Commercial Activities Panel: Improving the Sourcing Decisions of the Federal Government (09/27/2002, GAO-02-847T}
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-847T
TITLE: Commercial Activities Panel: Improving the Sourcing Decisions of the Federal Government
DATE: 09/27/2002
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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:
July 18, 2002:
Commercial Activities Panel:
Improving the Sourcing Decisions of the Federal Government:
Commercial Activities Panel:
Statement of David M. Walker,
Comptroller General of the United States and:
Chair of the Commercial Activities Panel:
GAO-02-847T:
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to participate in the subcommittee�s
hearing on the report of the congressionally mandated Commercial
Activities Panel (the Panel). The Panel�s work was the result of a
provision contained in the Fiscal Year 2001 Defense Authorization Act,
which called for me, in my capacity as the Comptroller General, to
convene a panel of experts to study, and make recommendations for
improving, the policies and procedures governing the transfer of
commercial activities for the federal government from government to
contractor personnel. The impetus for this legislation was the growing
controversy surrounding competitions conducted under Office of
Management and Budget (OMB) Circular A-76 to determine whether the
government should obtain commercially available goods and services from
the public or private sectors.[Footnote 1] As noted in the introduction
to the Panel�s report, the use of cost comparison studies under A-76
was under fire from all sides. All parties concerned--federal managers,
employees, and industry representatives--were expressing growing
frustration with the process, and many believed the process needed
significant reform. The Panel�s report was published on April 30, 2002,
and is available on GAO�s Web page at: www.gao.gov under the
�Commercial Activities Panel� link.
Controversy surrounding the use of A-76 also occurred at a time of
increasing questions over the role of government and who is in the best
position to provide needed services. Specifically, should the work of
government be performed by government employees, contractors, or a
combination of both, possibly through a partnership agreement?
As I have testified on a number of occasions, given recent trends and
our long-range fiscal challenges, the federal government needs to
engage in a fundamental review, reassessment, and reprioritization of
what the government does, how the government does business, and who
does the government�s business. This is essential in order to increase
fiscal flexibility and improve how the government works in the modern
world. This drives the need to evaluate and revise the current approach
to acquiring commercial services to ensure that it achieves the maximum
benefit for the taxpayers and a reasonable balance among a variety of
competing interests.
Because of the importance of the issues to be addressed, I chose to
chair the Panel rather than to designate someone else, as permitted in
the legislation. In my opinion, the Panel�s report presents a reasoned,
reasonable, and balanced set of recommendations, which, if implemented,
would significantly improve the government�s sourcing processes and
practices. My testimony today provides some context to the Panel�s work
and then focuses on (1) the processes used to select Panel members and
other actions taken to ensure a fair and balanced process; (2) the
guiding principles, findings, and recommendations of the Panel; and (3)
the next steps needed to implement the Panel�s recommendations.
Background:
Since 1955, the executive branch has encouraged federal agencies to
obtain commercially available goods and services from the private
sector when the agencies determine that such action is cost-effective.
OMB formalized the policy in its Circular A-76, issued in 1966. In
1979, OMB supplemented the circular with a handbook that included
procedures for competitively determining whether commercial activities
should be performed in-house, by another federal agency through an
interservice support agreement, or by the private sector. OMB has
updated this handbook several times.
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 (e.g., for activities
involving 10 or fewer civilians).[Footnote 2] 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 with the
cost of contractor performance in accordance with the principles and
procedures set forth in Circular A-76 and the revised 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 on the basis of its most efficient
organization,[Footnote 3] and compares it with the winning offer from
the private sector.
According to A-76 guidance, an activity should not be moved from one
sector to the other (whether public to private or vice versa) unless
doing so would save at least $10 million or 10 percent of the personnel
costs of the in-house performance (whichever is less). 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[Footnote 4] 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. Private-sector offerors who believe
that the agency has not complied with applicable procedures have
additional avenues of appeal. They may file a bid protest with GAO or
file an action in a court of competent jurisdiction.[Footnote 5]
Circular A-76 requires agencies to maintain annual inventories of
commercial activities performed in-house. A similar requirement was
included in the Federal Activities Inventory Reform (FAIR) Act of 1998,
which directs agencies to develop annual inventories of their positions
that are not inherently governmental.[Footnote 6] The fiscal year 2001
inventory identified approximately 841,000 full-time equivalent
commercial-type positions, of which approximately 413,000 were in the
Department of Defense (DOD).[Footnote 7]
DOD has been the leader among federal agencies in recent years in its
use of OMB Circular A-76; the circular�s use by other agencies has been
very limited. However, in 2001, OMB signaled its intention to direct
greater use of the circular on a government-wide basis. In a March 9,
2001, memorandum, OMB 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. Subsequent guidance expanded the
requirement to 15 percent by fiscal year 2003, with the ultimate goal
of competing at least 50 percent.
