Human Capital: Selected Agencies' Use of Alternative Service	 
Delivery Options for Human Capital Activities (25-JUN-04,	 
GAO-04-679).							 
                                                                 
Human capital offices have traditionally used alternative service
delivery (ASD)--the use of other than internal staff to provide a
service or to deliver a product--as a way to reduce costs for	 
transaction-based services. GAO was asked to identify which human
capital activities agencies were selecting for ASD, the reasons  
why, how they were managing the process, and some of the lessons 
they had learned. Eight agencies were selected to provide	 
illustrative examples of ASD use.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-679 					        
    ACCNO:   A10605						        
  TITLE:     Human Capital: Selected Agencies' Use of Alternative     
Service Delivery Options for Human Capital Activities		 
     DATE:   06/25/2004 
  SUBJECT:   Agency missions					 
	     Best practices					 
	     Best practices reviews				 
	     Cost control					 
	     Federal agencies					 
	     Human resources utilization			 
	     Personnel management				 
	     Policy evaluation					 
	     Productivity in government 			 
	     Human capital					 
	     Policies and procedures				 

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GAO-04-679

United States General Accounting Office

                     GAO Report to Congressional Requesters

June 2004

HUMAN CAPITAL

Selected Agencies' Use of Alternative Service Delivery Options for Human Capital
                                   Activities

                                       a

GAO-04-679

Highlights of GAO-04-679, a report to congressional requesters

Human capital offices have traditionally used alternative service delivery
(ASD)-the use of other than internal staff to provide a service or to
deliver a product- as a way to reduce costs for transaction-based
services.

GAO was asked to identify which human capital activities agencies were
selecting for ASD, the reasons why, how they were managing the process,
and some of the lessons they had learned. Eight agencies were selected to
provide illustrative examples of ASD use.

GAO is making a recommendation to the Director of the Office of Personnel
Management (OPM) to work with the Chief Human Capital Officers Council to
share and distribute information about ASD. OPM stated that the
recommendation is consistent with their concern for overseeing human
capital contracting, for which OPM has the lead. OPM expressed concern
about two issues it believes were not sufficiently covered in the
report-OPM's support for agencies' ASD efforts and agency accountability
issues when using ASD providers. GAO believes that both issues are covered
by this recommendation.

www.gao.gov/cgi-bin/getrpt?GAO-04-679.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact J. Christopher Mihm at (202)
512-6806 or [email protected].

June 2004

HUMAN CAPITAL

Selected Agencies' Use of Alternative Service Delivery Options for Human Capital
Activities

The selected agencies were using ASD for the full range of their human
capital activities. The figure below groups like human capital activities
that the agencies provided through ASD into three overlapping tiers and
identifies their associated drivers and the options used.

Summary of Selected Agencies' ASD Characteristics for Three Tiers of Human
Capital Activities

Source: GAO.

Agencies generally approached their management of ASD in similar ways.
They conceptually agreed that human capital activities that did not
require an intimate knowledge of the agency, oversight, or decision-making
authority could be considered for ASD, although in practice they showed
differences in their choices of ASD activities. GAO identified several
lessons the agencies had learned about ASD management, such as the
importance of understanding the complexity and requirements of an activity
before making an ASD decision. As the President's agent and adviser for
human capital activities, OPM also has a central role in assisting
agencies' management of ASD. Several agencies noted that they used OPM's
Training and Management Assistance program, which provides human capital
contract assistance. However, the officials also cited the need for
sharing information about specific ASD efforts, useful metrics, and
lessons learned.

Contents

  Letter

Results in Brief
Background
Selected Agencies Reported Using ASD for the Full Range of Their

Human Capital Activities Selected Agencies Approached Their Management of
ASD in Similar

Ways and Shared Similar Lessons Learned Conclusions Recommendation for
Executive Action Agency Comments and Our Evaluation

1 3 7

9

15 24 25 26

Appendixes

Appendix I:

Appendix II:

                                       Appendix III: Appendix IV: Appendix V:

Objectives, Scope, and Methodology

Examples of Alternative Service Delivery Options Available
to Federal Agencies for Accomplishing Human Capital
Activities

Intragovernmental Revolving Fund Services
Franchise Fund Services
Cooperative Administrative Support Unit Services
Interagency Contract Service Programs
Contracting for Services
Partnerships

Comments from the Office of Personnel Management
Comments from the Department of the Interior
GAO Contacts and Staff Acknowledgments

GAO Contacts
Acknowledgments

28

30 30 30 31 31 32 32

33

35

36 36 36

Figures Figure 1: Summary of Selected Agencies' ASD Characteristics for
Three Tiers of Human Capital Activities 4 Figure 2: Description of OPM's
Training and Management Assistance Program 23

Contents

Abbreviations

ASD alternative service delivery
CASU cooperative administrative support unit
CHCO Chief Human Capital Officers
COTR contracting officer's technical representative
DOE Department of Energy
EEO equal employment opportunity
FWS U.S. Fish and Wildlife Service
GSA General Services Administration
IR intragovernmental revolving
IT information technology
MMS Minerals Management Service
NAPA National Academy of Public Administration
NFC National Finance Center
NGA National Geospatial-Intelligence Agency
NIMA National Imagery and Mapping Agency
OMB Office of Management and Budget
OPM Office of Personnel Management
SER-CASUSoutheast Regional Cooperative Administrative Support Unit
TMA Training and Management Assistance
USCG United States Coast Guard
USDA United States Department of Agriculture
USITC United States International Trade Commission

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

A

United States General Accounting Office Washington, D.C. 20548

June 25, 2004

The Honorable George V. Voinovich

Chairman

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

The Honorable Jo Ann Davis

Chairwoman

Subcommittee on Civil Service and Agency Organization Committee on
Government Reform House of Representatives

In an April 2003 report on selected agencies' use of human capital
strategies to attain mission results, we noted that improved ways of
providing services can enable agencies' human capital offices to
reallocate their resources to better meet expanded roles as strategic
partners.1 As part of this, agencies need to consider how best to
accomplish their human capital activities, including who the service
provider should be. Alternative service delivery (ASD)-the use of other
than internal staff to provide a service or to deliver a product-has
traditionally been used for transactionbased services, such as payroll
administration, as a way to reduce costs. However, many public and private
sector human capital leaders are now advancing it as an approach that can
also help free their staff to focus on core strategic activities and
expand their access to expertise. As the number, scope, and quality of ASD
options, such as reimbursable services from other agencies and private
sector providers, continue to increase and the experience of agencies
continues to mature, human capital leaders expect that ASD will become an
increasingly significant consideration in the delivery of human capital
products and services. For a broader discussion of the federal
government's sourcing policies and procedures,

1U.S. General Accounting Office, Human Capital: Selected Agency Actions to
Integrate Human Capital Approaches to Attain Mission Results, GAO-03-446
(Washington, D.C.: Apr. 11, 2003).

see the final report of the Commercial Activities Panel released in April
2002.2

To obtain a better understanding of federal agencies' use of ASD for
accomplishing their human capital activities, you asked us to report on
how federal agencies determine the human capital activities to retain and
those for which they would consider using outside providers. Specifically,
you asked that we identify (1) the human capital activities selected
agencies are accomplishing through the use of ASD options and the basis on
which they decided to use ASD and (2) how the use of ASD is being managed
and the lessons learned by the selected agencies. The agencies we selected
were the Department of Energy (DOE), the Department of the Interior's U.S.
Fish and Wildlife Service (FWS) and Minerals Management Service (MMS), the
National Geospatial-Intelligence Agency (NGA),3 the U.S. Coast Guard
(USCG), the U.S. Department of Agriculture's (USDA) headquarters, the U.S.
International Trade Commission (USITC), and the U.S. Mint's headquarters.
Agencies were selected through research that identified them as using ASD
for some human capital activities and based on the recommendations of
human capital experts from the National Academy of Public Administration
(NAPA), George Washington University, and a private sector consultant for
federal contract management. The agency selection process was not designed
to produce findings that could be considered representative of the use of
ASD for human capital activities in the federal government as a whole, but
rather to provide illustrative examples of how selected agencies were
using ASD.

