DOD Competitive Sourcing: A-76 Program Has Been Augmented by	 
Broader Reinvention Options (28-JUN-01, GAO-01-907T).		 
								 
This testimony discusses the Department of Defense's (DOD) uses  
of the Office of Management and Budget's Circular A-76, which	 
establishes federal policy for the performance of recurring	 
commercial activities. DOD has been among the leaders among	 
federal agencies in the use of the A-76 process in recent years  
and at one point planned to study over 200,000 positions using	 
the process over several years. However, the number of positions 
planned for study has changed over time and the Department	 
recently augmented its A-76 program with what it terms strategic 
sourcing. DOD has achieved savings through the A-76 process	 
primarily by reducing the number of in-house positions. Yet, GAO 
has repeatedly found that it is extremely difficult to measure	 
the precise amount of savings because available data has been	 
limited and inconsistent. Issues GAO has raised concerning DOD's 
A-76 program that may be useful lessons learned for other	 
agencies that use the A-76 process include that (1) studies have 
generally taken longer than initially expected, (2) studies have 
generally required higher costs and resources than initially	 
projected, (3) finding and selecting functions to compete can be 
difficult, and (4) making premature budget cuts on the assumption
of projected savings can be risky. Both government groups and the
private sector have expressed concerns about the fairness,	 
adequacy, costs, and timeliness of the A-76 process.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-907T					        
    ACCNO:   A01308						        
  TITLE:     DOD Competitive Sourcing: A-76 Program Has Been Augmented
             by Broader Reinvention Options                                   
     DATE:   06/28/2001 
  SUBJECT:   Defense cost control				 
	     Cost effectiveness analysis			 
	     Privatization					 
	     Defense procurement				 
	     OMB Circular A-76 Program				 

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GAO-01-907T
     
Testimony Before the Subcommittee on Technology and Procurement Policy,
Committee on Government Reform, House of Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 2: 00 p. m., EDT Thursday, June 28,
2001 DOD COMPETITIVE

SOURCING A- 76 Program Has Been Augmented by Broader Reinvention Options

Statement of Barry W. Holman Director, Defense Capabilities and Management

GAO- 01- 907T

Page 1 GAO- 01- 907T DOD Competitive Sourcing

Mr. Chairman and Members of the Subcommittee I am pleased to be here today
to present our observations of how the Department of Defense (DOD) uses the
Office of Management and Budget?s (OMB) Circular A- 76, which establishes
federal policy for the performance of recurring commercial activities. OMB
issued the Circular in 1966 and supplemented it in 1979 with a handbook of
procedures for conducting cost comparison studies to determine whether
commercial activities should be performed by the government or by the
private sector. DOD refers to A- 76 cost comparison studies as competitive
sourcing. OMB updated the handbook in 1983, 1996, and 1999.

My comments today are based on work we have carried out in recent years
tracking DOD?s progress in implementing the A- 76 program with the goal of
saving billions of dollars that could be applied to other priority needs
(see list of related GAO products at the end of this statement). In response
to the questions you asked us to address, my testimony will (1) review the
evolution of the A- 76 program in DOD up to the present, (2) address the
extent to which savings are being realized through the A- 76 process, (3)
identify some key issues we have raised about DOD?s A- 76 program as useful
lessons for other agencies, and (4) provide an update of the commercial
activities panel chaired by Comptroller General David Walker under Section
832 of the National Defense Authorization Act for Fiscal Year 2001.

DOD has been the leader among federal agencies in the use of the A- 76
process in recent years and at one point planned to study over 200,000
positions using the process over several years. However, the number of
positions planned for study has changed over time, and the Department
recently augmented its A- 76 program with what it terms strategic sourcing-
a broader array of reinvention and reengineering options that may not
necessarily involve A- 76 competitions. DOD has already reprogrammed over
$11 billion in anticipated savings from A- 76 and strategic sourcing into
its modernization accounts.

DOD has achieved savings through the A- 76 process primarily by reducing the
number of in- house positions. Yet we have repeatedly found that it is
extremely difficult to measure the precise amount of net savings because
available data have been limited and inconsistent. Although DOD has begun
efforts to improve the estimated and actual costs of activities under study,
its savings estimates have not taken fully into account up- front costs
associated with the A- 76 and strategic sourcing processes, which Summary

Page 2 GAO- 01- 907T DOD Competitive Sourcing

must be offset before net savings begin to accrue. Considering that DOD has
already reduced operating budgets on the assumption of these savings, it is
crucial that its estimates be as accurate as possible.