Although comprising a relatively small portion of the government�s
overall service contracting activity, competitive sourcing under
Circular A-76 has been the subject of much controversy because of
concerns about the process raised both by the public and private
sectors. Federal managers and others have been concerned about the
organizational turbulence that typically follows the announcement of A-
76 studies. Government workers have been concerned about the impact of
competition on their jobs, the opportunity for input into the process,
and the lack of parity with industry offerors to protest A-76
decisions. Industry representatives have complained about unfairness in
the process and the lack of a level playing field between the
government and the private sector in accounting for costs. Concerns
have also been raised about the adequacy of the oversight of subsequent
performance, whether the work is being performed by the public or
private sector.
Amid these concerns over the A-76 process, the Congress enacted section
832 of the National Defense Authorization Act for Fiscal Year 2001. The
act 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 to contactor
personnel. The act also required the Comptroller General to appoint
highly qualified and knowledgeable persons to serve on the panel and
ensure that the following entities received fair representation on the
panel:
* DOD.
* Persons in private industry.
* Federal labor organizations.
* OMB.
Appendix I lists the names of the Panel members. The legislation
mandating the Panel�s creation required that the Panel complete its
work and report the results of its study to the Congress no later than
May 1, 2002. The Panel�s report was published on April 30, 2002.
Steps Taken to Ensure a Representative
Panel and a Fair and Balanced Process:
In establishing the Panel, a number of steps were taken to ensure
representation from all major stakeholders as well as to ensure a fair
and balanced process. This began with my selection of Panel members,
which was then followed by the Panel�s establishment of a process to
guide its work.
To ensure a broad array of views on the Panel, we used a Federal
Register notice to seek suggestions on the Panel�s
composition.[Footnote 8] On the basis of the suggestions received in
response to that notice, as well as the need to include the broad
representation outlined in legislation, I personally interviewed
potential panel members. I believe that we selected a group of
outstanding individuals representative of diverse interest groups from
the public and private sectors, labor unions, academia, with experience
in dealing with sourcing decisions at both the federal and local
government levels.
Once convened, the Panel, as a group, took a number of steps at the
outset to guide its deliberations and ensure a full and balanced
consideration of issues. The first step was the adoption of the
following mission statement:
The Panel also agreed that all of its findings and recommendations
would require the agreement of at least a two-thirds supermajority of
the Panel in order to be adopted. The Panel further decided that each
Panel member would have the option of having a brief statement included
in the report explaining the member�s position on the matters
considered by the Panel. In addition to the Federal Register notice
soliciting input on issues to be considered by the Panel, the Panel
held 11 meetings over the period of May 2001 to March 2002. Three of
these were public hearings in Washington, D.C.; Indianapolis, Indiana;
and San Antonio, Texas. In the public hearings, Panel members heard
testimony from scores of representatives of the public and private
sectors, state and local governments, unions, contractors, academia,
and others. Panelists heard first-hand about the current process,
primarily the cost comparison process conducted under OMB Circular A-
76, as well as alternatives to that process. Appendix II provides more
detail on the topics and concerns raised at the public hearings. The
Panel also maintained an E-mail account to receive written comments
from any source.
After the completion of the field hearings, the Panel members met in
executive session several times, augmented between meetings by the work
of staff to help them (1) gather background information on sourcing
trends and challenges, (2) identify sourcing principles and criteria,
(3) consider A-76 and other sourcing processes to assess what works and
what does not, and (4) assess alternatives to the current sourcing
processes.
Principles, Findings, and Recommendations:
As the Panel began its work, it recognized early on the need for a set
of principles that would provide a framework for sourcing decisions.
Those principles, as they were debated and fleshed out, provided an
important vehicle for assessing what does or does not work in the
current A-76 process, and provided a framework for identifying needed
changes in the process.
Guiding Principles:
During its meetings, the Panel coalesced around a set of principles to
guide sourcing decisions. The principles helped frame many of the
Panel�s deliberations and became a reference point for the Panel�s
work. Moreover, the principles were unanimously adopted by the Panel
and included as part of the Panel�s recommendations. While each
principle is important, no single principle stands alone, and several
are interrelated. Therefore, the Panel adopted the principles and their
accompanying narrative comments as a package and then used these
principles to assess the government�s existing sourcing system and to
develop additional Panel recommendations.
