10 billion plus some $3 to $5 billion from CBO.

SENIOR ADMINISTRATION OFFICIAL: We hope we'll get $3 to $5 billion from CBO, yes.

Q Okay, is that where the crime money is or is it from the rest?

SENIOR ADMINISTRATION OFFICIAL: Yes, that's where the crime money is.

Q Three to $5 billion is in the first -- do you think CBO is going to score this $ 3 to $ 5 billion in the first year?

SENIOR ADMINISTRATION OFFICIAL: In the first year of procurement reform, yes. We hope.

Q And your estimate of where those savings come from - - is that primarily in lower prices?


Q or is that -- is a lot of that in fewer government workers --

SENIOR ADMINISTRATION OFFICIAL: Well, it's -- let's go through that because I think it's very important to this discussion.

The studies on defense procurement indicate -- have various estimates on how much money you can save. And I will let Colleen and Al talk to some details about this. Essentially the National Performance Review estimated that we could save -- we took a very low number, five percent, some studies were as high as 12 percent -- that would result from procurement reform. Five percent of $800 billion over a four-year period, okay, gives you $40 billion. We then took $17 billion out of that because we didn't want to double count personnel that might be used for procurement reform. We put that into a separate personnel number. So the NPR recommended --suggested that we will save $22 billion over a four-year period. We didn't count anything for the first year because we didn't know how fast we'd get this enacted. Obviously if we get it faster, we'll get the money faster -- $22 billion over a four-year period, $5.6 billion in the first year.

Now, since we have already counted in our other cuts -- the personnel -- that is primarily in the cost of lower products to the federal government. And as I say, look at it in the context. If you're buying $200 billion worth of goods and services a year, you ought to be able, particularly if the constraints on your volume are lifted as this procurement bill would do -- saving $5 billion dollars out of that should not be terribly difficult. We think it's very doable.

Did you want to say anything on this. It's very important.

SENIOR ADMINISTRATION OFFICIAL: Perhaps I could just refer you to some studies that have been done that I think give credibility to these numbers and give you a sense of the magnitude of savings that are likely.

The Center for Strategic and International Studies at Georgetown University has completed two studies over the last two years looking at this very issue. What they found is that firms -- particularly firms who are in the commercial marketplace -- had tended to separate their work. They just don't want to have the increased burdens and the increased audit requirements, the possibility of losing technical data to the federal government. And, as a result, they've set up separate entities to do their work for the government. When you take a look at what these entities charge the government in terms of paying for the items that we buy from them, they suggest that there's an administrative overhead cost three times higher for what the government gets than what the private sector gets.

The Defense Science Board just recently did a study, as well, looking at this very same issue. And in their report which was released just recently, identified a whole series of specific savings as well. For example, they mention Motorola developing a secure telephone that costs one-tenth the cost of what the government would have had to pay for it if Motorola hadn't used a commercial process for developing this item.

They talk about electronics savings, which is clearly important for defense weapon systems, since you're seeing significant amounts of money being spent in that area, even on the most technical government requirement. And here again, 30 percent to 60 percent of those kinds of costs for what the Defense Department buys is often electronics gear -- savings 20 percent to 30 percent here. So there's a whole host of these kinds of reports that we feel give good credibility to the notion that a five-percent estimate of savings is a conservative estimate.

Finally, there's one other effort that was recently completed, and this is something that had been referred to as well. The Section 800 panel that was set up by Congress to look at how we could streamline the way Defense does business, and the report of that panel suggested that commercial firms doing business with the government were paying up to 12 percent more -- the government was paying up to 12 percent more for the items being produced by these firms when the government buys these items, as opposed to when they're out in the private sector. So we see significant gains to be achieved here. And we feel that the percentage that we're estimating is a responsible number and, really, an average of many of these other figures coming from these other studies being done.

Q So if you save $5.6 billion in the first year and that goes to the crime bill, then the $10 billion for deficit reduction comes when and where?

SENIOR ADMINISTRATION OFFICIAL: The estimate is a savings of $22.5 billion over a five-year period with none of the savings in the first year. So the estimate is at a $5 billion rate per year, each year.

Q Starting in which year?