To meet our objectives, we analyzed information from a review of the
literature on the use of ASD for human capital activities in both public
and private sector organizations. We then interviewed human capital
officials from the selected agencies to identify the activities for which
they were using ASD, the basis on which they decided to use it, how the
selected agencies managed their use of ASD, and the lessons learned from
the agencies' experiences. Some of the agencies provided supporting
documentation, such as contracts and project plans, for review. We did not
verify the agencies' cost savings estimates. After reviewing and analyzing
the agencies' responses, we developed a framework for organizing and

2Commercial Activities Panel, Final Report: Improving the Sourcing
Decisions of the Government (Washington, D.C.: 2002).

3The National Geospatial-Intelligence Agency (NGA) was formerly known as
the National Imagery and Mapping Agency (NIMA).

discussing their use of ASD for human capital activities. Our review was
conducted in accordance with generally accepted government auditing
standards from August 2003 through February 2004. Appendix I provides
additional information on our scope and methodology.

Results in Brief	The selected agencies reported using ASD for the full
range of their human capital efforts including their transaction-based,
administrative, and strategy and policy support activities. For the
purposes of this report, we grouped the activities the agencies provided
through ASD into three tiers and identified the primary drivers and
options associated with each tier.4

4We are using the construct of "tiers" of activities to discuss similar
types of human capital activities that are not discrete categories, but
rather groups of like activities with some degree of overlap among the
tiers.

Figure 1: Summary of Selected Agencies' ASD Characteristics for Three
Tiers of Human Capital Activities

Source: GAO.

All of the agencies said they used ASD for some activities in tier I, such
as payroll administration and employee assistance programs. In addition to
freeing staff to focus more on core activities,5 agency officials regarded
purchasing services, such as payroll, from specialized providers as a way
to reduce costs through economies of scale. All of the agencies used ASD
for some activities in tier II, such as components of their training
development and delivery, often to focus on core activities and respond to
reductions in human capital staffing. They used a mix of options to
accomplish both tier I and tier II activities, including interagency
reimbursable services and private sector contracts. In a more recent
development in the use of ASD,

5We use the term "core activities" throughout the report to refer to those
areas where the human capital office can add strategic value and act as a
strategic partner with the agency.

agencies reported gaining access to expertise as a primary driver for
activities in tier III. These included projects such as workforce planning
and organizational development, which involved the formulation of human
capital strategy and policy support. Almost all of the eight agencies used
ASD for a tier III activity and generally used the private sector as their
ASD option for these developmental and consulting services. Of the
selected agencies, the Mint was the only one engaged in a competitive
sourcing initiative involving most of its human capital functions.

The selected agencies approached their management of ASD in similar ways
and shared similar lessons learned about the process. The approaches and
lessons are consistent with those we have identified as part of our larger
body of work on sourcing practices.6 Agency officials generally agreed
that any human capital activity that did not require an intimate knowledge
of the agency, oversight, or decision-making authority could be a suitable
ASD candidate. In practice, however, there were differences in their
choices of activities for which they used ASD. A lesson learned about
making ASD decisions included the need to understand the complexity and
requirements of an activity prior to making a decision. Human capital
officials said that they used a number of different methods to develop
their ASD contracts and select their providers, and several emphasized
specifying flexible terms with measurable performance standards in their
contracts as essential requirements for meeting ASD objectives. Agencies
used both formal and informal ways of monitoring their contracts. They
noted using similar types of performance measures to assess their ASD use
depending on the type of activity. For example, several said they used
customer satisfaction surveys to check the effectiveness of their ASD
efforts for their employee services and used established models to
evaluate their training efforts. Agency officials said that finding an ASD
provider with whom they could build a relationship was an important aspect
of monitoring. Agencies noted that they used the Office of Personnel
Management's (OPM) Training and Management Assistance (TMA) program to aid
their management of ASD, which provided them with access to a pool of
professionals who could help them select providers and negotiate and
monitor agreements. As the President's agent and adviser for human capital
activities, OPM also has a central role

6See, for example, U.S. General Accounting Office, Information Technology:
Leading Commercial Practices for Outsourcing of Services, GAO-02-214
(Washington, D.C.: Nov. 30, 2001).

in agencies' management of ASD through its authority to oversee management
of human capital activities.

Agency officials pointed to the need for partnering with other federal
agencies to learn from each other about effective ways to use ASD for
their human capital activities. OPM sees as part of its role the need to
develop tools and provide support to agencies in their human capital
transformation efforts and to assist in making the federal government a
high-performing workplace. In addition, OPM has expressed a desire to
improve oversight of human capital contracts. In light of this, this
report contains a recommendation to the Director of OPM to work with the
Chief Human Capital Officers (CHCO) Council7 to serve as a resource in
sharing and distributing information, such as metrics and lessons learned,
about agencies' use of ASD for human capital activities.

We provided a draft of this report to the Director of OPM and the
departments representing the eight agencies for their review and comment.
We received written comments from OPM and the Department of the Interior,
which are included in appendixes III and IV. OPM stated that the report
contained a good model for looking at human capital ASD use and that the
recommendation was consistent with the agency's concern for human capital
contracting, for which OPM has the lead. However, they expressed concerns
that the report did not address the efforts of their human capital
officers in helping agencies improve their human capital practices or how
agencies ensure that their ASD providers comply with regulatory and
statutory requirements. We did not assess the actions of the OPM human
capital officers because their role did not surface in our interviews with
agency officials. Regarding the concern of ensuring functions provided
through ASD meet appropriate federal regulatory and statutory
requirements, we agree with OPM's concern and believe our recommendation
can help address this important issue OPM raises. The Department of the
Interior suggested that GAO or OPM conduct an additional study that would
examine the quality and value of various ASD products and providers to
allow agencies an objective comparison of providers for similar services.
The other agencies generally had no comments on the report or technical
corrections.

7The CHCO Council, headed by the Director of OPM, is responsible for
advising and coordinating agencies' efforts concerning modernization of
their human resources systems, improvement of the quality of human
resources information, and legislation on human resources operations and
organizations.

