1 DEPARTMENT OF DEFENSE COMPETITIVE SOURCING PROGRAM August 2004

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DEPARTMENT OF DEFENSE

COMPETITIVE SOURCING

PROGRAM

August 2004

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OUTLINE

• Background

– Competitive Sourcing Drivers

– OMB Circular A-76 (Old Edition)

• Problem Areas

• Commercial Activities Panel Recommendations

• Proposed Revisions to A-76 - 14 Nov 02

• OMB Circular (Revised) – 29 May 03

• Implementation Issues

• Future Directions

– In General --- In DOD

• BRAC 05

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Background

Competitive Sourcing Drivers

President’s Management Reform AgendaPurpose is to Address the Most Apparent Deficiencies Where the Opportunity

to Improve Performance is the Greatest

–Strategic Management of Human Capital

–Expanded Electronic Government

–Competitive Sourcing– Improved Financial Performance

–Budget and Performance Integration

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Cost Savings

–Public and private sector studies show that cost savings, ranging from 10% to 40% on average, result regardless of whether the competition was won by a private sector contractor or the government

–DOD alone projected savings of more than $6B from A-76 competitions completed from 2000 through 2003, involving approximately 73,000 positions

Background

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FAIR ACT - Federal Activities Inventory Reform Act1998

• Annually (30 June) all federal agencies are required to compile and publish a list of commercial activities that are eligible for contracting

• Permits administrative challenges by unions and industry

• Military functions are excluded

• DoD depots are excluded

• FY03 inventory identified 858,000 FTE commercial-type positions, of which 421,000 were in DOD

Background

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OMB Directive• In 2001 OMB established numerical goals - All

federal departments will compete 5% of their commercial activities (FAIR ACT) in FY02 and 10% of their commercial activities in FY03

• In 2003 OMB discontinued numerical goals and replaced them with competitive sourcing criteria specific to each agency’s situation

• The new criteria results in an average of 12% of federal positions up for competition government-wide (17% in DOD)

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OMB Circular A-76(Original Edition)

• Bureau of the Budget Bulletin published in 1955• First OMB Circular published in 1966• Program Objectives

–Achieve economy and enhance productivity through competition

–Retain inherently Governmental activities in-house–Rely on the private sector for commercial activities

• Mandates cost comparison of government’s commercial activities involving 10 or more civilian employees

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OMB CIRCULAR A-76(Original Edition) - (cont’d.)

• Results in performance of commercial activities in-house, or by ISSA, or by a contractor, whichever is cheaper (DOD – 10 USC 2462)

• Private sector cost advantage must exceed the MEO by 10% of the personnel costs of the in-house performance or $10M to insure that the government does not convert performance for marginal savings

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PROBLEM AREAS

Definition of Inherently Governmental Activity

Forming the Government A-76 Team Developing the MEO Developing the PWS-QASP Costing the In-House Cost Estimates Federal Employee Concerns Loss of Internal Expertise Impact on Military Rotations Perception of Cost Growth

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COMMERCIAL ACTIVITIES PANEL

• Required by FY01 DOD Authorization Act• Established by GAO• Charter

–To review determination of “inherently governmental” activities

–To review cost comparison procedures–To review the implementation of FAIR–To review A-76 competitive procedures

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COMMERCIAL ACTIVITIES PANEL MEMBERSHIP

• David M. Walker, Chairman – US Comp Gen• Frank A. Camm – RAND Corp• Mark Filteau – President, Johnson Controls• Stephen Goldsmith – Former Indianapolis Mayor, Senior VP, Affiliated Computer Services, Inc.• Bobby L. Harnage, Sr. – National President, AFGE• Colleen M. Kelley – National President, NTEU• Sean O’Keefe – Administrator OMB (Replaced by Angela Styles)• David Pryor – Director, Institute of Politics, Harvard University• Stan Z. Soloway – President, Professional Services Council• Robert M. Tobias - Professor, American University• Kay Coles James - OPM • Pete Aldridge - USD(AT&L)

