Questions for Competitive Sourcing Hearing Record (03-OCT-03,	 
GAO-04-155R).							 
                                                                 
The Subcommittee on Oversight of Government Management, the	 
Federal Workforce, and the District of Columbia, Senate Committee
on Governmental Affairs requested GAO's views on various	 
competitive sourcing issies, including the recent revisions made 
by the Office of Management and Budget (OMB) to its Circular	 
A-76. GAO answered questions on (1) making "best value" instead  
of "lowest cost" the factor that agencies must use in determining
who will win a public-private competition; (2) agencies'	 
capability to effectively manage public-private competitions and 
overseeing contracts; and (3) whether the 12-month time limit	 
placed on competitions in the revised OMB Circular A-76 is	 
appropriate and how much of the time taken to conduct		 
competitions in the past was used to do things that could be	 
handled before the competition begins.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-155R					        
    ACCNO:   A08664						        
  TITLE:     Questions for Competitive Sourcing Hearing Record	      
     DATE:   10/03/2003 
  SUBJECT:   Competitive procurement				 
	     Contract oversight 				 
	     Federal procurement				 
	     Personnel management				 
	     Procurement planning				 
	     Procurement policy 				 
	     Schedule slippages 				 
	     Source selection					 
	     Timeliness 					 
	     Public-private competitions			 

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GAO-04-155R

United States General Accounting Office Washington, DC 20548

October 3, 2003

The Honorable George V. Voinovich

Chairman

The Honorable Richard J. Durbin

Ranking Member

Subcommittee on Oversight of Government Management, the Federal Workforce,
and the District of Columbia Committee on Governmental Affairs United
States Senate

Subject: Questions for Competitive Sourcing Hearing Record

It was a pleasure to appear before the subcommittee on July 24, 2003, to
discuss various competitive sourcing issues, including the recent
revisions made by the Office of Management and Budget (OMB) to its
Circular A-76. This letter responds to your request for my views on the
following questions for the record:

Q. The revised OMB Circular A-76 makes "best value" instead of "lowest
cost" the factor that agencies must use in determining who will win a
public-private competition. Some have alleged that this change is simply
an effort to ensure that more private contractors win competitions. How do
you see agencies benefiting from the change? How much of a factor do you
see cost playing in determining which bidder is offering an agency the
"best value?"

For many years, federal agencies conducting negotiated procurements under
the Federal Acquisition Regulation (FAR) routinely have traded off cost
and non-cost factors in making contract award decisions. The tradeoff
process is often called "best value." Among the most common non-cost
factors, all of which are required to be identified in the solicitation,
are the contractor's technical approach, past performance, and management
plan. Tradeoffs reflect a widespread practice used by other governments
(state, local, and foreign) as well as by the private sector.

The tradeoff process moves the federal government past the "low bid"
mentality of the past, with increasing consideration of factors such as
quality and past performance. It entrusts federal employees acting as
source selection officials with the authority to use their judgment in
selecting among proposals offered. While concern sometimes has been
expressed that the tradeoff process allows source selection officials very
broad discretion, that discretion has boundaries. An award decision must
comply with pre-established evaluation criteria, and is subject to
challenge if it appears it did not. In this regard, GAO considers bid
protests

                        GAO-04-155R Competitive Sourcing

challenging the way tradeoffs are conducted, and sustains protests where
the process was unfair, unreasonable, or inconsistent with the terms of a
solicitation.

The previous version of OMB Circular A-76 allowed the use of a "best
value" tradeoff selection process among private-sector proposals. The
process created in the March 1996 revisions to the Circular A-76
Supplemental Handbook endeavored to capture the benefits of the tradeoff
process, while maintaining the perceived objectivity of a cost-only
selection.

Under the new Circular A-76 issued in May, federal agencies will be able
to use tradeoffs only under certain conditions. Under the terms of the new
Circular, a tradeoff source selection is allowed in a standard competition
for (a) information technology activities, (b) commercial activities
performed by a private sector source, (c) new requirements, or (d) certain
expansions of current work. An agency also may use a tradeoff source
selection process for a specific standard competition if, prior to the
public announcement of the competition, the agency's Competitive Sourcing
Official approves use of the process in writing and notifies OMB.

The extent to which cost in tradeoff decisions will be a significant
factor under the new Circular is unknown. But while the role of cost is
important it must be balanced with the government's ability to obtain the
technical capability and quality it needs to meet mission requirements. As
I testified before the Subcommittee, although cost is important, it is not
everything.