Issues we have raised concerning DOD?s A- 76 program that may be useful
lessons learned for other agencies that use the A- 76 process include the
following: (1) studies have generally taken longer than initially expected,
(2) studies have generally required higher costs and resources than
initially projected, (3) finding and selecting functions to compete can be
difficult, and (4) making premature budget cuts on the assumption of
projected savings can be risky.

Both government groups and the private sector have expressed concerns about
the fairness, adequacy, costs, and timelines of the A- 76 process. As
required by the Congress, a panel of government and private sector experts
was created earlier this year to study the policies and procedures governing
the transfer of commercial activities from government personnel to
contractors, including the A- 76 process, and to report its findings and
recommendations by May 2002.

Under A- 76, commercial activities may be converted to or from contractor
performance either by direct conversion or by cost comparison. Under direct
conversion, specific conditions allow commercial activities to be moved from
government or contract performance without a cost comparison study (for
example, for activities involving 10 or fewer civilians). 1 Generally,
however, commercial functions are to be converted to or from contract
performance by cost comparison, whereby the estimated cost of government
performance of a commercial activity is compared to the cost of contractor
performance in accordance with the principles and procedures set forth in
Circular A- 76 and the supplemental handbook. As part of this process, the
government identifies the work to be performed (described in the performance
work statement), prepares an in- house cost estimate based on its most
efficient organization, and compares it with the winning offer from the
private sector.

1 For functions performed by DOD employees, a number of additional
requirements, reports, and certifications are addressed in chapter 146 of
title 10 U. S. Code and in recurring provisions in DOD?s annual
appropriation acts. Background

Page 3 GAO- 01- 907T DOD Competitive Sourcing

According to A- 76 guidance, an activity currently performed in house is
converted to performance by the private sector if the private offer is
either 10 percent lower than the direct personnel costs of the in- house
cost estimate or $10 million less (over the performance period) than the
inhouse cost estimate. OMB established this minimum cost differential to
ensure that the government would not convert performance for marginal
savings.

The handbook also provides an administrative appeals process. An eligible
appellant 2 must submit an appeal to the agency in writing within 20 days of
the date that all supporting documentation is made publicly available.
Appeals are supposed to be adjudicated within 30 days after they are
received. Under current law, private sector offerors who believe that the
agency has not complied with applicable procedures have additional avenues
of appeal. Specifically, they may file a bid protest with the General
Accounting Office or file an action in a court of competent jurisdiction. 3

Circular A- 76 requires agencies to maintain annual inventories of
commercial activities performed in house. A similar requirement was included
in the 1998 Federal Activities Inventory Reform (FAIR) Act, which directs
agencies to develop annual inventories of their positions that are not
inherently governmental. 4 The fiscal year 2000 inventory identified
approximately 850,000 full- time equivalent commercial- type positions, of
which approximately 450,000 were in DOD. 5

2 An eligible appellant is defined as: (a) federal employees (or their
representatives) and existing federal contractors affected by a tentative
decision to waive a cost comparison, (b) federal employees (or their
representatives) and contractors who have submitted formal bids or offers
who would be affected by a tentative decision, or (c) agencies that have
submitted formal offers to compete for the right to provide services through
an interservice support agreement.

3 Federal employees do not have standing to file a protest with GAO and have
generally been denied standing to sue in court. 4 Section 5 of P. L. 105-
270, codified at 31 U. S. C. 501 note (1998) defines an inherently
governmental function as a ?function that is so intimately related to the
public interest as to require performance by Federal Government employees.?

5 Guidance implementing the FAIR Act permitted agencies to exempt many
commercial activities from competitive sourcing consideration on the basis
of legislative restrictions, national security considerations, and other
factors. Accordingly, DOD?s fiscal year 2000 inventory of positions it
considers to be potentially subject to competitions was reduced to
approximately 260,000.

Page 4 GAO- 01- 907T DOD Competitive Sourcing

OMB has recently indicated that it intends to expand its emphasis on A- 76
governmentwide. In a March 9, 2001, memorandum to the heads and acting heads
of departments and agencies, the OMB Deputy Director directed agencies to
take action in fiscal year 2002 to directly convert or complete public/
private competitions of not less than 5 percent of the full- time equivalent
positions listed in their FAIR Act inventories.