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Panel Recommendations

• Adopt Federal Sourcing Policies and Principles

• Develop An Integrated Competition Process (FAR Part 15)

• Incorporate Limited Changes To The Cost Comparison Process

• Promote High Performing Organizations

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OMB’s Proposed Revised A-76 Circular November 14, 2002

1. Perform inherently governmental activities with government personnel

2. Presume all activities are commercial in nature unless an activity is justified as inherently governmental

3. Use a Competition or Direct Conversion process to determine the providers of commercial activities

4. Comply with the FAR and this Circular for Competition, Direct Conversion, and the management of commercial activities

5. Complete all competitions in 12 months and recompete every 3 to 5 years

6. Designate an assistant secretary with the responsibility for implementing this Circular (the 4.e. official)

7. Centralize oversight responsibility in one or more offices8. Require full accountability of agency officials designated to

implement and comply with this Circular through annual performance evaluations

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Response to Proposed Circular• Over 700 responses received (more than 40 from federal

agencies) to draft revision – 35 senators and 131 house members were opposed to the draft

• Implementation Issues– 12 month timeframe is too short– Concern about new definition of inherently governmental

functions– Deletion of Direct Conversion Process– Agency processes may be disrupted if competitions are

held every 3 to 5 years– ISSAs should not be subjected to A-76 competitions– Alternatives to competition should also be emphasized– Agencies need consistent guidance for calculating savings

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OMB Circular No. A-76 (Revised)

Performance of Commercial Activities

May 29, 2003

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Revised OMB Circular A-76Summary

1. Strengthens application of public-private competitions by deleting a long standing statement that the Government should not compete with its citizens

2. Incorporates additional principles of the FAR3. Makes agencies accountable to taxpayers for

results achieved4. Provides guidance for the transparent

development of inventories of commercial and inherently governmental activities (FAIR Act)

5. Agencies will be required to change how they evaluate the quality of the work they perform and how they decide whether that work truly needs to be done by a federal employee.

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Revised OMB Circular A-76Contents

• The main body of the Circular (3 pages) describes overarching policy tenets and the scope of agency responsibilities

• Attachment A – Inventory Process • Attachment B – Public-Private Competition• Attachment C – Calculating Public-Private

Competition Costs• Attachment D – Acronyms, Definitions, and

Index

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OMB Circular A 76 Framework

An improved framework for managing the Government’s commercial activities. It:

• Facilitates strategic use of competition• Ensures fairness, integrity, and transparency in

sourcing decisions• Strengthens agency accountability for

achieving results

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Agency Tender:Agency Tender:

Proposal Preparation

Proposal Preparation

SourceSelection

SourceSelection

Prepare PWS

QASP &Solicitation

Prepare PWS

QASP &Solicitation

Government MEOor

Contract Award

Government MEOor

Contract Award

StartStart FinishFinish

90 days – 12 months to complete

DecisionDecision

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Enhanced Inventories of Government Activities

• Agencies must categorize all activities performed by governmental personnel as either commercial or inherently governmental. They must also submit an annual inventory summary that equates to their authorized personnel requirements.

• All military positions in commercial activities must be converted to civilian positions prior to an A-76 study

• Agencies must provide a reason code why a government person is performing a commercial activity.

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Facilitating Strategic Use of Competition

Inherently Governmental Activity

• An activity so intimately related to the public interest as to mandate performance by government personnel.

• Includes activities that require the exercise of substantial discretion in applying government authority or value judgments in making decisions for the government, including judgments relating to monetary transactions and entitlements

• Involves the interpretation and execution of US laws so as to—– Bind the US to take or not take some action by contract, policy,

regulation, authorization, order, or otherwise;– Determine, protect, and advance US economic, political, territorial,

property, or other interests by military or diplomatic action, civil or criminal judicial proceedings, contract management or otherwise;

– Significantly affect the life, liberty, or property of private persons– Commission, appoint, direct, or control officers or employees of the

US– Exert ultimate control over the acquisition, use, or disposition of the

property, real or personal, tangible or intangible of the US, including the collection, control, or disbursement of appropriated or other Federal funds