SENIOR ADMINISTRATION OFFICIAL: No. In the report, we started the savings in '96. That's because we didn't know how long it would take --

Q So no deficit reduction will occur as a result of your action until 1996, is that correct?

SENIOR ADMINISTRATION OFFICIAL: No, let me say in the report we started the savings in '96 because we did not know how long it would take to develop and pass a comprehensive procurement reform bill. So we gave ourselves a year. If this bill passes, as we hope it will in a couple of months, we can start seeing savings right away. We can start seeing savings right away. We can start seeing savings in '95. The package that Director Panetta talked about, the $10 billion package, is $10 billion dedicated to deficit reduction over five years.

Q I understand that you want to pass the procurement reform package very quickly, but are there going to be hearings to get industry input very quickly on these?

SENIOR ADMINISTRATION OFFICIAL: Yes, my understanding is the Senate plans for hearings. I believe they'll be joint

hearings with the Armed Services and the Governmental Affairs Committee. And they are also committed to trying to make something happen this fall as is Mr. Conyers. So we hope to see something done over the next few weeks.

Q And industry witnesses to --

SENIOR ADMINISTRATION OFFICIAL: We expect that there will be witnesses from all sectors who will be interested in the procurement reform effort, including people from the private sector, from industry as well.

Q How do account for the large gap between what the CBO is likely to score the procurement savings at and the $200 billion that you hope eventually to get out of this?

SENIOR ADMINISTRATION OFFICIAL: No, no, no -- not $200 billion --

Q Well, $40 billion.

SENIOR ADMINISTRATION OFFICIAL: -- that's what we spend a year -- $22 billion.

Q Twenty-two billion, right.

SENIOR ADMINISTRATION OFFICIAL: We don't account for that because we don't know yet how CBO will score this. We're hoping -- we would score it -- if we were scoring it, as anywhere from $3 to $5 billion per year. In the report, we said we think it will save $5 billion. Here's the problem with scoring it. The problem with scoring it is it involves an estimate on what will be the reduction in the cost of goods and services to the government. And that's very -- that's a difficult thing to do.

Q The report included a recommendation on Davis-Bacon I don't see in this package. Vice President Gore mentioned something about working with Senator Bingaman on that. Can you tell us more about that?

SENIOR ADMINISTRATION OFFICIAL: Davis-Bacon crosses several of the -- the jurisdictions of several committees in the House and in the Senate. So far we've been working with the Government Ops Committees and with the Armed Services Committees. Senator Bingaman will be working with us and with the Labor Committees to come up with an amendment dealing with Davis-Bacon and the Service Contract Act.

Q Can you elaborate on one of the executive orders that's supposed to be released dealing with reducing unfunded mandates to state and local governments as well as this idea of increasing waivers in statutory and regulatory requirements?

SENIOR ADMINISTRATION OFFICIAL: The President signed that mandate this morning in a meeting with the representatives of the Big Seven -- the states, the counties, municipalities, governors associations. And that executive order is drawn from the National Performance Review. It basically sets up a procedure for having input from state and local governments in the making of regulations, and it advocates in legislation greater waiver authority for agency heads and Cabinet secretaries so that they can accommodate the law to special situations that arise at the states and localities. And that, of course, has been a big problem for smaller states, et cetera.

Q Could you give us some examples of unfunded mandates? What do have in mind there?

SENIOR ADMINISTRATION OFFICIAL: I think that there is a lot of examples of unfunded mandates, and it kind of is in the eye of the beholder because the states and localities will define them somewhat differently. But a lot of environmental questions fall into that category, many health care provisions -- it's all over the place. And --

Q But how do you -- who is the ultimate determiner of what is an unfunded mandate?

SENIOR ADMINISTRATION OFFICIAL: Again, it's in the eye of the beholder. The people in Congress who pass the laws don't think they're doing such damage. Sometimes, the people on the ground who have to implement the laws complain about them and say this is really posing an enormous fiscal burden on my city or my county, and I can't deal with it.

We want to create a process -- we have created a process where we can have a better dialogue between the local governments and the federal government on all those issues.

Q So before you could actually reduce the number of unfunded mandates, you have to decide what they are.


Q A follow-up on that question. Does that mean the executive order deals with stuff in the future rather than existing --


THE PRESS: Thank you.

END11:32 A.M. EDT