In 1999, DOD began to augment its A- 76 program with what it terms strategic
sourcing. 6 Strategic sourcing may encompass consolidation, restructuring or
reengineering activities, privatization, joint ventures with the private
sector, or the termination of obsolete services. Strategic sourcing can
involve functions or activities, regardless of whether they are considered
inherently governmental, military essential, or commercial. I should add
that these actions are recognized in the introduction to the A- 76 handbook
as being part of a larger body of options, in addition to A- 76, that
agencies must consider as they contemplate reinventing government
operations.

Strategic sourcing initially does not involve A- 76 competitions between the
public and the private sectors, and the Office of the Secretary of Defense
and service officials have stressed that strategic sourcing may provide
smarter decisions because it determines whether an activity should be
performed before deciding who should perform it. However, these officials
also emphasized that strategic sourcing is not intended to take the place of
A- 76 studies and that positions examined under the broader umbrella of
strategic sourcing may be subsequently considered for study under A- 76.

DOD has been the leader among federal agencies in emphasizing A- 76 studies.
DOD?s use of A- 76 waned from the late 1980s to the mid- 1990s, then grew
substantially in 1995 before falling again in1999 to the present. DOD is
currently emphasizing a combination of A- 76 and strategic sourcing.

Available information indicates that A- 76 studies in civilian agencies have
been minimal, compared with those carried out in DOD. Unfortunately, no
central database exists to provide information on the actual number of

6 While strategic sourcing includes A- 76 studies, the Department has
commonly used the term to refer to all reinvention efforts other than A- 76.
For purposes of this testimony, our reference to strategic sourcing will not
include A- 76 studies. DOD?s A- 76 Program

Has Evolved Over Time

Page 5 GAO- 01- 907T DOD Competitive Sourcing

studies undertaken. From the late 1970s through the mid- 1990s, DOD
activities studied approximately 90,000 positions under A- 76. However,
program controversy and administrative and legislative constraints caused a
drop in program emphasis from the late 1980s through 1995.

In August 1995, the Deputy Secretary of Defense gave renewed emphasis to the
A- 76 program when he directed the services to make outsourcing of support
activities a priority in an effort to reduce operating costs and free up
funds to meet other priority needs. The effort was subsequently incorporated
as a major initiative under the then- Secretary?s Defense Reform Initiative,
and the program became known as competitive sourcing- in recognition of the
fact that either the public or the private sector could win competitions.

The number of positions planned for study and the time frames for
accomplishing those studies have changed over time in response to
difficulties in identifying activities to be studied. In 1997, DOD?s plans
called for about 171,000 positions to be studied by the end of fiscal year
2003. In February 1999, we reported that DOD had increased this number to
229,000 but then found it reduced the number of positions to be studied in
the initial years of the program. In August 2000, DOD decreased the total
number of positions to be studied under A- 76 to about 203,000, added about
42,000 Navy positions for consideration under strategic sourcing, and
extended the program to fiscal year 2005. The introduction of strategic
sourcing came about as the Navy- which was having difficulty identifying
sufficient numbers of positions for study- sought and obtained approval to
use this broader approach to help meet its A- 76 study goals. In March 2001,
DOD officials announced that they had again reduced the number of positions
to be studied under A- 76 to about 160,000 but increased the number of
strategic sourcing positions to 120,000. DOD?s latest targets include
strategic sourcing study goals for each of the military services. Tables 1
and 2 show the number of positions Defense components planned to study under
A- 76 and strategic sourcing as of March 2001.

Page 6 GAO- 01- 907T DOD Competitive Sourcing

Table 1: Positions to Be Studied Under A- 76 Process Component

Positions announced for fiscal years 1997-

2000 Positions planned

for fiscal years 2001- 2007 Total

Army 37,871 20,916 58,787 Navy 32,573 9, 366 41,939 Air Force 24,306 5, 206
29,512 Marine Corps 4,625 0 4,625 Defense agencies 11,533 13,187 24,720

Total 110,908 48,675 159,583

Source: DOD data.