Background	Recent research on private sector companies indicates that many
companies are using ASD, generally referred to in the private sector as
"outsourcing," as an integral and permanent part of their human capital
strategies. Along with extensive use of technology and consolidation of
service delivery units, outsourcing accompanies the desire of many human
capital offices to move their focus from transaction-based activities
toward becoming more of a strategic partner. A 2002 Conference Board
study, based on responses from 125 surveyed companies, found that
two-thirds currently outsource a major human capital activity and most of
these companies are seeking to expand their outsourcing activities.8 The
study reported that pressure to cut costs, improve the quality of human
capital services, gain access to specialist expertise and technology, and
free staff to concentrate on core business activities drove the companies'
outsourcing decisions. Slightly more than 50 percent of survey respondents
reported that they had fully achieved their outsourcing objectives, 42
percent had partially achieved them, and less than 1 percent of outsourced
human capital functions had been brought back in-house. A December 2003
study from the Corporate Leadership Council found, from a survey of 162 of
its member organizations, that most human capital activities continue to
be largely performed in-house, although aspects of almost every activity
are outsourced.9

The research on the private sector's use of outsourcing also indicates
that the range of human capital activities outsourced is increasing.
According to a 2003 report from the University of Southern California, the
large corporations they surveyed were most likely to outsource employee
assistance and benefits administration.10 This report noted that
compensation, benefits, employee training, human resource information
systems, recruitment, performance appraisal, affirmative action, and legal
affairs all showed statistically significant increases in the use of

8Lisa Gelman and David Dell, HR Outsourcing Trends (New York: The
Conference Board: 2002).

9Corporate Leadership Council, Strategic HR Outsourcing: A Quantitative
Assessment of Outsourcing Prevalence and Effectiveness (Washington, D.C.:
Corporate Executive Board: December 2003).

10Edward E. Lawler III and Susan Albers Mohrman, Creating a Strategic
Human Resources Organization: An Assessment of Trends and New Directions,
Center for Effective Organizations, Marshall School of Business,
University of Southern California, Stanford University Press (Stanford,
Calif.: 2003).

outsourcing from 1995 to 2001. No activity was less likely to be
outsourced in 2001 than it was in 1995. In addition, some organizations
are following a path where they transfer the majority of their human
capital activities to a single contractor.

Research on the federal government's use of human capital ASD includes a
1997 NAPA report that was intended to provide federal managers and human
capital staff with a practical guide to the issues that must be addressed
in approaching ASD for human capital functions.11 The report recommended
that because of the risks involved with ASD, including a potentially
negative effect on the general workforce, agencies must recognize that its
use requires careful planning. It maintained, however, that as in the
private sector, federal government executives were in a position of
managing a decrease in resources along with increased performance
expectations and that ASD was a viable approach to help meet this
challenge.

Federal agencies have a number of ASD options available to them. Examples
include human capital services offered by other federal agencies,
contracts with private sector and nonprofit organization providers, and
partnerships with other organizations. USDA's National Finance Center is
an example of an interagency service provider, supporting a number of
other federal agencies, including GAO, with automated information systems
services for personnel and payroll. Private sector providers of human
capital services have increased in both their number and the range of
their services geared toward the federal human capital community. For
instance, in 2000 the General Services Administration (GSA) introduced a
new schedule of contracts from more than 50 different contractors for
activities such as recruitment and position classification. Another ASD
option includes the use of partnerships with other organizations, which
may not necessarily involve exchanges of funds. The Bureau of the Census,
for example, partnered with national, state, and local organizations to
help the agency recruit census takers for the 2000 Census.12 Appendix II
has more detail on ASD options available to federal agencies.

11National Academy of Public Administration, Alternative Service Delivery:
A Viable Strategy for Federal Government Human Resources Management
(Washington, D.C.: November 1997).

12U.S. General Accounting Office, 2000 Census: Review of Partnership
Program Highlights Best Practices for Future Operations, GAO-01-579
(Washington, D.C.: Aug. 20, 2001).

Selected Agencies Reported Using ASD for the Full Range of Their Human
Capital Activities

Human capital officials from the selected agencies reported using ASD for
a variety of specific human capital activities that we grouped into
"tiers," a construct we created to discuss how agencies use ASD for
similar types of human capital activities; they are not discrete
categories, but rather groups of activities that overlap. All of the
agencies used ASD for at least some tier I activities, such as payroll and
employee assistance programs, and tier II human capital activities
involving the implementation of human capital policy and strategy. Most of
the agencies had contracted for assistance, generally with the private
sector, for tier III activities, such as special projects involving
workforce planning and organizational assessments. Of the eight agencies,
the Mint was the only agency currently engaged in a competitive sourcing
initiative involving most of its human capital functions.

Agencies Regarded ASD Use for Tier I Activities as a Way to Reduce Costs
in Some Cases and to Free Staff to Focus on Core Activities

Similar to private sector experience, agency officials regarded the use of
ASD for some of the tier I activities involving transactional human
capital functions, the acquisition and maintenance of technology, and
specialized services as a way to reduce or avoid costs. Agencies have been
using ASD for these activities for a number of years, and updated cost
savings estimates were not available. In general, however, using ASD for
more standardized, transactional activities allows human capital offices
to make use of high-volume providers' investments and capabilities that
realize economies of scale. For instance, OPM is leading the effort to
collapse the operations of 22 executive branch agencies that currently run
payroll systems into what will eventually be only two systems at a
projected savings of $1.1 billion through fiscal year 2012.13 We reported
that it is evident that cost savings can be found by reducing the number
of payroll systems operated and maintained by the federal government and
avoiding the costs of updating or modernizing those systems, but have
noted the significant challenges in realistically estimating the financial
savings from this initiative.14 Likewise, although cost savings estimates
were not available, agency officials regarded consolidating the purchase
of human resource information systems and specialized services that would
be

13The e-payroll initiative is one of OPM's five e-government initiatives
aimed at transforming the way human capital functions and services are
carried out in the federal government.

14U.S. General Accounting Office, Electronic Government: Progress and
Challenges in Implementing the Office of Personnel Management's
Initiatives, GAO-03-1169T (Washington, D.C.: Sept. 23, 2003).

expensive to duplicate internally, such as purchasing
commercial-off-theshelf software or using a specialized provider of
employee assistance programs, as a way to reduce individual costs to the
agency. In prior work on how companies were taking strategic approaches to
acquiring services, we noted one tactic involved using a companywide
approach to procuring services. When the companies analyzed their spending
on services, they realized that individual units of the company were
buying similar services from numerous providers, often at greatly varying
prices. In some cases, after this analysis, thousands of suppliers were
reduced to a few, enabling the companies to negotiate lower rates.15

Common examples of the types of tier I activities for which the eight
agencies used ASD are

o  payroll processing,

o  components of human resource information technology,

o  employee assistance programs,

o  health screening and wellness services,

o  employee fitness programs, and

o  drug and alcohol testing.16

As previously noted, federal agencies have used ASD for tier I human
capital activities for a number of years. NAPA reported in 1997 that human
capital outsourcing by federal agencies was already substantial in these
areas.17 All of the agencies used ASD for some of their tier I activities,
and most of the agencies reported using ASD for their payroll
administration and at least some component of their information
technology. NGA, for example, partnered with another agency to share
contracts for human capital information technology development and
maintenance. NGA said that the arrangement allowed it to access expertise
not resident in-house

15U.S. General Accounting Office, Best Practices: Taking a Strategic
Approach Could Improve DOD's Acquisition of Services, GAO-02-230
(Washington, D.C.: Jan. 18, 2002).