The principles and their accompanying commentary are included in their
entirety in appendix III.
Findings:
The Panel�s principles supply a strong conceptual framework and
specific criteria against which to measure any proposals for change in
the government�s competitive-sourcing policies. The Panel concluded
that there are some advantages to the current system. First, A-76 cost
comparisons are conducted under an established set of rules, the
purpose of which is to ensure that sourcing decisions are based on
uniform, transparent, and consistently applied criteria. Second, the A-
76 process has enabled federal managers to make cost comparisons
between sectors that have vastly different approaches to cost
accounting. Third, the current A-76 process has been used to achieve
significant savings and efficiencies for the government. Savings result
regardless of whether the public or the private sector wins the cost
comparison. This is because competitive pressures have served to
promote efficiency and improve the performance of the activity studied.
Despite these advantages, the Panel heard frequent criticisms of the A-
76 process. The Panel�s report noted that both federal employees and
private firms complain that the A-76 competition process does not meet
the principles� standard of a clear, transparent, and consistently
applied process. For example, some Federal employees have complained
that A-76 cost comparisons have included functions that were inherently
governmental and should not have been subject to a cost comparison at
all. While OMB guidance exists to help define what functions should be
considered inherently governmental, the Panel�s third principle
recognized that making such determinations remains difficult. Also,
others have expressed concern that some government officials in a
position to affect contracting decisions may subsequently take
positions with winning contractors. In this regard, various legislative
provisions exist that place restrictions on former government employees
taking positions with winning contractors. Time did not permit the
Panel to explore the extent to which additional legislation may be
needed in this area.
Since January 1999, GAO has issued 22 decisions on protests involving
A-76 cost comparisons. Of these decisions, GAO sustained 11 and denied
11. �Sustaining� a protest means that GAO found that the agency had
violated procurement statutes or regulations in a way that prejudiced
the protester. Protests involving A-76 represent a very small
percentage of the many hundreds of bid protest decisions that GAO
issued in the past 3 years. They do, however, indicate an unusually
high percentage of sustained protests. In protest decisions covering
all procurements, GAO has sustained about one-fifth of the protests,
while in A-76 protests, GAO has sustained half. (It should be kept in
mind, though, that most A-76 decisions are not protested, just as most
contract award decisions are not protested.) These sustained protests
generally reflect only the errors made in favor of the government�s
most efficient organization since only the private-sector offeror has
the right to protest to GAO.
While any public-private competition is, by nature, challenging and
open to some of the concerns that have been raised regarding the A-76
process, the high rate of successful A-76 protests suggests that
agencies have a more difficult time applying the A-76 rules than they
do applying the normal (i.e., Federal Acquisition Regulation)
acquisition rules. At least in part, this may be because the Federal
Acquisition Regulation (FAR) rules are so much better known. While
training could help overcome this lack of familiarity (and many
agencies, particularly those in DOD, have been working on A-76
training), the Panel noted that the FAR acquisition and source
selection processes are already better known and better understood;
they, in a sense, serve as a �common language� for procurements and
source selections.
In the Panel�s view, the most serious shortcoming of the A-76 process
is that it has been stretched beyond its original purpose, which was to
determine the low-cost provider of a defined set of services. Circular
A-76 has not worked well as the basis for competitions that seek to
identify the best provider in terms of quality, innovation,
flexibility, and reliability. This is particularly true in today�s
environment, where solutions are increasingly driven by technology and
may focus on more critical, complex, and interrelated services than
previously studied under A-76. In the federal procurement system today,
there is common recognition that a cost-only focus does not necessarily
deliver the best quality or performance for the government or the
taxpayers. Thus, while cost is always a factor, and often the most
important factor, it is not the only factor that may need to be
considered. In this sense, the A-76 process may no longer be as
effective a tool, since its principal focus is on cost.
During its year-long study, the Panel identified several key
characteristics of a successful sourcing policy. First, the Panel heard
repeatedly about the importance of competition and its central role in
fostering economy, efficiency, high performance, and continuous
performance improvement. The means by which the government utilizes
competition for sourcing its commercial functions was at the center of
the Panel�s discussions and work. The Panel strongly supported a
continued emphasis on competition as a means to improve economy,
efficiency, and effectiveness of the government. The Panel also
believed that whenever the government is considering converting work
from one sector to another, public-private competitions should be the
norm. Direct conversions generally should occur only where the number
of affected positions is so small that the costs of conducting a
public-private competition clearly would outweigh any expected savings.