Table 2: Positions to Be Studied Under Strategic Sourcing Component

Positions projected for fiscal

years 1997- 2000 Positions planned

for fiscal years 2001- 2007 Total

Army 8,444 9,163 17,607 Navy 41,733 5, 652 47,385 Air Force 38,964 2, 134
41,098 Marine Corps 8,864 5,079 13,943 Defense agencies 0 0 0

Total 98,005 22,028 120,033

Source: DOD data.

DOD?s data shown above show fewer positions planned to be studied under both
A- 76 and strategic sourcing in the out- years compared to those projected
before 2001. To what extent these numbers will change on the basis of recent
program direction from OMB for an expanded A- 76 program emphasis is yet to
be determined.

As these numbers changed, so did savings targets. In 1999, for example, DOD
projected that its A- 76 program would produce $6 billion in cumulative
savings from fiscal year 1997 to 2003 and $2.3 billion in net savings each
year thereafter. In 2000, DOD projected savings of about $9.2 billion in
1997- 2005, with recurring annual net savings of almost $2.8 billion
thereafter. Additional savings were to come from strategic sourcing, which
was expected to produce nearly $2.5 billion in cumulative savings by 2005
and recurring annual savings of $0.7 billion thereafter. Together, A- 76 and
strategic sourcing are expected to produce estimated cumulative savings of
almost $11.7 billion, with about $3. 5 billion in

Page 7 GAO- 01- 907T DOD Competitive Sourcing

recurring annual net savings. More recent savings estimates have not yet
been made available.

Most importantly, these projected savings have become more than ambitious
goals, when it developed its fiscal year 2000 budget, DOD reprogrammed about
$11.2 billion of these anticipated savings into its modernization accounts,
spread over future years? planning period.

Our work has consistently shown that while savings are being achieved by
DOD?s A- 76 program, it is difficult to determine precisely the magnitude of
net savings. Furthermore, savings may be limited in the short term because
up- front investment costs associated with conducting and implementing the
studies must be absorbed before long- term savings begin to accrue. Several
of our reports in recent years have highlighted these issues.

We reported in March 2001 that A- 76 competitions had reduced estimated
costs of Defense activities primarily by reducing the number of positions
needed to perform those activities under study. 7 This is true regardless of
whether the government?s in- house organization or the private sector wins
the competition. Both government and private sector officials with
experience in such studies have stated that, in order to be successful in an
A- 76 competition, they must seek to reduce the number of positions required
to perform the function being studied. 8 Related actions may include
restructuring and reclassifying positions and using multiskill and multirole
employees to complete required tasks.

In December 2000, we reported on compliance with a congressional requirement
9 that DOD report specific information of all instances since 1995 in which
DOD missions or functions were reviewed under OMB

7 DOD Competitive Sourcing: Effects of A- 76 Studies on Federal Employees?
Employment, Pay, and Benefits Vary (GAO- 01- 388, Mar. 16, 2001). 8 We
completed a more recent analysis of 22 cases in which the government?s most
efficient organization won the A- 76 competitions and found that the in-
house organizations had reduced authorized personnel levels an average of 46
percent- between 13 and 69 percent. The actual number of personnel
performing a function tends to be less, so these figures may overstate the
savings.

9 DOD Appropriations Act, fiscal year 2000, P. L. 106- 79, sec. 8109.
Savings Are Being

Realized, but Precision of Savings Estimates Is Limited

Page 8 GAO- 01- 907T DOD Competitive Sourcing

Circular A- 76. 10 For the 286 studies for which it had complete
information, the Department?s July 2000 report to the Congress largely
complied with the reporting requirement. We noted that DOD had reported cost
reductions of about 39 percent, yielding an estimated $290 million savings
in fiscal year 1999. We also agreed that individual A- 76 studies were
producing savings but stressed that savings are difficult to quantify
precisely for a number of reasons:

 Because of an initial lack of DOD guidance on calculating costs, baseline
costs were sometimes calculated on the basis of average salaries and
authorized personnel levels rather than on actual numbers.

 DOD?s savings estimates did not take into consideration the costs of
conducting the studies and implementing the results, which of course must be
offset before net savings begin to accrue.

 There were significant limitations in the database DOD used to calculate
savings.

 Savings become more difficult to assess over time as workload requirements
change, affecting program costs and the baseline from which savings were
initially calculated.