16GAO analysis of agency data.

17NAPA, Alternative Service Delivery.

and promoted knowledge transfers between the two agencies. Using ASD for
traditional employee services was also common among the selected agencies.
Many of them used ASD for their employee assistance programs, wellness and
fitness centers, health units, or drug and alcohol testing, often using
interagency services to provide these functions. By going to outside
providers for these specialized services, agency officials believed that
they were able to focus more on core activities in addition to gaining
efficiencies by joining other agencies' efforts. A DOE official, for
example, said that the department used ASD for its fitness centers to
avoid liability issues so that, for example, if an employee were injured
using the center it would not be the responsibility of the department. DOE
also reported joining another department's large contract for drug and
alcohol testing to reduce its workload by not having to commit resources
to contracting for the service itself. Officials also said they gained the
benefit of having a neutral thirdparty provider, which was believed to be
important because employees may be less likely to use services such as
employee assistance programs when internally provided due to
confidentiality issues.

Agencies Regarded ASD Use for Tier II Activities as a Way to Free Staff to
Focus on Core Activities

All of the selected agencies used ASD for at least one of their tier II
activities, which involve the implementation of human capital policy and
strategy, including advisory services. Common examples of the agencies'
ASD tier II activities are

o  training development and delivery,

o  classification and staffing support,

o  classification appeals and reviews,

o  equal employment opportunity (EEO) and administrative investigations,

o  recruitment, and

o  mediation.18

Many of these activities entail services dealing with recruiting,
developing, and retaining employees, and they occupy the middle ground
between the

18GAO analysis of agency data.

primarily technical work in tier I and the increased strategic focus
needed for tier III activities. Drivers for this tier of activities
included freeing staff to focus on core activities and supplementing a
lack of staff to perform the activity. Tier II activities often involve
partial outsourcing, using ASD for only a component of the human capital
function, whereas a tier I activity such as drug testing may be completely
outsourced. NGA's Training and Doctrine Directorate, for example, used
OPM's TMA program to select and evaluate providers for its Leadership
Program. The agency used a combination of in-house expertise and
contractors to design and deliver the leadership training.

Within tier II activities, components of training development and delivery
were the most frequently cited human capital activities for which the
agencies used ASD. NAPA's 1997 report also noted outsourcing of training
by federal agencies as substantial.19 As one example, USDA turned to a
private sector contractor to help develop the design for a corporate
leadership development program to prepare upper-level managers for future
leadership roles at USDA. One of the rationales for relying on a
contractor was that the contractor had the research edge on best practices
gleaned from completing needs assessments with other organizations. In
addition to using the private sector, several agencies used the training
services of providers such as the USDA Graduate School and the Federal
Executive Institute. OPM is also working on another training tool for
federal agencies to use. E-Training, one of OPM's e-government
initiatives, is designed to create a governmentwide e-Training environment
to support the development of the federal workforce and provide a single
source for on-line training and strategic human capital development for
all federal employees. OPM expects that its initiative will allow agencies
to focus their own training efforts on unique needs, thus maximizing the
effectiveness of their expenditures on workforce performance.

Agencies also used ASD for tier II activities such as investigations,
mediation, classification and staffing, and recruiting. FWS, for example,
contracted for classification appeals and studies, EEO and administrative
investigations, and mediations. The agency maintained that ASD was useful
in this case because, given the sporadic nature of some of these
activities, it could contract for services only when it needed them. MMS
contracted with a retired employee to perform staffing, classification,
and employee relations functions. Two of the agencies used ASD for some
component of

19NAPA, Alternative Service Delivery.

their recruitment function. For example, although the contract is new and
NGA has not yet directly tracked changes due to this initiative, the
agency anticipates that contracting for some of its recruitment activities
will provide better customer service and help confront reduced human
capital staffing.

Agencies Regarded ASD Use for Tier III Activities as a Way to Gain Access
to Expertise

Tier III activities, which involve the formulation of human capital
strategy and policy support, represent a more recent application of ASD
for human capital activities. Examples of the agencies' tier III ASD
activities are

o  strategic workforce planning,

o  skills gap analysis,

o  strategic human capital management planning,

o  organizational assessment survey,

o  performance management system,

o  pay compensation, and

o  benchmarking.20

These activities involved expanding their base of expertise and gaining
access to new ideas and methodologies. All but one of the agencies
reported using ASD for some activities within tier III, often using
private sector providers.

Several agencies noted that the use of ASD for tier III activities enabled
their human capital offices to obtain access to the right mix of skills
quickly in order to meet critical deadlines, thereby providing the agency
with new tools and capabilities. USITC, for example, through OPM's TMA
program, contracted for initiatives in strategic workforce planning. The
agency used contractors to help define its human capital vision and models
and to develop occupation guides and a human capital plan. USDA teamed
with a contractor to conduct a skills gap analysis to identify critical
workforce

20GAO analysis of agency data.

skills and analyze skills gaps. USDA reported that the contractor provided
third-party objectivity in retrieving and assessing information, used its
own technology to analyze data, and produced a model based on its own
scientific expertise that assisted USDA managers in determining workforce
skills needs for closing the gaps in the next 5 years. USCG contracted for
the use of OPM's Organizational Assessment Survey after sporadic,
unsatisfactory in-house attempts to manage the survey development,
administration, data collection, analysis, and required reporting. Instead
of investing in three full-time employees supplemented by six part-time
employees that USCG believed would be needed to manage an annual survey,
it reduced the resources needed to manage the survey effort to one
full-time employee supplemented by two part-time employees. According to
an agency official, the estimated annual cost for the project was reduced
by approximately $300,000.

The Mint Is Engaged in a Human Capital Competitive Sourcing Initiative

All of the above examples of ASD for the three tiers of activities
concerned were specific activities that were outsourced to a variety of
different providers. Within private sector human capital offices, however,
there is a beginning trend toward aggregating multiple human capital
activities into one ASD contract. The 2002 Conference Board report on
human resources outsourcing trends found that although most of the
companies they surveyed used more than one source provider, 12 percent of
the companies surveyed outsourced the bulk of their human capital
functions to a single provider and 9 percent were in the process of doing
so or plan to over the next 3 years.21 Aggregating activities into one
contract can result in better contracting leverage. This is riskier,
however, in terms of the complexity of the arrangement and the assumption
that one vendor can deliver and maintain the same level of service
previously provided in-house or by a variety of different providers.