Moreover, there should be adequate safeguards to ensure that
activities, entities, or functions are not improperly separated to
reduce the number of affected positions and avoid competition.
A second theme consistently cited at the public hearings was the need
for a broader approach to sourcing decisions, rather than an approach
that relies on the use of arbitrary quotas or that is unduly
constrained by personnel ceilings. Critical to adopting a broader
perspective is having an enterprise-wide perspective on service
contract expenditures, yet the federal government lacks timely and
reliable information about exactly how, where, and for what purposes,
in the aggregate, taxpayer dollars are spent for both in-house and
contracted services. The Panel was consistently reminded about, and
fully agrees with, the importance of ensuring accountability throughout
the sourcing process, providing the workforce with adequate training
and technical support in developing proposals for improving
performance, and assisting those workers who may be adversely affected
by sourcing decisions. Improved accountability extends to better
monitoring of performance and results after competitions are completed-
-regardless of the winner.
The Panel heard about several successful undertakings involving other
approaches to sourcing decisions. Some involved business process
reengineering and public-private partnerships, and emphasized labor-
management cooperation in accomplishing agency missions. For example,
in Indianapolis, Indiana, on August 8, 2001, the Panel heard from
representatives from several organizations that had taken different
approaches to the sourcing issue. Among them were the Naval Surface
Warfare Center in Crane, Indiana, which reengineered its business
processes to reduce costs and gain workshare, and the city of
Indianapolis, which effectively used competition to greatly improve the
delivery of essential services. In doing so, the city also provided
certain technical and financial assistance to help city workers
successfully compete for work. These entities endeavored to become
�most efficient organizations.� It was from these examples and others
that the Panel decided that all federal agencies should strive to
become �high performing organizations.�:
Third, sourcing policy is inextricably linked to the government�s human
capital policies. This linkage has many levels, each of which is
important. It is particularly important that sourcing strategies
support, not inhibit, the government�s efforts to attract, motivate,
and retain a high-performing in-house workforce, as well as support its
efforts to access and collaborate with high-performance, private-sector
providers. Properly addressed, these policies should be complementary,
not conflicting.
Panel Recommendations:
In addition to the principles discussed earlier, the Panel adopted a
package of additional recommendations it believed would improve
significantly the government�s policies and procedures for making
sourcing decisions. It is important to emphasize that the Panel decided
to consider and adopt these latter recommendations as a package,
recognizing the diverse interests represented on the Panel and the give
and take required to reach agreement among a supermajority of the
Panelists. As a result, a supermajority of the Panel members
recommended the adoption of the following actions:
* Conduct public-private competitions under the framework of an
integrated FAR-based process. The government already has an established
mechanism that has been shown to work as a means to identify high-value
service providers: the negotiated procurement process of the Federal
Acquisition Regulation. The Panel believes that in order to promote a
more level playing field on which to conduct public-private
competitions, the government needs to shift, as rapidly as possible, to
a FAR-type process under which all parties compete under the same set
of rules. Although some changes in the process will be necessary to
accommodate the public-sector proposal, the same basic rights and
responsibilities would apply to both the private and the public
sectors, including accountability for performance and the right to
protest. This and perhaps other aspects of the integrated competition
process would require changes to current law or regulation (e.g.,
requirements in title 10 of the U.S. Code that DOD competitive sourcing
decisions be based on low cost).
* Make limited changes to the existing A-76 process. The development of
an integrated FAR-type process will require some time to be
implemented. In the meantime, the Panel expects current A-76 activities
to continue, and therefore believes some modifications to the existing
process can and should be made. Accordingly, the Panel recommended a
number of limited changes to OMB Circular A-76. These changes would,
among other things, strengthen conflict-of-interest rules, improve
auditing and cost accounting, and provide for binding performance
agreements.
* Encourage the development of high-performing organizations (HPOs).
The Panel recommended that the government take steps to encourage HPOs
and continuous improvement throughout the federal government,
independent of the use of public-private competitions. In particular,
the Panel recommended that the Administration develop a process to
select a limited number of functions currently performed by federal
employees to become HPOs, and then evaluate their performance. Then,
the authorized HPOs would be exempt from competitive sourcing studies
for a designated period of time. Overall, however, the HPO process is
intended to be used in conjunction with, not in lieu of, public-private
competitions. The successful implementation of the HPO concept will
require a high degree of cooperation between labor and management, as
well as a firm commitment by agencies to provide sufficient resources
for training and technical assistance. In addition, a portion of any
savings realized by the HPO should be available to reinvest in
continuing reengineering efforts and for the HPO to use for further
training and/or for incentive purposes.