Q. Part of the administration's goal in revising A-76 was to increase the
amount of work submitted to public-private competition. If that happens,
are agencies capable of effectively managing competitions and overseeing
contracts? If not, what level of resources will we need to dedicate to
bolstering agency contracting offices? Should that effort have come before
we revised A-76?

Agencies will face significant challenges in managing their competitive
sourcing programs, and will be doing so while addressing high-risk areas,
such as human capital and contract management. In this regard, GAO has
listed contract management at the National Aeronautics and Space
Administration and the Departments of Housing and Urban Development,
Defense and Energy as high-risk areas. With a likely increase in the
number of public-private competitions and the requirement to hold
accountable whichever sector wins, agencies will need to ensure that they
have an acquisition workforce sufficient in numbers and abilities to
administer and oversee these arrangements effectively.

Conducting fair, effective and efficient competitions requires sufficient
agency capacity-that is, a skilled workforce and adequate infrastructure
and funding. Agencies will need to build and maintain capacity to manage
competitions, to prepare the in-house most effective organization (MEO),
and to oversee the work-regardless of whether the private sector or the
MEO is selected. While the level of resources needed will vary among the
agencies, building and maintaining this capacity will likely be a
challenge for many agencies, particularly those that have not been heavily
invested in competitive sourcing previously. As I mentioned during the
hearing,

Page 2 GAO-04-155R Competitive Sourcing

establishing a government-wide fund at OMB that agencies could access
based on a sound business case would help to assure that the new process
is both efficient and fair.

Q. The administration has said in the past that the 12-month time limit
placed on competitions in the revised OMB Circular A-76 should be
sufficient if agencies plan properly before the competition begins.
However, most competitions conducted under the old rules took much longer
than 12 months, often twice as long. Do you think the time limits are
appropriate? In your estimation, how much of the time taken to conduct
competitions in the past was used to do things that you believe could be
handled before the competition begins?

A major challenge agencies will face will be meeting the 12-month limit
for completing the standard competition process in the new Circular. This
provision is intended to respond to complaints from all sides about the
length of time historically taken to conduct A-76 cost
comparisons-complaints that the Commercial Activities Panel repeatedly
heard in the course of its review. OMB's new Circular states that standard
competitions shall not exceed 12 months from the public announcement
(start date) to performance decision (end date). Under certain conditions,
there may be extensions of no more than 6 months. The new Circular also
states that agencies shall complete certain preliminary planning steps
before a pubic announcement. These steps are:

(1) Determining the activities and full time equivalent (FTE) positions to
be competed.

(2) Conducting preliminary research to determine the appropriate grouping
of activities as business units to be consistent with market and industry
structures.

(3) Assessing the availability of workload data and data collection
systems. (4) Determining the activity baseline costs as performed by the
incumbent. (5) Determining whether a streamlined or standard competition
will be used. (6) Developing preliminary competition and completion
schedules. (7) Determining the roles, responsibilities, and availability
of participants in the

process.

(8) Appointing competition officials (agency tender official, contracting
officer, performance work statement team leader, human resource advisor
and source selection authority).

(9) Informing any incumbent service providers of the date of the public
announcement.

We welcome efforts to reduce the time required to complete these studies.
Even so, our studies of competitive sourcing at the Department of Defense
(DOD) have found that competitions can take much longer than the time
frames outlined in the new Circular. Specifically, recent DOD data
indicate that competitions take on average 25 months. It is not clear how
much of this time was needed for any planning activities that may now be
done outside the revised Circular's 12-month time frame. It appears,
however, that a significant amount of the process-developing the
performance work statement, preparing the agency tender offer and most
efficient organization, and

Page 3 GAO-04-155R Competitive Sourcing

conducting the source selection process-still needs to be done within the
12-month time limit.

In commenting on OMB's November 2002 draft proposal, we recommended that
the time frame be extended to perhaps 15 to 18 months overall, and that
OMB ensure that agencies provide sufficient resources to comply with the
Circular. As such, we believe that additional financial and technical
support and incentives will be needed for agencies as they attempt to meet
the ambitious 12-month time frame. In this regard, we believe that
implementation of the government-wide fund approach noted in my response
to the prior question would help to assure that the needed resources are
available.

I look forward to working with you on these and other issues in the
future. If you have any further questions or would like to discuss any of
the issues in more detail, please call me at (202) 512-5500; or Bill
Woods, Director, Acquisition and Sourcing Management at (202) 512-8214.

Sincerely yours,

David M. Walker Comptroller General of the United States

(120285)

                    Page 4 GAO-04-155R Competitive Sourcing

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