The Mint was the only one of the eight selected agencies currently
considering using one ASD provider for the majority of its human capital
activities through a competitive sourcing initiative governed by the
Office of Management and Budget's (OMB) Circular No. A-76. The initiative
involves all of the Mint's human capital functions except employee and
labor relations and policy, and the agency expects to complete the
competitive sourcing study no later than February 2005. Although a Mint

21Gelman and Dell, Outsourcing Trends.

official reported challenges maintaining morale and staff during the
formal cost comparison, the agency expects that the study will eventually
result in reduced costs. Our work looking at the progress selected
agencies were making in establishing competitive sourcing programs also
found that ensuring and maintaining morale was a challenge for those
agencies.22 NAPA reported that trust between agency leaders and employees
can be shaken by the consideration of nontraditional staffing.23 In
addition, employees may suffer stress-induced illness, increased
absenteeism, hostility, and depression, other symptoms of changed
organizations. The report noted that providing an authoritative source for
employees to get accurate information minimizes the unknown and helps
control rumors and miscommunication.

Selected Agencies Approached Their Management of ASD in Similar Ways and
Shared Similar Lessons Learned

We examined the agencies' management of ASD by looking at their approaches
to three phases of contract management. The phases included (1) making the
sourcing decision, (2) developing the contract and selecting the provider,
and (3) monitoring the provider's performance. Our review also identified
some of the lessons the agencies learned and the role that OPM plays in
assisting agencies with their management of ASD.

Agencies Approached Sourcing Decisions in a Similar Way on a Conceptual
Level but Showed Differences in Practice

To make a sourcing decision, organizations need to determine whether
internal capability or external expertise can more effectively meet their
needs. The Commercial Activities Panel, chaired by the Comptroller General
of the United States, noted that determining whether the public or the
private sector would be the most appropriate provider of the services the
government needs is an important, and often highly charged, question.24
The report also stated that determining whether internal or external
sources should be used has proved difficult for agencies because of
systems and budgeting practices that (1) do not adequately account for

22U.S. General Accounting Office, Competitive Sourcing: Greater Emphasis
Needed on Increasing Efficiency and Improving Performance, GAO-04-367
(Washington, D.C.: Feb. 27, 2004).

23NAPA, Alternative Service Delivery.

24Commercial Activities Panel, Improving the Sourcing Decisions.

total costs and (2) inhibit the government's ability to manage its
activities in the most effective manner possible. In prior work examining
the competitive sourcing initiatives of selected agencies, we reported
that several agencies had developed strategic and transparent sourcing
approaches.25 The approaches included the comprehensive analysis of
factors such as mission impact, potential savings, risks, current level of
efficiency, market conditions, and current and projected workforce
profiles. To make good human capital sourcing decisions, NAPA's ASD report
also suggested identifying constraints on the process, such as the lack of
capacity within the organization to manage the ASD contract and the legal,
regulatory, and ethical issues related to the governmental nature of the
work.26

The selected agencies reported similarities on a conceptual level in how
they made their sourcing decisions. Officials generally agreed about which
human capital activities were suitable candidates for ASD. Their
considerations were consistent with the Commercial Activities Panel
sourcing principles. For example, agency officials recognized that some
activities are inherently governmental27 or are functions that should be
performed by federal workers and that both quality and cost factors should
be considered.28 The general consensus was that virtually any activity
could be an ASD candidate as long as it did not require an intimate
knowledge of the agency or involve oversight or decision-making authority
that should belong with the agency. There was also general consensus that
ASD should be considered in situations where it could improve quality
without increasing costs or keep the same quality at a lower cost and in
situations where activities cannot be accomplished with the agency's
current skills and resources. Some of the agencies excluded from ASD any
activity directly related to policy, while one official maintained that
policy development, as opposed to policy decision making, was appropriate
for ASD.

25GAO-04-367.

26NAPA, Alternative Service Delivery.

27An "inherently governmental" activity is an activity that is so
intimately related to the public interest as to mandate performance by
government personnel.

28Commercial Activities Panel, Improving the Sourcing Decisions.

Notwithstanding the broad conceptual agreement among the agencies, they
showed differences in their choices of human capital ASD activities. This
may be partially due to differences in the activities they deemed to be
essential to the agency or to the human capital office. The USITC Human
Resources Director, for example, noted that USITC staffing was a function
that required intimate knowledge of the agency and one that it would not
consider for ASD. Private sector research also indicates that some
companies are reluctant to outsource activities such as employee
communications, assessment, and recruiting because they are critical to
the company's corporate culture and provide a "personal touch."29 The
differences may also be due to variations in existing capacity and in how
ASD was used in the agencies' overall human capital strategy. FWS, for
example, noted that as the agency continues to identify areas for
consolidation and efficiency, it sees its use of ASD increasing as a means
to provide better customer service and supplement human capital skills not
present in the current workforce. Several of the agencies, NGA and USITC
in particular, remarked that ASD was integral to their overall human
capital strategy. In fact, an NGA official said that the agency was
established in 1996 with a design that encouraged the use of ASD. On the
other hand, USDA stated that it used ASD primarily to meet critical
deadlines.

Lesson learned: Understand the complexity and requirements of the activity
prior to making an ASD decision. In order to strategically and objectively
make a sourcing decision, several agency officials emphasized the
importance of laying out ASD requirements and goals and letting these
expectations guide the process. In order to do this and to manage for
results, they underscored the importance of knowing as much as possible
about the complexity and requirements of the activity before making an ASD
decision. As a USCG human capital official expressed it, throwing a
"problem" over the transom to a provider and waiting for a "solution" to
be thrown back is not a viable model. Similarly, a human capital official
from MMS said that in cases where ASD did not work well, there was a lack
of a clear vision about the work to be done, and a NAPA panel report
examining human capital outsourcing experiences noted that from the
contractor's viewpoint, poorly defined requirements are a major flaw in
government management of outsourcing.30 To help solve this problem, one of
the

29Gelman and Dell, Outsourcing Trends.

30National Academy of Public Administration, Advancing the Management of
Homeland Security, Lifting the Winner's Curse and Avoiding Buyer's
Remorse: Lessons from HR Outsourcing Experiences (Washington, D.C.: June
25, 2003).

leading commercial practices for outsourcing of information technology
(IT) services includes incorporating lessons learned from peers who have
engaged in similar sourcing decisions.31

Agencies Approached Developing Their Contracts and Selecting Their
Providers Similarly

The ASD contract defines the legal terms of the relationship between the
agency and the provider and sets the expectations for service levels and
delivery of essential services. These critical requirements are captured
in the contract as fundamental expectations. The development of the
contract is the foundation on which the relationship with the provider is
built, and once the agency understands the essential contractual
requirements, it can begin to identify providers that can meet its
needs.32 According to the NAPA human capital ASD report, the scope of the
activity being converted to ASD and its relative criticality to the agency
mission should determine the level of effort needed to develop the
contracts and select the providers.33

Human capital officials from the agencies reported using similar methods
to develop their ASD contracts and select their providers. Officials said
that they followed the guidance provided by the contract and procurement
office representative who solicited the bids and awarded the contract. NGA
stated that its general strategy was to rely on agency subject matter
experts who created detailed statements of work. For example, the agency
expert in the interpreting field provided the expertise needed for cost
comparison, evaluation, and program management for NGA's interpreting
services. Officials listed reputation and experience of the provider as
important factors in the selection process. Some agencies noted using the
panel award approach to select providers. To select its employee
assistance program provider, for example, NGA assembled a panel comprised
of agency officials who conducted interviews with each of the candidates
and required the finalists to make presentations. Some officials stressed
the importance of using established contract vehicles, such as GSA's
contract schedule or OPM's TMA program, because it made the procurement
process easier. Agencies also noted that joining other agencies' contracts

31GAO-02-214. 32GAO-02-214. 33NAPA, Alternative Service Delivery.

reduced the administrative effort needed on their part in terms of
contract development.