Let me speak specifically to the creation of HPOs. Many organizations
in the past, for various reasons, have found it difficult to become
high-performing organizations. Moreover, the federal government
continues to face new challenges in making spending decisions for both
the long and near term because of federal budget constraints, rapid
advances in technology, the impending human capital crisis, and new
security challenges brought on by the events of September 11, 2001.
Such a transformation will require that each organization reverse
decades of underinvestment and lack of sustained attention to
maintaining and enhancing its capacity to perform effectively.
The Panel recognized that incentives are necessary to encourage both
management and employees to promote the creation of HPOs. It envisioned
that agencies would have access to a range of financial and consulting
resources to develop their plans, with the costs offset by the savings
realized. The Panel�s report focused primarily on HPOs in the context
of commercial activities, given its legislative charter. However, there
is no reason why the concept could not be applied to all functions,
since much of the government�s work will never be subject to
competition.
HPOs may require some additional flexibility coupled with appropriate
safeguards to prevent abuse. The Panel also envisioned the use of
performance agreements and periodic performance reviews to ensure
appropriate transparency and accountability.
Although a minority of the Panel did not support the package with the
three additional recommendations noted above, some of them indicated
that they supported one or more elements of the package. Importantly,
there was a good faith effort, even at the last minute of the report�s
preparation, to maximize agreement and minimize differences among
Panelists. In fact, changes were made even when it was clear that some
Panelists seeking changes were highly unlikely to vote for the
supplemental package of recommendations. As a result, on the basis of
Panel meetings and my personal discussions with Panel members at the
end of our deliberative process, the major differences among Panelists
were few in number and philosophical in nature. Specifically,
disagreement centered primarily on (1) the recommendation related to
the role of cost in the new FAR-type process and (2) the number of
times the Congress should be required to act on the new integrated
process, including whether the Congress should specifically authorize a
pilot program that tests that process for a specific time period.
Implementation Strategy:
Many of the Panel�s recommendations can be accomplished
administratively under existing law, and the Panel recommends that they
be implemented as soon as practical. The Panel also recognizes that
some of its recommendations would require changes in statutes or
regulations and that making the necessary changes could take some time.
Any legislative changes should be approached in a comprehensive and
considered manner rather than a piecemeal fashion in order for a
reasonable balance to be achieved. Like the guiding principles, the
other recommendations were the result of much discussion and compromise
and should be considered as a whole.
Moreover, although the Panel views the use of a FAR-type process for
conducting public-private competitions as the end state, the Panel also
recognizes that some elements of its recommendations represent a shift
in current procedures for the federal government. Therefore, the
Panel�s report outlined the following phased implementation strategy
that would allow the federal government to demonstrate and then refine
its sourcing policy on the basis of experience:
* A-76 studies currently under way or initiated during the near term
should continue under the current framework. Subsequent studies should
be conducted in accordance with the improvements listed in the report.
OMB should develop and oversee the implementation of a FAR-type,
integrated competition process. In order to permit this to move forward
expeditiously, it may be advisable to limit the new process initially
to civilian agencies where, except for allowing protests by federal
employees, its use would not require legislation. Statutory provisions
applying only to DOD agencies may require repeal or amendment before
the new process could be used effectively at DOD, and the Panel
recommends that any legislation needed to accommodate the integrated
process in DOD be enacted as soon as possible. As part of a phased
implementation and evaluation process, the Panel recommends that the
integrated competition process be used in a variety of agencies and in
meaningful numbers across a broad range of activities, including those
currently performed by federal employees, work currently performed by
contractors, and new work.
* Within 1 year of initial implementation of the new process, and again
1 year later, the Director of OMB should submit a detailed report to
the Congress identifying the costs of implementing the new process, any
savings expected to be achieved, the expected gains in efficiency or
effectiveness of agency programs, the impact on affected federal
employees, and any lessons learned as a result of the use of this
process together with any recommendations for appropriate legislation.
* GAO would review each of these OMB reports and provide its
independent assessment to the Congress. The Panel anticipates that OMB
would use the results of its reviews to make any needed �mid-course
corrections.� On the basis of the results generated during the
demonstration period, and on the reports submitted by OMB and GAO, the
Congress will then be in a position to determine the need for any
additional legislation.