Our August 2000 report assessed the extent to which there were cost savings
from nine A- 76 studies conducted by DOD activities. 11 The data showed that
DOD realized savings from seven of the cases, but less than the $290 million
that Defense components had initially projected. Each of the cases presented
unique circumstances that limited our ability to precisely calculate
savings- some suggested lower savings. Others suggested higher savings than
initially identified. In two cases, DOD components had included cost
reductions unrelated to the A- 76 studies as part of their projected
savings. Additionally, baseline cost estimates used to project savings were
usually calculated using an average cost of salary and benefits for the
number of authorized positions, rather than the actual costs of the
positions. The latter calculation would have been more precise. In four of
the nine cases, actual personnel levels were less than authorized. While
most baseline cost estimates were based largely on personnel costs, up to 15
percent of the costs associated with the government?s most efficient
organizations? plans or the contractors? offers

10 DOD Competitive Sourcing: Results of A- 76 Studies Over the Past 5 Years
(GAO- 01- 20, Dec. 7, 2000). 11 DOD Competitive Sourcing: Savings Are
Occurring, but Actions Are Needed to Improve Accuracy of Savings Estimates
(GAO/ NSIAD- 00- 107, Aug. 8, 2000).

Page 9 GAO- 01- 907T DOD Competitive Sourcing

were not personnel costs. Because these types of costs were not included in
the baseline, a comparison of the baseline with the government?s most
efficient organization or contractor costs may have resulted in understating
cost savings. On the other hand, savings estimates did not reflect study and
implementation costs, which reduced savings in the short term.

DOD has begun efforts to revise its information systems to better track the
estimated and actual costs of activities studied but not to revise previous
savings estimates. DOD is also emphasizing the development of standardized
baseline cost data to determine initial savings estimates. In practice,
however, many of the cost elements that are used in A- 76 studies will
continue to be estimated because DOD lacks a cost accounting system to
measure actual costs. Further, reported savings from A- 76 studies will
continue to have some element of uncertainty and imprecision and will be
difficult to track in the out- years because workload requirements change,
affecting program costs and the baseline from which savings are calculated.
Given that the Department has reduced operating budgets on the basis of
projected savings from A- 76 studies, it is important that it have as much
and as accurate information as possible on savings, including information on
adjustments for up- front investment costs and other changes that may occur
over time.

In monitoring DOD?s progress in implementing the A- 76 program, we have
reported on a number of issues that should be considered when expanding
emphasis on the A- 76 process, either in DOD or at other government
agencies. These issues include (1) the time required to complete studies,
(2) the costs and other resources needed to conduct and implement studies,
(3) the difficulties involved in selecting functions to compete, and (4) the
timing of budget reductions in anticipation of projected savings. This last
issue is a fundamental issue that is directly affected by the first three.

Individual A- 76 studies have taken longer than initially projected. In
launching its A- 76 program, some DOD components made overly optimistic
assumptions about the amount of time needed to complete the competitions.
For example, the Army projected that it would take 13- 21 months to complete
studies, depending on their size. The Navy initially projected completing
its studies in 12 months. The numbers were subsequently adjusted upward, and
the most recent available data indicate Some Issues We Have

Raised About DOD?s A- 76 Program

Studies Have Taken Longer to Complete Than Expected

Page 10 GAO- 01- 907T DOD Competitive Sourcing

that studies take about 24 months for single- function and 27 months for
multifunction studies.

Once DOD components found that the studies were taking longer than initially
projected, they realized that a greater investment of resources would be
needed than originally planned to conduct the studies. In August 2000, we
reported that DOD had increased its study cost estimates considerably since
the previous year and had given greater recognition to the costs of
implementing the results of A- 76 studies. But we expressed concern that the
Department was, in some instances, still likely underestimating those costs.
12

The 2001 President?s budget showed a wide range of projected study costs,
from about $1,300 per position studied in the Army to about $3,700 in the
Navy. The Army, the Navy, and the Air Force provide their subcomponents
$2,000 per position studied. Yet various officials believe these figures
underestimate the costs of performing the studies. Officials at one Army
major command estimated that their study costs would be at least $7,000 per
position. One Navy command estimated its costs at between $8, 500 and $9,500
per position. Our own assessment of a sample of completed A76 studies within
the Army, the Navy, the Air Force, and Defense agencies showed that study
costs ranged from an average of $364 to $9,000 per position. 13