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• Examples of inherently governmental functions:– Inspector general audit operations– Ordnance activities– Basic training and training of military doctrine

or tactics– Selected research and development activities– Selected activities that provide combat

support and combat service support

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Commercial Activities

• A recurring service that could be performed by the private sector

• Includes gathering information for or providing advice, opinions, recommendations, or ideas to Federal Government officials

• Any function that is primarily ministerial and internal in nature

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• Examples of commercial activities:– Administration support– Aircraft maintenance– Audiovisual– Facility operations & maintenance– Information technology– Logistics– Supply & transportation– Storage, warehousing, & distribution– Vehicle operations & maintenance

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Better Planning for Competitions

Preliminary Planning

Before the public announcement of a competition, an agency must:– Determine the scope (what’s to be competed) and the number of FTEs to be

competed– Conduct preliminary research to determine groupings or “packaging” of

activities or business units– Assess the availability of workload data and standards and establish

necessary collection systems– Determine the baseline cost as performed by the incumbent (COMPARE)– Determine the type of competition – Streamlined or Standard– Develop schedules and timelines– Determine roles and responsibilities of study participants– Appoint competition officials – Inform incumbent service provider of the date of the public announcement

and HR’s involvement

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• Cannot begin work on MEO or PWS until after announcement

• Cannot perform any analysis

• Cannot develop the PWS

• Cannot creating the MEO or PWS teams

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During this phase agencies must appoint:– CCSO – Component Competitive Sourcing Official– CSO – Competitive Sourcing Official– ATO – Agency Tender Official– CO – Contracting Officer– PWS Team Leader – MEO Team Leader– HRA – Human Resource Advisor– SSA – Source Selection Authority

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Preliminary Planning Final Report identifies sourcing options:– Competitive Sourcing - Circular A-76– Re-engineering – Reorganizing the Federal activity– Privatization – Conveying Federal assets to the private

sector with the agency becoming a “customer” (Requires enabling legislation)

– Divestiture – Requirement for an Federal activity ceases and is performed by no one

– High Performing Organizations – Special government organization not required to undergo an A-76 competition

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Make

Public

Announcement

(Start Date)

Receive

Offers

and

Tenders

Perform

Source

Selection

Perform

Post

Competition

Accountability

Develop

And Issue

Solicitation

Develop

Offers and

Tenders

Make

Performance

Decision

(End Date)

Award

Contract Or

Issue

Agreement


THE STANDARD COMPETITION PROCESS

COMPETITION RECOMPETITION

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Make

Public

Announcement

(Start Date)

Perform

Post

Competition

Accountability

Develop

Cost

Estimate

Make

Performance

Decision

(End Date)

Award

Contract Or

Issue

Agreement


THE STREAMLINED COMPETITION PROCESS

COMPETITION RECOMPETITION

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Competition Timeframes Standard Competitions – As a general rule must

be completed in 12 months but may be extend for an additional 6 months with notification to OMB.

Streamlined Competitions - Must be completed within 90 days with a 45 day extension waiver possible.

Key actions (beginning of competitions, performance decisions, etc.) must be publicly announced through FedBizOpps

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Facilitating Strategic Use of Competition (cont’d)

Implementation• Elimination of direct conversion and creation of a new streamlined competition

process involving 65 or fewer FTEs except in DOD, where the number of FTEs is 10 or less

• Agencies are encouraged to develop an MEO in streamlined competitions• Under the streamlined conversion process:

– Agencies must publicly announce both the start of the streamlined competition and the performance decision

– Separate agency officials must document the agency performance cost estimate and the private sector

– The conversion differential (10%) applies to standard competitions only (except in DOD where the differential applies if 10 or more FTEs are involved)

– Agencies must track the results of the competition• Creation of the MEO – Agencies will be allowed to include contract support

through new or potential contracts except where doing so would result in the direct conversion of work performed by government employees

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An Agency Tender

• Responds to Section L (Instructions to Offerors) and Section M (Evaluation Factors) of a solicitation