Lesson learned: Articulating ASD contract terms that are flexible but
include identified outcomes and measurable performance standards is an
essential requirement for meeting ASD objectives.

After determining what the use of ASD should accomplish, several agencies
shared the importance of translating these expectations in the ASD
contract into flexible terms with measurable outcomes. Accordingly, an
essential part of the contract is to define the level and quality of
service required of the ASD provider as well as specific evaluation
criteria. A Mint official said that performance-based contracts with
metrics and quality assurance plans helped the agency ensure that
expectations were met. Congress and OMB have also encouraged greater use
of performancebased contracting, which emphasizes spelling out the desired
end result, while leaving the manner in which the work is to be performed
up to the contractor. Other attributes of performance-based contracting
include measurable performance standards; quality assurance plans that
describe how the contractor's performance will be evaluated; and positive
and negative incentives, when appropriate.34 In developing contracts and
selecting providers, leading commercial practices for acquiring IT
services also suggest that the contract must be flexible enough to adapt
to changes.35 The practices note that the contract should include clauses
for issues such as resolving disputes promptly, conducting regularly
scheduled meetings, and declaring a significant event that can lead to a
change in the contract. A Mint contract, for example, specified how the
contract would be changed if access to desired data was not an option.

Agencies Also Approached The monitoring phase of ASD management involves
ensuring that the ASD Monitoring Performance in provider is meeting
performance requirements. The previous phases Similar Ways addressed the
extensive preparation that must precede the ASD provider's

assuming responsibility for an activity. Monitoring includes examining
performance data for specific activities and making sure that the overall
objectives for using ASD are being met. According to commercial practices,
organizations need to examine internal service levels as well as maintain
an

34U.S. General Accounting Office, Contract Management: Guidance Needed for
Using Performance-Based Service Contracting, GAO-02-1049 (Washington,
D.C.: Sept. 23, 2002).

35GAO-02-214.

external view of the performance of other ASD providers to make certain
that their current relationship is still advantageous to the
organization.36

The agencies reported both formal and informal ways of monitoring their
ASD contracts. A contracting officer's technical representative (COTR) or
a designee generally performed the formal oversight on an ongoing basis
with line managers being in position to perform the informal monitoring.
DOE, for example, described monitoring its human capital processing
functions by having a COTR work in conjunction with the program or
technical monitors, DOE's office of procurement, and the direct customers
to ensure that problems were resolved and needs and expectations met. NGA
looked at the measures built into its quality assurance plans, which
included descriptions of the deliverables, performance standards,
acceptable quality levels, and methods used to assure quality, such as
random testing. The agency also noted that it periodically checks prices
with outside service providers to make sure it is not paying more than the
market rate for the contracted services. An MMS human capital official
said that accountability for monitoring the overall success of the ASD
strategy for a particular function belongs to the line manager responsible
for that function, who determines if program goals are being met.

Many of the agencies said that they used performance measures as part of
their ASD monitoring process. The types of metrics used varied with the
types of ASD human capital activities, but generally included elements of
quality or timeliness. For projects dealing with human capital strategy
and policy support, agencies mentioned that along with quality, their
measures included timely completion and evaluation of interim deliverables
during the project. The USITC Human Resources Director stressed that when
using ASD for a specific project, it was important to incorporate ongoing
milestones into the contract as markers for how well the project is
progressing. Agencies using ASD for training and development activities
also reported using similar measures to monitor the success of the
activities. For example, NGA and DOE stated that they used a multilevel
training evaluation model37 to assess the effectiveness of the
methodology, media, and delivery mechanisms used by their ASD providers.
Several of the agencies used client satisfaction surveys to gauge the
quality of their

36GAO-02-214.

37U.S. General Accounting Office, Human Capital: A Guide for Assessing
Strategic Training and Development Efforts in the Federal Government,
GAO-04-546G (Washington, D.C.: March 2004).

employee services provided through ASD. USCG, for example, used surveys
and had one-to-one contact with members who used its employee assistance
program.

Lesson Learned: Creating a relationship with the ASD provider is key to
resolving issues that may arise in addressing concerns and directing work.
Human capital officials emphasized that smooth and constructive
interaction between the agency and the ASD provider at an operational
level is crucial to achieving the expectations of the ASD arrangement.
Relationship management goes beyond the structure of the contract and if a
good relationship exists between the agency and the ASD provider, many
problems that may arise can be worked out. As the USITC Human Resources
Director remarked, the agency needs to have the capacity to manage
relationships, not just contracts, with ASD providers. In looking at
leading commercial practices for outsourcing IT services, we included
relationship management as one of three critical success factors
contributing to successful outsourcing, a capability that must be present
to implement good outsourcing practices.38 The Director of OPM also
emphasized the importance of program managers' ability to work inside
partnerships and relationships to help develop a new paradigm of
government-contractor relationships. She said that OPM plans to analyze
human capital contracts that were poorly managed and use those lessons to
improve the process.39

OPM Has a Central Role in Assisting Agencies' Management of ASD

OPM has a central role in agencies' management of ASD by providing
assistance and guidance in operating human capital programs. As the
President's agent and adviser for human capital activities, OPM's overall
goal is to aid federal agencies in adopting human resources management
systems that improve their ability to build successful, high-performance
organizations. The agency's five e-government initiatives are examples of
this effort. In addition, several agencies used OPM's TMA program to help
them manage their ASD efforts. The TMA contracting vehicle assists
government agencies with training and human capital technical assistance
projects. (See fig. 2 for more details.) OPM's TMA program may be
appropriate when agencies have a need for (1) outside expertise to help

38GAO-02-214.

39Remarks by Kay Coles James, Director, U.S. Office of Personnel
Management, Human Resource Outsourcing World Conference and Exposition,
New York Hilton, July 30, 2003.

define human capital needs and frame requirements, (2) help doing
something the agency has never done before, (3) short-term help to get a
specific task accomplished because internal resources are not available,
(4) long-term supplemental assistance to accomplish ongoing,
missioncritical objectives and activities, and (5) plans to competitively
source certain learning or human capital activities or functions. USITC,
for example, used TMA to screen and qualify a select group of contractors
to assist the agency in its workforce planning initiatives. The agency's
Human Resources Director said TMA facilitated USITC's ability to
appropriately identify a contractor that could work best in the agency's
culture. She also noted that the TMA program assists smaller agencies in
gaining clout with contractors because of the program's large volume of
contracts.

Figure 2: Description of OPM's Training and Management Assistance Program

Source: GAO representation of OPM information.