In addition to study costs, significant costs can be incurred in
implementing the results of the competitions. Transition costs include the
separation costs for civilian Defense employees who lose their jobs as a
result of competitions won by the private sector or when in- house
organizations require a smaller civilian workforce. Such separation costs
include the costs of voluntary early retirement, voluntary separation
incentives, and involuntary separations through reduction- in- force
procedures. The President?s Budget for Fiscal Year 2001 included for the
first time all Defense components? estimated costs of implementing A- 76
competitions and showed a total of about $1 billion in transition costs
resulting from A- 76 studies for fiscal years 1997- 2005.

12 DOD Competitive Sourcing: Some Progress, but Continuing Challenges Remain
in Meeting Program Goals (GAO/ NSIAD- 00- 106, Aug. 8, 2000).

13 DOD Competitive Sourcing (GAO/ NSIAD- 00- 107, Aug. 8, 2000).

Costs and Resources to Conduct and Implement Studies Were Underestimated

Page 11 GAO- 01- 907T DOD Competitive Sourcing

Selecting and grouping functions and positions to compete can be difficult.
Because most services faced growing difficulties in or resistance to finding
enough study candidates to meet their A- 76 study goals, DOD approved
strategic sourcing as a way to complement its A- 76 program. The Navy, for
instance, had planned to announce 15,000 positions for study under A- 76 in
fiscal year 1998 but announced only 8,980 (about 60 percent). The following
year it planned to announce 20,000 positions but announced 10,807 (about 54
percent).

Although DOD?s FAIR Act inventory in 2000 identified commercial functions
involving about 450,000 civilian positions, including about 260,000
associated with functions considered potentially eligible for competition,
DOD does not expect to study all these functions. It remains to be seen to
what extent the Department will significantly increase the number of
functions it studies under A- 76 in the near future. Department officials
told us that the process identified few new functions and associated
positions that could be studied under A- 76 and that the increases in
positions identified did not automatically translate into potentially large
numbers of additional studies. The number of positions that will actually be
studied for possible competition may be limited by a number of factors,
including the following:

 Some activities are widely dispersed geographically. Having positions
associated with commercial activities that are scattered over many locations
may prevent some of them from being grouped for competition.

 Some work categorized as commercial may not be separated from inherently
governmental or exempted work. In some cases, commercial activities
classified as subject to competition are in activities that also contain
work that is inherently governmental or exempt from competition, and the
commercial workload may not always be separable from the workload performed
by the exempted positions.

 Resources to conduct A- 76 studies are limited. Officials of several
military service commands have told us that they already have aggressive
competition programs under way and that they lack sufficient resources and
staff to conduct more competition studies in the near future.

Even before it developed its FAIR Act inventory, DOD had already established
goals for positions that the services and the Defense agencies should study
and the savings to be achieved. For the most part, the services and Defense
agencies delegated to their components responsibility for determining which
functions to study. DOD then fell behind in its initial timetable for
initiating and completing A- 76 studies. Service officials told us that they
had already identified as many Selecting and Grouping

Functions to Compete Can Be Difficult

Page 12 GAO- 01- 907T DOD Competitive Sourcing

competition opportunities as they could to meet savings goals under the A-
76 program, and they believed that their capacity to conduct studies beyond
those already underway or planned over the next few years was limited.

Difficulties encountered in identifying A- 76 study candidates, and in
launching and completing the studies in the time frames initially projected,
along with greater than expected costs associated with completing the
studies, have led to concerns among various service officials about their
ability to meet previously established savings targets. Some Defense
officials have also voiced uncertainties over cost estimates and savings
associated with strategic sourcing and the lack of a rigorous basis for
projecting savings from this effort. 14

Data included in the President?s fiscal year 2001 budget submission
indicated that the Navy estimated that study costs and savings generated by
strategic sourcing efforts would be virtually the same as those generated by
A- 76 studies for each position studied. Office of the Secretary of Defense
officials have noted there is a wide variation in the types of initiatives
that make up strategic sourcing and, consequently, that there can be wide
variation in the resultant savings. These uncertainties led us to previously
recommend that DOD periodically determine whether savings are being realized
in line with the reductions in operating accounts that are based on
projected savings.