• Includes:– An MEO– A certified agency cost estimate developed in

accordance with Attachment C– An MEO quality control plan– An MEO phase-in plan– Copies of any existing awarded MEO

subcontracts

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An Agency Tender Cont’d

• Is not required to include:– A labor strike plan– A small business strategy– A subcontracting plan goal– Participation of small disadvantaged

businesses– Licensing or other certifications– Past performance information

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SOURCE SELECTION PROCESS

More Manageable and Accommodating Source Selection Process

• May use sealed bidding based on price only• May use lowest price technically acceptable• May use phased evaluation source selection process –first

technical factors and then cost factors• May use a tradeoff source selection process (FAR Part 15)

for IT, contracted commercial activities, new requirements, segregable expansions, or other activities approved by the CSO

• In DOD price is the only evaluation factor (10 USC 2462(a). However, the FY04 DOD Authorization Act allows DOD to carry out a pilot program for the procurement of IT services that uses best-value criterion

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Other Competition Factors

• Right of first refusal – Contractor will decide who is qualified to work

• Use of innovation – Agencies may deviate from the Circular with OMB approval (HPO, Public/private partnerships)

• Focused implementation – ISSAs are not be included in this Circular

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Protests/Contests

• WHO– The agency tender official– A single individual appointed by a majority of directly

affected employees as their agent (The FY04 Omnibus Appropriations Bill denies federal employees or their union representatives the right to appeal decisions to the GAO)

– A private sector offeror– The official who certifies the public reimbursable tender

• WHAT– A solicitation– The cancellation of a solicitation– A determination to exclude a tender or offer from a standard

competition– A performance decision– A termination or cancellation of a contract

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Ensuring Fairness, Integrity, and Transparency

• Greater uniformity in the application of basic requirements– ATO must respond to a solicitation within the same

timeframe required of private sector offerors– An agency tender may be excluded from a standard

competition if determined to be materially deficient by the CSO

– All competitions must be recompeted within the same timeframes regardless of the winner (Every 3 to 8 years – Agencies covered by the FY04 Omnibus Appropriations Bill are not required to recompete jobs every 5 years)

– Agency must determine that continuation of work is appropriate (meets the requirements) before exercising options

– Cost calculation and comparisons must be documented on a standard competition form (SLCF) or a standard competition form (SCF)

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Ensuring Fairness, Integrity, and Transparency (cont’d)

• Avoiding the appearance of conflicts of interest – PWS & MEO on separate teams

• Public release of tenders required• Fairer and more accurate cost estimates – Agencies

must use COMPARE or the Circular’s Attachment C procedures

• Improved process for contests – Challenges are governed by the FAR (FAR 33.103) under standard competitions.

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Strengthening Accountability for Results

• Centralized oversight responsibility

• Letters of Obligation

• Improved post competition oversight

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OMB Best Practices Guide on Competitive Sourcing

March 5, 2004

• Conduct thorough upfront planning and strategically group related activities to generate private sector interest

• Take advantage of competition to reorganize and enhance efficiency of in-house activities

• Link competitive sourcing decisions to human capital considerations, such as by shaping competitions to reduce skill imbalances

• Utilize tailored management tools, such as internal scorecards, to keep managers focused on results

• Seek the assistance of support contractors to provide technical support and business acumen

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FY 03 Competitive Sourcing Report Guidelines

1. Total number of competitions completed2. Total number of competitions announced and a list of activities covered3. Total number, expressed as a full-time employee equivalent number, of

federal employees studied under the announced competitions4. Total number, expressed as an FTE number, of federal employees being

studied under the announced competitions5. Incremental costs directly attributable to conducting both the completed and

announced competitions, including costs attributable to paying outside consultants

6. An estimate of total estimated savings or a quantifiable description of improvements in service or performance derived from completed competitions

7. Actual savings, or quantifiable description of improvements in service or performance, derived from the implementation of competitions completed after May 29, 2004

8. The total projected number, expressed as an FTE number, of federal employees that are to be covered by competitions scheduled to be announced in the next fiscal year covered by the next annual report

9. A general description of how the competitive sourcing decision making processes are aligned with the agency’s strategic work plan