OPM also plays a role in assisting agencies' management of ASD through its
authority to oversee management of human capital activities. The Director
of OPM has called for more rigorous oversight of federal contracts used to
acquire personnel management services for agencies and their employees.40
In addition, to ensure professional oversight of contracts, OPM has

40Remarks by Kay Coles James, Director, U.S. Office of Personnel
Management, Human Resource Outsourcing World Conference and Exposition,
New York Hilton, July 30, 2003.

instructed the Federal Executive Institute and the management development
centers to begin to train and retrain a new cadre of program managers with
the skills necessary to manage relationships and establish partnerships
with their peers in the procurement industry. The CHCO Academy, created by
OPM to educate chief human capital officers about human capital management
issues, included outsourcing human resource services as one of its agenda
topics.

While OPM has made efforts to help agencies with their human capital ASD
initiatives, there are additional opportunities to assist the agencies in
compiling, analyzing, and disseminating information on federal agencies'
use of ASD for human capital activities. Several agency officials noted
that having a clearinghouse of ASD information, such as posting
information on ASD projects and providers, and more communication sharing
in general would help them manage their ASD projects. They observed that
joining other agencies with existing contracts can be an effective
strategy and that communication among agencies about the reputation of ASD
providers plays a role in their selection process. An NGA official noted
that (1) partnering with other federal agencies could provide a venue to
learn from each other versus developing individually and (2) agencies
could learn more from each other's ASD accomplishments and mistakes. OMB,
for example, is developing a competitive sourcing data-tracking system to
facilitate the sharing of competitive sourcing information by allowing
agencies to identify planned, ongoing, and completed competitions across
the government. The agency plans to use the system to generate more
consistent and accurate statistics, including those on costs and related
savings.41 The importance of sharing information about human capital ASD
efforts has recently gained attention as a few agencies have signed large
contracts for human capital services. Legislation creating the CHCO
Council also highlighted the importance of this activity by detailing that
one of the responsibilities of the Council is to advise and coordinate
agency activities for improving the quality of human resources
information.42

Conclusions	Recent studies looking at private sector organizations suggest
that ASD use for human capital activities is being leveraged to achieve a
variety of

41GAO-04-367.

42Title XIII of Pub. L. No. 107-296, Nov. 25, 2002, Chief Human Capital
Officers Act of 2002, codified at U.S.C. ch 14.

strategic and tactical objectives within human capital offices. The range
of human capital activities and the reported objectives for the selected
agencies' use of ASD indicated the same. Although more evaluation needs to
be done, the agencies' use of ASD for activities such as strategic human
capital management and workforce planning showed that ASD provides access
to new skills, expertise, and technology that can facilitate
implementation of new human capital initiatives. Likewise, freeing human
capital staff from transactional and administrative tasks such as payroll
administration and training delivery pointed to cost savings and an
improved ability to focus on mission-critical activities.

Given its potential benefits, it appears that, similar to its use in the
private sector, the use of ASD for human capital activities will increase
among federal agencies. There currently is not, however, a widely shared
body of knowledge about federal agencies' use of ASD for human capital
activities. By sharing experiences and lessons learned, agencies may be
able to tap into the benefits of using ASD while avoiding some of the
problems. Although OPM's TMA program appears to help agencies manage their
use of ASD, OPM could supply another necessary link to the agencies by
providing comprehensive information about how to use ASD for human capital
activities. The CHCO Council could be an excellent vehicle to assist in
this area.

Recommendation for Executive Action

Given the need expressed by agency officials about the importance of
sharing data and lessons learned concerning the use of ASD for human
capital activities and consistent with OPM's ongoing efforts in this
regard, we recommend that the Director of OPM take the following action:

o 	Work with the CHCO Council to create additional capability within OPM
to research, compile, and analyze information on the effective and
innovative use of ASD and strengthen its role as a clearinghouse for
information about when, where, and how ASD is being used for human capital
activities and how ASD can be used to help agency human capital offices
meet their requirements. OPM should work with the CHCO Council to
disseminate the type of spending data that human capital offices could use
to leverage their buying power, reduce costs, and provide better
management and oversight of their ASD providers. Such data would include
the types of human capital services being acquired, which ASD providers
are being used for specific services, how results are being measured, and
how much is being spent on specific ASD activities.

Agency Comments and Our Evaluation

We provided a draft of this report to the Director of OPM, the Secretary
of Agriculture, the Secretary of Defense, the Secretary of Energy, the
Secretary of Homeland Security, the Secretary of the Interior, the
Chairman of the International Trade Commission, and the Director of the
Mint. We received written comments from OPM and the Department of the
Interior, which are included in appendixes III and IV. OPM stated that the
report contained a good model for looking at human capital ASD use and
that the recommendation was consistent with the agency's concern for human
capital contracting, for which OPM has the lead. OPM expressed concern,
however, that we had not addressed the role of its human capital officers
in helping agencies improve their human capital practices or how agencies
ensure that their ASD providers comply with regulatory and statutory
requirements. We did not assess the actions of the OPM human capital
officers because their role did not surface in our interviews with agency
officials about their use of ASD for human capital activities. Regarding
the concern of ensuring functions provided through ASD meet appropriate
federal regulatory and statutory requirements, we agree with OPM's concern
and believe our recommendation can help address this important issue OPM
raises. In addition, the Department of the Interior suggested that it
would be helpful if GAO or OPM followed this report with a further study
that would examine the quality and value of various ASD products and
providers to allow for comparisons of similar services. We believe that
our recommendation will also help address this concern. Based on comments
from DOE that we received by e-mail, we clarified our definition of core
activities. DOE also suggested an alternative way to group human capital
activities. We believe that the framework is adequate for the discussion
and summary for which it was intended. The Department of Defense, USCG,
and USDA noted that they had no comments on the report. USITC and the Mint
had several technical comments that we incorporated.

As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 15 days
after its date. At that time, we will provide copies of this report to
other interested congressional parties, the Director of OPM, and the
federal agencies and offices discussed in this report. We will also make
this report available at no charge on the GAO Web site at
http://www.gao.gov.

If you have any questions about this report, please contact me or William
Doherty on (202) 512-6806 or at [email protected] or [email protected]. Other
contributers are acknowledged in appendix V.

J. Christopher Mihm Managing Director, Strategic Issues

Appendix I

                       Objectives, Scope, and Methodology

The objectives of this report were to

o 	identify the human capital activities selected agencies are
accomplishing through the use of alternative service delivery (ASD)
options and the basis on which they decided to use it and

o 	describe how the use of ASD is being managed and the lessons learned by
the selected agencies.

To address these objectives, we first synthesized information from a
literature review including articles, studies, and reports on the use of
ASD for human capital activities in both public and private sector
organizations. We also gathered information from a variety of sources,
such as our past work on agencies' contracting efforts and other reports
on federal agencies' use of ASD, to characterize the ASD options currently
being used by federal agencies to accomplish their human capital
activities.

On the basis of this work, we identified a set of federal agencies varying
in size and mission that were using ASD for at least some of their human
capital activities. We consulted with human capital experts from George
Washington University, the National Academy of Public Administration, and
a private sector consultant for federal contract management to assess
whether they thought particular agencies in this set would yield examples
of ASD use for human capital activities. On the basis of their suggestions
and our previous research, we focused on ASD practices in eight federal
agencies: the Department of Energy (DOE), the Department of the Interior's
U.S. Fish and Wildlife Service (FWS) and Minerals Management Service
(MMS), the National Geospatial-Intelligence Agency (NGA), the U.S. Coast
Guard (USCG), the U.S. Department of Agriculture's (USDA) headquarters,
the U.S. International Trade Commission (USITC), and the U.S. Mint's
headquarters. The agency selection process was not designed to produce
findings that could be considered representative of the use of ASD for
human capital activities in the federal government as a whole, but rather
to provide illustrative examples of how the selected agencies were using
ASD.