Conclusions:
The federal government is in a time of transition, and we face a range
of challenges in the 21ST century. This will require the federal
government to transform what it does, the way that it does business,
and who does the government�s business. This may require changes in
many areas, including human capital and sourcing strategies. On the
basis of the statutory mandate, the Commercial Activities Panel
primarily focused on the sourcing aspects of this needed
transformation.
I supported the adoption of the set of principles as well as the
package of additional recommendations contained in the Panel�s report.
Overall, I believe that the findings and recommendations contained in
the Panel�s report represent a reasoned, reasonable, fair, and balanced
approach to addressing this important, complex, and controversial area.
I hope that the Congress and the Administration will consider and act
on this report and its recommendations in a timely manner. I
particularly want to urge the Congress and the Administration to
consider the importance of encouraging agencies to become high-
performing organizations on an ongoing basis. Agencies should not wait
until faced with the challenge of public-private competitions to seek
efficiencies to retain work in-house. In addition, most of the
government�s workers will never be subject to competitions. As a
result, I believe that the Panel�s recommendation pertaining to high-
performing organizations could be an important vehicle for fostering
much needed attention to how we enhance the economy, efficiency, and
effectiveness of the federal government in ways other than through
competition.
Finally and most importantly, in considering the Panel�s package of
recommendations or any other changes that may be considered by the
Congress and the Administration, the guiding principles, developed and
unanimously agreed upon by the Panel, should be the foundation for any
future action.
Let me also add that I appreciate the hard work of my fellow Panelists
and their willingness to engage one another on such a tough issue--one
where we found much common ground despite a range of divergent views. I
also want to thank the GAO staff and the other support staff who
contributed to this effort. The Panel has completed its work. It is
time for the Congress and the Administration to act on our report.
Mr. Chairman, this concludes my prepared statement. I would be happy to
respond to any questions that you or other members of the subcommittee
may have.
[End of section]
Appendix I: Members of the Commercial Activities Panel:
David M. Walker, Chairman,
Comptroller General of the United States:
E. C. �Pete� Aldridge, Jr.,
Under Secretary of Defense for Acquisition,
Technology and Logistics:
Frank A. Camm, Jr.,
Senior Analyst, RAND:
Mark C. Filteau,
President, Johnson Controls
World Services, Inc.
Stephen Goldsmith,
Senior Vice President, Affiliated
Computer Services:
Bobby L. Harnage, Sr.,
National President, American Federation
of Government Employees, AFL-CIO:
Kay Coles James,
Director, U.S. Office of Personnel Management:
Colleen M. Kelley,
National President, National Treasury Employees Union:
The Honorable David Pryor,
Director, Institute of Politics, Harvard University:
Stan Z. Soloway,
President, Professional Services Council:
Angela B. Styles,[Footnote 9]
Administrator, Office of
Federal Procurement Policy:
Robert M. Tobias,
Distinguished Adjunct Professor,
American University:
[End of section]
Appendix II: Summary of Commercial Activities Panel Public Hearings:
Washington, D.C., June 11, 2001
�Outsourcing Principles and Criteria�:
Key Points:
* Status quo is not acceptable to anyone.
* Sourcing decisions require a strategic approach.
* Federal workers should perform core government functions.
* Need for MEOs throughout the government.
* Government needs clear, transparent, and consistently applied
sourcing criteria.
* Avoid arbitrary FTE goals.
* Objective should be to provide quality services at reasonable cost.
* Provide for fair and efficient competition between the public and
private sectors.
* Sourcing decisions require appropriate accountability.
Indianapolis, Indiana, August 8, 2001
�Alternatives to A-76�:
Key Points:
* Crane Naval Surface Warfare Center�s reengineering process led to
significant efficiencies and reduced workforce trauma.
* Employees must be involved with any reform effort. Secrecy is
counterproductive.
* Committed leadership, effective implementation, and well-planned
workforce transition strategies are key to any reform effort.
* Privatization-in-place was used effectively at Indianapolis Naval Air
Warfare Center to avert a traditional Base Realignment and Closure
action.
* The city of Indianapolis provided certain technical and financial
assistance to help workers successfully compete for the work.
* Certain technology upgrades in Monterey, California, via a public-
private partnership led to efficiencies and increased effectiveness.
* Measuring performance is critical.
* A-76 is only one of many efficiency tools available to federal
managers.
* Other tools include:
* Bid to goal, which helps units become efficient and thus avoid A-76,
* Transitional Benefit Corporation, a concept that promotes the
transfer of government assets to the private sector and provides
transition strategies for employees, and:
* ESOP, under which employees own a piece of the organization that
employs them. ESOPs have been established in a few federal
organizations.