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6 Myths of Competitive SourcingJacques S. Gansler

1. Performance will deteriorate because industry would focus on profits, not public needs. (Increased satisfaction with Navy household moves)

2. Costs would be higher because government employees are paid less than those in industry, and the government does not charge fees for its services as businesses do. (CNA and GAO studies)

3. Promised savings from competitions would not materialize. (CNA and RAND studies)

4. Small businesses would be hurt because prior small contracts would become part of larger overall competitions. (Small business set-aside requirements)

5. Many government employees would be laid off if agencies lost competitions to the private sector; or even if they won, as a result of streamlining their operations. (Few layoffs – 8% according to one study; 3.4 % according to another))

6. Managers would lose significant control if much of their work were contracted out. (Federal managers can manage and monitor costs)

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Future Direction - General • Privatization is practiced in more than 100 countries• Practiced by Democrats and Republicans• Practiced by all nationalities and races• State parks in NH and Georgia are leased to private firms• NY Central Park is managed by a non-profit organization• Riverside County, California library system is privatized• Several towns in Michigan public works department• Richmond, VA on-street parking• Internet governance turned over to private enterprise• US embassies guarded by US Marines and private firms• Military housing is being privatized• US Army ammunition plants are being privatized• St. Lawrence Seaway (Canadian side) managed privately • London subway system

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Future Direction – Government

• OMB asked agencies to include a line item in their FY05 budget requests outlining what is being spent on the competitive sourcing programs

• DOD currently estimates the cost for running competitions to be between $2,000 and $5,000 per position competed

• DOD estimates long term savings of approximately $85K per position over 5 years

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Future Direction – DOD

• Dr. Chu, USD (Personnel and Readiness)– DOD supports need to improve the pace of A-76

competitions and their enforcement– DOD will use other means in addition to A-76, e.g..

A Best Practice Model– DOD will focus on “core” activities (Exceptions

will exist – auditing)– Significant numbers of military positions (320K)

may be amenable to transfer to civilian activities and could be performed by the civil service or private contractors

– DOD hopes to shift 10K jobs performed by the military to civilians in FY04

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President’s Management Agenda Scorecard

• Yellow:– Agency has developed an OMB-approved

“yellow” competition Plan– Agency has conducted at least one standard

competition for more positions than the agency identified in its plan

– In the past 2 quarters, the agency completed 75% of the streamlined competitions within the 90 day time frame

– In the past 2 quarters, the agency has cancelled less than 20% of all publicly announce competitions

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President’s Management Agenda Scorecard

• Green:– Agency has an OMB-approved “green” competition plan– Agency has followed the schedule outline in its plan for

publicly announcing competitions– Since January 2001, the agency has completed at least 10

competitions of any size– In the past year, the agency has completed 90% of all

standard competitions within the 12 month timeframe– In the past year the agency has completed 95% of all

streamlined competitions within the 90 day timeframe– In the past year, the agency has cancelled fewer that 10% of

all publicly announced competitions– OMB has approved all of the agency’s justifications for the

position listed as not open to competition

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BRAC 05

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BACKGROUND

• The goal of the BRAC process is to eliminate unnecessary infrastructure and increase military capability and effectiveness

• Congress authorized 4 BRAC rounds in 1988, 1991, 1993, and 1995

• These BRAC actions closed 97 major installations and achieved an aggregate savings of $17B through FY01 and an annual recurring savings thereafter of approximately $7B

• In late 2001 Congress authorized one additional BRAC round for 2005

• In November 2002 DOD established BRAC policy and process framework

• In December 2003 DOD published draft selection criteria for BRAC 05

• DOD has said that up to 25% of all installations could be pared down in BRAC 05

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RESULTS OF BRACs1988 – 1991 – 1993 - 1995

BRAC MAJOR BASE One-Time Annual Recurring

CLOSURE Costs ($B) Savings ($B)

1988 16 2.7 0.8

1991 26 5.2 1.9

1993 28 7.5 2.3

1995 27 6.5 1.6

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CURRENT ESTIMATED PERCENTAGE OF EXCESS CAPACITY (above 1989 baseline)

• ARMY 29%

• NAVY 21%

• AIR FORCE 24%

• DLA 17%

• TOTAL (AVERAGE) 24%

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Final Selection CriteriaFebruary 12, 2004

Military Value: Consider1. The current and future mission capabilities and

the impact on operational readiness of the DOD’s total force, including the impact on joint warfighting, training, and readiness.