We conducted semistructured interviews with human capital officials from
the selected agencies to gather information on (1) the human capital
activities for which the agencies were using ASD, (2) the basis of their
decisions, (3) how they were managing the use of ASD, and (4) the lessons
they had learned. Some agencies provided documents such as final ASD
projects, project plans, interagency service agreements, and contracts,

Appendix I
Objectives, Scope, and Methodology

which we reviewed. We did not verify the agencies' cost savings estimates.
After reviewing and analyzing the agencies' material and responses to our
interview questions, we developed a framework for organizing and
discussing their use of ASD for human capital activities. (See fig. 1.) As
shown in our framework, the activities are grouped into three overlapping
tiers based on whether the activity had more of a technical or a strategic
focus. We then identified the primary drivers and the primary ASD options
used for each tier. Our work was conducted from August 2003 through
February 2004 in accordance with generally accepted government auditing
standards.

Appendix II

                    Examples of Alternative Service Delivery
                   Options Available to Federal Agencies for
                     Accomplishing Human Capital Activities

Federal agencies have a variety of types of ASD options available to help
them accomplish their human capital activities. The options include
mechanisms that provide reimbursable services from one agency to another
and contracting with the private sector. Agencies also provide
reimbursable services that help other agencies gain access to private
sector contracts. The options listed below are some examples of ASD
mechanisms used by federal agencies to accomplish their human capital
activities.

Intragovernmental Revolving Fund Services

Intragovernmental revolving (IR) funds provide common support services
required by many federal agencies. An IR fund conducts continuing cycles
of businesslike activity within and between government agencies. It
charges for the sale of products or services and uses the collections to
finance its operations, usually without a requirement for annual
appropriations. Each IR fund is established by law. Generally, the
specific legal authorities creating IR funds authorize these funds to
enter into intragovernmental transactions and provide flexibility by
allowing the client agency's fiscal year funds to remain obligated, even
after the end of the fiscal year, to pay for the goods or services when
delivered.

One businesslike entity providing human capital services is the U.S.
Department of Agriculture's National Finance Center (NFC) in New Orleans.
NFC provides a variety of other federal agencies with automated
information systems services for personnel, payroll, and voucher and
invoice payment systems and services.

Franchise Fund Services

The Government Management Reform Act of 1994 authorized the Office of
Management and Budget (OMB) to designate six franchise fund pilots to
provide common administrative services on a fully reimbursable basis.
Franchise funds are a type of intragovernmental revolving fund that were
created to be fully self-supporting competitive businesslike entities
within the federal government. The franchise fund pilots are located in
the Departments of Commerce, Health and Human Services, the Interior, the
Treasury, Veterans Affairs, and at the Environmental Protection Agency.
The six pilots provide a variety of common services, such as acquisition
management, financial management services, and employee assistance
programs. The legal authorities creating the franchise funds are similar
to those of other IR funds. However, most of the franchise funds have the
specific authority to carry over into the next fiscal year up to 4 percent
of

                                  Appendix II
                    Examples of Alternative Service Delivery
                   Options Available to Federal Agencies for
                     Accomplishing Human Capital Activities

the annual income of the fund for capital equipment and financial
management improvements. Most other IR funds do not have this authority.

The Treasury franchise fund service, for example, contains multiple
business units operating under the brand name FedSource. FedSource offers
various human capital services such as recruitment, employee assistance,
position classification, and alternative dispute resolution through
contracts with multiple vendors experienced in providing human capital
services in the federal sector.

Cooperative Administrative Support Unit Services

Cooperative administrative support units (CASU) have provided services
since 1986 and most operate under the authority of the Economy Act of 1932
as amended. CASUs are entrepreneurial organizations that provide the full
range of support services on a reimbursable basis to federal agencies.
Federal agencies in a local community identify services that they would
like to share under the leadership of one or more host agencies. The host
agency is reimbursed for all costs incurred in providing the services to
customer agencies. Several CASUs provide services in conjunction with a
franchise fund and operate under the authority of the franchise fund,
which allows them to make use of provisions more expansive than those of
the Economy Act, including permitting the customer agency's fiscal year
funds to remain obligated to pay for services when delivered, even after
the end of the fiscal year.

The Southeast Regional CASU (SER-CASU) is an example of a chartered unit
within the National CASU Network. SER-CASU offers human capital services,
such as employee assistance program support and training services.

Interagency Contract Service Programs

Federal agencies also use fee-for-service interagency contract service
programs. The programs are being used in a wide variety of situations,
from those in which a single agency provides limited contracting
assistance to an all-inclusive approach in which the provider agency's
contracting office handles all aspects of the procurement. The increased
use of interagency contract service programs has come about as a result of
reforms and legislation passed in the 1990s, which allowed agencies to
streamline the acquisition process, operate more like businesses, and
offer increasing types of services to other agencies.

                                  Appendix II
                    Examples of Alternative Service Delivery
                   Options Available to Federal Agencies for
                     Accomplishing Human Capital Activities

The Office of Personnel Management's Training and Management Assistance
(TMA) program is an example of an interagency contract service program.
The TMA program operates under the IR fund established by 5 U.S.C. S:
1304(e). It is an expedited contracting process for federal agencies
seeking human capital management and development in areas such as
knowledge management, training, and workforce planning. For a fee, clients
access project managers, technology, and prequalified contractors with the
intended result of time and cost savings compared to the agency
undertaking its own procurement actions.

Contracting for Services

Contracting can be defined as the hiring of private sector firms or
nonprofit organizations to provide a good or service for the government.
In contrast to the use of IR funds, CASUs, and interagency contract
service programs, the agency uses its own contracting authority to enter
into a contract with a company and manages the contract.

For example, the Department of Homeland Security has awarded a contract to
a company to help design a human capital strategic plan, which would
assist the department in aligning its human capital requirements with its
mission needs.

Partnerships	Partnerships can be defined as voluntary alliances with other
organizations. They do not necessarily involve the exchange of funds. For
example, the Census Bureau's Partnership and Data Services program
continues and expands upon more than 140,000 organizational partnerships
established during Census 2000. During the census, the Bureau relied on
its extensive network of partners at the national, state, and local levels
to help recruit employees for more than half a million temporary jobs.

Appendix III

Comments from the Office of Personnel Management

Appendix III
Comments from the Office of Personnel
Management

Appendix IV

Comments from the Department of the Interior

Appendix V

                     GAO Contacts and Staff Acknowledgments

GAO Contacts	J. Christopher Mihm, (202) 512-6806 or [email protected] William
J. Doherty, (202) 512-6806 or [email protected]

Acknowledgments	Judith Kordahl and Caroline Villanueva also made key
contributions to this report.

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