Policy Study

Designing a Performance-based Competitive Sourcing Process for the Federal Government

37 Proposed Changes to Regulations and Approaches to Competing and Outsourcing Commercial Activities in Government

Executive Summary

During the summer of 2002, Reason Foundation and the Performance Institute launched a project to solicit ideas for changing the process for competing and outsourcing commercial activities in the federal government. As this is often a contentious issue, the project sought input from a wide range of perspectives, including government contracting officials from defense and civilian agencies, federal labor unions, private industry, and good-government groups and organizations. We went to the individuals working within the system and asked them for their ideas.

Much of the input received from these stakeholders confirmed what the bipartisan Commercial Activities Panel (CAP) found in a May 2002 report: the federal competitive sourcing process is broken. While the CAP report provided a solid case for reforming the federal competitive sourcing process and offered 10 broad Sourcing Principles for reform, it offered few concrete suggestions for change in policies, approach, or statutory requirements.

Feedback from stakeholders resoundingly affirmed the 10 broad Sourcing Principles articulated in the CAP report. When asked for specific changes in federal competitive sourcing guidelines, stakeholders generated a myriad of ideas from the very creative to the mundane. This report presents 37 of the most feasible and often-suggested ideas generated throughout the project. The 37 recommendations require some form of action by federal agencies, the Administration and/or Congress. The 37 recommendations provide for substantial change to the existing competitive sourcing process.

Clearly, the recommendations will not be embraced in full by every stakeholder. However, the package advanced by the project attempts to provide common-ground ideas that on the whole can benefit all stakeholders. Among the recommendations made are:

  1. Create Three Paths to Competition, One Using a New Vehicle for Competition through an Employee Conversion Organization (ECO): OMB should create a general competitive sourcing framework that allows for three different modes for competition to be pursued with maximum flexibility by an agency. These three paths are: direct conversion, streamlined competition using employee conversion organization (ECO) vehicles, and standard public-private competition. The ECO vehicle provides a “compromise” approach to federal employee-vendor competition using the FAR (Federal Acquisition Regulations). However, the ECO offers no guarantee that the employee vehicle will win the competition and will subject employees to a firm contract should it win.
  2. Focus on Managing Competitions by Function: A one-size-fits-all competitive sourcing process may not be the best route for the federal government. OMB should establish an overall competitive sourcing framework and then test and refine the approach on a function-by-function basis.
  3. Provide Transparent and Accurate Data for Cost and Performance Achievement of Contract Winners: At the moment, federal agencies pay very little attention to maintaining timely and accurate data over the life of a contract. This leads to little transparency and no accountability. In order for the winning Most Efficient Organization (MEO) or contracting entity to be held accountable for its performance and cost, contract data, including personnel records, cost records, and workload data must be constantly and accurately maintained through an action-forcing mechanism, such as a threat for recompetition.
  4. Create a Competition Corps: The scarcity of qualified and competent competitive sourcing managers within individual agencies has caused competitive sourcing initiatives to take a long time at a substantial cost. OMB should create a “Competition Corps” of highly trained competitive sourcing managers who would be assigned to each study conducted by the agencies to achieve economies of scale, foster maximum competency for managing competitions, and ensure a consistently applied process government-wide.
  5. Allow Agencies to Keep Savings from Competitions: The existing competitive sourcing process provides little funding for reinvestment in existing programs and provides no positive incentive for undergoing competitive sourcing by not allowing agencies to keep a substantial portion or all of the savings. OMB should allow agencies to share in the savings (perhaps 50%) over the five-year period of performance of their contracts. This would ensure that agencies do not front-load cost savings in the first few years and offset savings in the out years.
  6. Provide for Transition of Benefits for Outsourced Employees: A major negative impact of competitive sourcing can be the federal workers’ loss of federal employment and associated benefits. A number of innovative vehicles could be accessed to transition federal employees into the private sector complete with benefits. These would ensure that outsourced employees could retain their federal benefits.
  7. Require Measurable Outcomes of Competitive Sourcing: Accountability for and transparency of results are fundamental ingredients to drive management change in government. Agencies should be required to set measurable goals for competitive sourcing that should be bolstered by a complete business case to ensure that the agency achieves its goals. Performance measures used in this business case should focus on improved performance of programs in addition to cost savings. Finally, data substantiating cost and performance achievements of winners of competitions (whether employee or private) should be maintained by each agency, and bolstered by the risk of early re-competition.
  8. Expand Accessibility of Information on Agency Commercial Activities: The accessibility of lists of commercial activities for individual agencies is extremely limited and difficult to access by an outside party. OMB should create an integrated database that is accessible to the public and presents all FAIR Act inventories in a searchable format. Ideally, the OMB online database should identify discrepancies across agencies in the classification of similar activities.
  9. Rename A-76 to Communicate Change: In order to communicate the difference in approach between the old A-76 process and the new streamlined, performance-based approach, OMB should discontinue use of the A-76 circular number and assign a new circular number to the revised guidance governing competitive sourcing.
  10. Communicate the Purposes of the Administration’s and Each Agency’s Competitive Sourcing Program: It is vital that the Administration create a comprehensive communications plan to define and generate support for the changes the Administration will propose to the competitive sourcing process. Moreover, senior officials in each agency should be briefed on what competitive sourcing entails and how to communicate with federal employees, business groups, unions, Members of Congress, and even the general public when proposing competitions.

As the Administration develops its package of reforms to the competitive sourcing process and agencies pursue competitions, it is our hope that these recommendations can serve as thoughtful and provocative slants on what is a difficult, but necessary aspect of federal management improvement. By examining the perspectives and concerns of all stakeholders, the Administration, Congress and the individual agencies can define a competitive sourcing process that is fair, balanced, and performance-based.