2. The availability and condition of land, facilities, and associated airspace (including training areas suitable for maneuver by ground, naval, or air forces throughout a diversity of climates and terrain areas and staging areas for the use of the Armed Forces in homeland defense missions) at both existing and potential receiving locations.

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Final Selection Criteria

Military Value: Consider

3. The ability to accommodate contingency, mobilization, and future total force requirements at both existing and potential receiving locations to support operations and training.

4. The cost of operations and manpower implications.

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Other Considerations:Consider

1. The extent and timing of potential costs and savings, including the number of years, beginning with the date of completion of the closure or realignment, for the savings to exceed the costs.

2. The economic impact on existing communities in the vicinity of military installations

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Other Considerations:

Consider3. The ability of both the existing and potential

receiving communities’ infrastructure to support forces, missions, and personnel.

4. The environmental impact, including the impact of costs related to potential environmental restoration, waste management, and environmental compliance activities.

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BRAC 2005 PROCESS & MILESTONES

• Authorized by the FY02 DOD Authorization Act• 31 Dec 03 – DOD published proposed selection criteria for a 30 day

comment period• In January 04 DOD circulated a request for baseline data from military

installations• 16 Feb 04 – DOD published final selection criteria• 22 Mar 04 - DOD submitted a report to Congress with the FY05 budget

justification that included:– A force structure plan based on a 20 year assessment of probable

threats– Probable end strength levels and military force units needed– A comprehensive inventory of military installations worldwide– A description on infrastructure necessary to support the force

structure– A discussion of categories of excess capacity– An economic analysis of the effect of realignment and closures to

reduce excess infrastructure– A certification of the need for BRAC and that annual net savings

would result by 2011

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BRAC 2005 Process and Milestones (cont’d)

• FY 05 – DOD applies published selection criteria to determine which installations to recommend for realignment and closure

• 16 May 05 – DOD forwards recommendations to the BRAC Commission

• 08 Sept 05 – BRAC Commission forwards its report on the recommendations

• 23 Sept 05 – President accepts or rejects the recommendations in their entirety

• Congress then has 45 days to reject the recommendations in their entirety or they become binding on DOD

• Implementation must begin within 2 years• Actions must be completed within 6 years

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The BRAC 2005 PROCESS AND MILESTONEScont’d

• The BRAC Commission must have 9 members• The Commission can add an installation if 7 of the 9 members

support it and is visited by at least 2 members and the Commission gives the SECDEF 15 days to explain why the installation was not included

• The Commission must invite the SECDEF to testify about any proposed changes

• DOD must make recommendations to the Commission by mid-May 2005

• DOD is authorized to use economic development conveyances at no cost to the local development authority but fair market value is desired

• DOD is expressly authorized to close an installation and retain it in inactive status

• A privatization-in-place is authorized only if specifically authorized in the Commission’s recommendations and is the most cost-effective method of implementation

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PENTAGON BRAC ORGANIZATIONS

• Infrastructure Executive Council– Provides policy and oversight– Chaired by DEPSECDEF and includes service secretaries

and chiefs of staff, the Chairman of the Joint Chiefs of Staff, and the USD(AT&L)

• Infrastructure Steering Group– Manages various joint reviews– Chaired by the Defense acquisition chief and includes the

Vice Chairman of the Joint Chiefs of Staff, the services’ assistant secretaries for installation and environment

• Seven Joint Study Groups– To examine 7 functional areas, including intelligence,

industrial, technical, medical, education, headquarters and support activities, and supply and storage

– Composed of representatives from each service and OSD

Documents

1 DEPARTMENT OF DEFENSE COMPETITIVE SOURCING PROGRAM August 2004