Increasing emphasis on A- 76 has served to underscore concerns expressed by
both government employees and industry about the process. Federal managers
and others have been concerned about organizational turbulence that
typically follows the announcement of A- 76 studies. Government workers have
been concerned about the impact of competition on their jobs, their
opportunity for input into the competitive process, and the lack of parity
with industry offerors to appeal A- 76 decisions. Industry representatives
have complained about the fairness of the process and the lack of a ?level
playing field? between the government and the private sector in accounting
for costs. It appears that everyone involved is concerned about the time
required to complete the studies.

14 DOD Competitive Sourcing (GAO/ NSIAD- 00- 106, Aug. 8, 2000). Concern
About Premature

Budget Reductions Based on Anticipated Savings

Commercial Activities Panel Convened to Study Policies and Procedures

Page 13 GAO- 01- 907T DOD Competitive Sourcing

Amid these concerns over the A- 76 process, the Congress enacted section 832
of the National Defense Authorization Act for Fiscal Year 2001. The
legislation required the Comptroller General to convene a panel of experts
to study the policies and procedures governing the transfer of commercial
activities for the federal government from government personnel to a federal
contractor. The Panel, which Comptroller General David Walker has elected to
chair, includes senior officials from DOD, private industry, federal labor
organizations, and OMB. Among other issues, the Panel will be reviewing the
A- 76 process and implementation of the FAIR Act.

The Panel had its first meeting on May 8, 2001, and its first public hearing
on June 11. At the hearing, over 40 individuals representing a wide spectrum
of perspectives presented their views. The Panel currently plans to hold two
additional hearings, on August 8 in Indianapolis, Indiana, and on August 15
in San Antonio, Texas. The hearing in San Antonio will specifically address
OMB Circular A- 76, focusing on what works and what does not in the use of
that process. The hearing in Indianapolis will explore various alternatives
to the use of A- 76 in making sourcing decisions at the federal, state, and
local levels. The Panel is required to report its findings and
recommendations to the Congress by May 1, 2002.

This concludes my statement. I would be pleased to answer any questions you
or other members of the Subcommittee may have at this time.

Contacts and Acknowledgment For further contacts regarding this statement,
please contact Barry W. Holman at (202) 512- 8412 or Marilyn Wasleski at
(202) 512- 8436. Individuals making key contributions to this statement
include Debra McKinney, Stefano Petrucci, Thaddeus Rytel, Nancy Lively, Bill
Woods, John Brosnan, and Stephanie May.

Page 14 GAO- 01- 907T DOD Competitive Sourcing

DOD Competitive Sourcing: Effects of A- 76 Studies on Federal Employees?
Employment, Pay, and Benefits Vary (GAO- 01- 388, Mar. 16, 2001).

DOD Competitive Sourcing: Results of A- 76 Studies Over the Past 5 Years
(GAO- 01- 20, Dec. 7, 2000).

DOD Competitive Sourcing: More Consistency Needed in Identifying Commercial
Activities (GAO/ NSIAD- 00- 198, Aug. 11, 2000).

DOD Competitive Sourcing: Savings Are Occurring, but Actions Are Needed to
Improve Accuracy of Savings Estimates (GAO/ NSIAD- 00- 107, Aug. 8, 2000).

DOD Competitive Sourcing: Some Progress, but Continuing Challenges Remain in
Meeting Program Goals (GAO/ NSIAD- 00- 106, Aug. 8, 2000).

Competitive Contracting: The Understandability of FAIR Act Inventories Was
Limited (GAO/ GGD- 00- 68, Apr. 14, 2000).

DOD Competitive Sourcing: Potential Impact on Emergency Response Operations
at Chemical Storage Facilities Is Minimal

(GAO/ NSIAD- 00- 88, Mar. 28, 2000).

DOD Competitive Sourcing: Plan Needed to Mitigate Risks in Army Logistics
Modernization Program (GAO/ NSIAD- 00- 19, Oct. 04, 1999).

DOD Competitive Sourcing: Air Force Reserve Command A- 76 Competitions (GAO/
NSIAD- 99- 235R, Sept. 13, 1999).

DOD Competitive Sourcing: Lessons Learned System Could Enhance A- 76 Study
Process (GAO/ NSIAD- 99- 152, July 21, 1999).