San Antonio, Texas, August 15, 2001
�A-76: What�s Working and What�s Not�:
Key Points:
* A-76 process is too long and too costly.
* Cost of studies can greatly reduce government savings.
* Cost to industry in both dollars and uncertainty.
* Demoralized workers quit. But successful contractors need these
workers.
* Larger A-76 studies can yield greater savings, but these studies
become much more complex.
* Lack of impetus for savings without competition.
* One-step bidding process should be used.
* MEO and contractors should:
* Compete together in one procurement action,
* Be evaluated against the same solicitation requirements using the
same criteria, and:
* Be awarded contracts based on best value.
* Provide more training for MEO and A-76 officials.
* MEOs should have legal status to protest and appeal awards and obtain
bid information.
* A-76 rules should be more clear and applied consistently through a
centralized management structure.
* For bid and monitoring purposes, government costs should be collected
and allocated consistent with industry (e.g., activity-based costing).
* Need to eliminate any suggestion of conflicts of interest.
* Need incentives for agencies and workers (e.g., share-in-savings).
* Provide soft landings for workers.
* Allow workers to form public-sector organizations for bidding.
[End of section]
Appendix III: Sourcing Principles[Footnote 10]
Based on public input, a review of previous studies and other relevant
literature, and many hours of deliberation, the Panel developed and
unanimously adopted a set of principles that it believes should guide
sourcing policy for the federal government. While each principle is
important, no single principle stands alone. As such, the Panel adopted
the principles as a package. The Panel believes that federal sourcing
policy should:
1. Support agency missions, goals, and objectives.
Commentary: This principle highlights the need for a link between the
missions, goals, and objectives of federal agencies and related
sourcing policies.
2. Be consistent with human capital practices designed to attract,
motivate, retain, and reward a high-performing federal workforce.
Commentary: This principle underscores the importance of considering
human capital concerns in connection with the sourcing process. While
it does not mean that agencies should refrain from outsourcing due to
its impact on the affected employees, it does mean that the federal
government�s sourcing policies and practices should consider the
potential impact on the government�s ability to attract, motivate,
retain, and reward a high-performing workforce both now and in the
future. Regardless of the result of specific sourcing decisions, it is
important for the workforce to know and believe that they will be
viewed and treated as valuable assets. It is also important that the
workforce receive adequate training to be effective in their current
jobs and to be a valuable resource in the future.
3. Recognize that inherently governmental and certain other functions
should be performed by federal workers.
Commentary: Recognizing the difficulty of precisely defining
�inherently governmental� and �certain other functions,� there is
widespread consensus that federal employees should perform certain
types of work. Office of Management and Budget (OMB) Directive 92-1
provides a framework for defining work that is clearly �inherently
governmental� and the Federal Activities Inventory Reform (FAIR) Act
has helped to identify commercial work currently being performed by the
government. It is clear that government workers need to perform certain
warfighting, judicial, enforcement, regulatory, and policymaking
functions, and the government may need to retain an in-house capability
even in functions that are largely outsourced. Certain other
capabilities, such as adequate acquisition skills to manage costs,
quality, and performance and to be smart buyers of products and
services, or other competencies such as those directly linked to
national security, also must be retained in-house to help ensure
effective mission execution.
4. Create incentives and processes to foster high-performing,
efficient, and effective organizations throughout the federal
government.
Commentary: This principle recognizes that, historically, it has
primarily been when a government entity goes through a public-private
competition that the government creates a �most efficient organization�
(MEO). Since such efforts can lead to significant savings and improved
performance, they should not be limited to public-private competitions.
Instead, the federal government needs to provide incentives for its
employees, its managers, and its contractors to constantly seek to
improve the economy, efficiency, and effectiveness of the delivery of
government services through a variety of means, including competition,
public-private partnerships, and enhanced worker-management
cooperation.
5. Be based on a clear, transparent, and consistently applied process.
Commentary: The use of a clear, transparent, and consistently applied
process is key to ensuring the integrity of the process as well as to
creating trust in the process on the part of those it most affects:
federal managers, users of the services, federal employees, the private
sector, and the taxpayers.
6. Avoid arbitrary full-time equivalent (FTE) or other arbitrary
numerical goals.
Commentary: This principle reflects an overall concern about arbitrary
numbers driving sourcing policy or specific sourcing decisions. The
success of government programs should be measured by the results
achieved in terms of providing value to the taxpayer, not the size of
the in-house or contractor workforce. Any FTE or other numerical goals
should be based on considered research and analysis. The use of
arbitrary percentage or numerical targets can be counterproductive.