Defense Reform Initiative: Organization, Status, and Challenges

(GAO/ NSIAD- 99- 87, Apr. 21, 1999).

Quadrennial Defense Review: Status of Efforts to Implement Personnel
Reductions in the Army Materiel Command (GAO/ NSIAD- 99- 123, Mar. 31,
1999).

Defense Reform Initiative: Progress, Opportunities, and Challenges

(GAO/ T- NSIAD- 99- 95, Mar. 2, 1999). Related GAO Products

Page 15 GAO- 01- 907T DOD Competitive Sourcing

Force Structure: A- 76 Not Applicable to Air Force 38th Engineering
Installation Wing Plan (GAO/ NSIAD- 99- 73, Feb. 26, 1999).

Future Years Defense Program: How Savings From Reform Initiatives Affect
DOD?s 1999- 2003 Program (GAO/ NSIAD- 99- 66, Feb. 25, 1999).

DOD Competitive Sourcing: Results of Recent Competitions

(GAO/ NSIAD- 99- 44, Feb. 23, 1999).

DOD Competitive Sourcing: Questions About Goals, Pace, and Risks of Key
Reform Initiative (GAO/ NSIAD- 99- 46, Feb. 22, 1999).

OMB Circular A- 76: Oversight and Implementation Issues

(GAO/ T- GGD- 98- 146, June 4, 1998).

Quadrennial Defense Review: Some Personnel Cuts and Associated Savings May
Not Be Achieved (GAO/ NSIAD- 98- 100, Apr. 30, 1998).

Competitive Contracting: Information Related to the Redrafts of the Freedom
From Government Competition Act (GAO/ GGD/ NSIAD- 98- 167R, Apr. 27, 1998).

Defense Outsourcing: Impact on Navy Sea- Shore Rotations

(GAO/ NSIAD- 98- 107, Apr. 21, 1998).

Defense Infrastructure: Challenges Facing DOD in Implementing Defense Reform
Initiatives (GAO/ T- NSIAD- 98- 115, Mar. 18, 1998).

Defense Management: Challenges Facing DOD in Implementing Defense Reform
Initiatives (GAO/ T- NSIAD/ AIMD- 98- 122, Mar. 13, 1998).

Base Operations: DOD?s Use of Single Contracts for Multiple Support Services
(GAO/ NSIAD- 98- 82, Feb. 27, 1998).

Defense Outsourcing: Better Data Needed to Support Overhead Rates for A- 76
Studies (GAO/ NSIAD- 98- 62, Feb. 27, 1998).

Outsourcing DOD Logistics: Savings Achievable But Defense Science Board?s
Projections Are Overstated (GAO/ NSIAD- 98- 48, Dec. 8, 1997).

Financial Management: Outsourcing of Finance and Accounting Functions (GAO/
AIMD/ NSIAD- 98- 43, Oct. 17, 1997).

Page 16 GAO- 01- 907T DOD Competitive Sourcing

Base Operations: Contracting for Firefighters and Security Guards

(GAO/ NSIAD- 97- 200BR, Sept. 12, 1997).

Terms Related to Privatization Activities and Processes

(GAO/ GGD- 97- 121, July 1997).

Defense Outsourcing: Challenges Facing DOD as It Attempts to Save Billions
in Infrastructure Costs (GAO/ T- NSIAD- 97- 110, Mar. 12, 1997).

Base Operations: Challenges Confronting DOD as It Renews Emphasis on
Outsourcing (GAO/ NSIAD- 97- 86, Mar. 11, 1997).

Public- Private Mix: Effectiveness and Performance of GSA?s In- House and
Contracted Services (GAO/ GGD- 95- 204, Sept. 29, 1995).

Government Contractors: An Overview of the Federal Contracting- Out Program
(GAO/ T- GGD- 95- 131, Mar. 29, 1995).

Government Contractors: Are Service Contractors Performing Inherently
Governmental Functions (GAO/ GGD- 92- 11, Nov. 18, 1991).

OMB Circular A- 76: Legislation Has Curbed Many Cost Studies in Military
Services (GAO/ GGD- 91- 100, July 30, 1991).

OMB Circular A- 76: DOD?s Reported Savings Figures Are Incomplete and
Inaccurate (GAO/ GGD- 90- 58, Mar. 15, 1990).

(350042)
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