7. Establish a process that, for activities that may be performed by
either the public or the private sector, would permit public and
private sources to participate in competitions for work currently
performed in-house, work currently contracted to the private sector,
and new work, consistent with these guiding principles.
Commentary: Competitions, including public-private competitions, have
been shown to produce significant cost savings for the government,
regardless of whether a public or a private entity is selected.
Competition also may encourage innovation and is key to improving the
quality of service delivery. While the government should not be
required to conduct a competition open to both sectors merely because a
service could be performed by either public or private sources, federal
sourcing policies should reflect the potential benefits of competition,
including competition between and within sectors. Criteria would need
to be developed, consistent with these principles, to determine when
sources in either sector will participate in competitions.
8. Ensure that, when competitions are held, they are conducted as
fairly, effectively, and efficiently as possible.
Commentary: This principle addresses key criteria for conducting
competitions. Ineffective or inefficient competitions can undermine
trust in the process. The result may be, for private firms (especially
smaller businesses), an unwillingness to participate in expensive,
drawn-out competitions; for federal workers, harm to morale from overly
long competitions; for federal managers, reluctance to compete
functions under their control; and for the users of services, lower
performance levels and higher costs than necessary. Fairness is
critical to protecting the integrity of the process and to creating and
maintaining the trust of those most affected. Fairness requires that
competing parties, both public and private, or their representatives,
receive comparable treatment throughout the competition regarding, for
example, access to relevant information and legal standing to challenge
the way a competition has been conducted at all appropriate forums,
including the General Accounting Office and the United States Court of
Federal Claims.
9. Ensure that competitions involve a process that considers both
quality and cost factors.
Commentary: In making source selection decisions in public-private
competitions: (a) cost must always be considered; (b) selection should
be based on cost if offers are equivalent in terms of non-cost factors
(for example, if they offer the same level of performance and quality);
but (c) the government should not buy whatever services are least
expensive, regardless of quality. Instead, public-private competitions
should be structured to take into account the government�s need for
high-quality, reliable, and sustained performance, as well as cost
efficiencies.
10. Provide for accountability in connection with all sourcing
decisions.
Commentary: Accountability serves to assure federal workers, the
private sector, and the taxpayers that the sourcing process is
efficient and effective. Accountability also protects the government�s
interest by ensuring that agencies receive what they are promised, in
terms of both quality and cost, whether the work is performed by
federal employees or by contractors. Accountability requires defined
objectives, processes, and controls for achieving those objectives;
methods to track success or deviation from objectives; feedback to
affected parties; and enforcement mechanisms to align desired
objectives with actual performance. For example, accountability
requires that all service providers, irrespective of whether the
functions are performed by federal workers or by contractors, adhere to
procedures designed to track and control costs, including, where
applicable, the Cost Accounting Standards. Accountability also would
require strict enforcement of the Service Contract Act, including
timely updates to wage determinations.
FOOTNOTES
[1] Examples of commercial functions typically subject to the
competitive sourcing process at the Department of Defense include
transportation services, computer services, education and training, and
food services.
[2] For functions performed by Defense Department employees, a number
of additional requirements, reports, and certifications are addressed
in chapter 146 of title 10, United States Code, and in recurring
provisions in the Department�s annual appropriations.
[3] The most efficient organization is the government�s in-house plan
to perform a commercial activity. It may include a mix of federal
employees and contract support. It is the basis for all government
costs entered on the cost comparison form. It is the product of the
management plan and is based upon the performance work statement.
[4] An eligible appellant is defined as (1) federal employees (or their
representatives) and existing federal contractors affected by a
tentative decision to waive a cost comparison; (2) federal employees
(or their representatives) and contractors who have submitted formal
bids or offers and who would be affected by a tentative decision; or
(3) agencies that have submitted formal offers to compete for the right
to provide services through an interservice support agreement.
[5] Federal employees do not have standing to file a protest with GAO
and have generally been denied standing to sue in court.
[6] 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.�
[7] 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 2001
inventory of positions it considered to be potentially subject to
competition was reduced to approximately 241,000.
[8] A Federal Register notice was also used to solicit public input on
issues the Panel should address.
[9] Angela Styles replaced Sean O�Keefe on the Commercial Activities
Panel in December 2001 after he was confirmed as the Administrator of
the National Aeronautics and Space Administration.
[10] The sourcing principles were taken in their entirety from
Commercial Activities Panel, Improving the Sourcing Decisions of
Government: Final Report (Washington, D.C.:
April 2002).