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STATEMENT BY
ANGELA B. STYLES
ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY
OFFICE OF MANAGEMENT AND BUDGET

BEFORE THE
SUBCOMMITTEE ON READINESS
HOUSE ARMED SERVICE COMMITTEE
UNITED STATES HOUSE OF REPRESENTATIVES

MARCH 25, 2003  

     

Chairman Hefley, Congressman Ortiz, and Members of the Subcommittee, I am pleased to have this opportunity to discuss competitive sourcing and the proposed improvements to Office of Management and Budget ("OMB") Circular No. A-76 ("Circular A-76").   My comments apply government-wide, but have been tailored to reflect the experiences, requirements, and needs of the Department of Defense (DoD). 

As most of you know, competitive sourcing is a government-wide initiative to encourage competition for the performance of government activities that are commercial in nature.  Using OMB Circular A-76, departments and agencies have been asked to "determine whether commercial activities should be performed under contract with commercial sources or in-house using Government facilities and personnel."   Competitive sourcing is a means to an end, with the means being public-private competition and the end being better management of our government, better service for our citizens, and lower costs for our taxpayers. 

I cannot emphasize enough that competitive sourcing is not about outsourcing; nor is it about downsizing the workforce.   Rather, competitive sourcing is about creating incentives and opportunities for efficiency and innovation through competition.  No one in this Administration cares who wins a public-private competition.  But we very much care that government service is provided by those best able to do so in terms of cost and quality, be that the private sector or the government itself.  

After nearly two years of hard work with the agencies, I am pleased to see a large number of our federal managers accepting the difficult challenge of building an infrastructure to identify commercial activities, planning for their performance, and, for the first time, institutionalizing public-private competition to address those needs.  While creation of an infrastructure is just one step, it is a critical step.  Many of the processes relied on until now are rooted in long-outdated management ideals that have permitted vast numbers of our commercial activities to remain insulated from competition.  As our mindset transforms from one that resists competition to one that embraces the value competition generates, agencies should find themselves well positioned to achieve a mix of government and contract support that is optimal for mission success.       

Progress is proceeding according to plans at many of the agencies we are tracking in the Budget (i.e., the "scorecard agencies").  We are starting to see real management advances in a few instances.  DoD has the largest and most experienced infrastructure in the federal government for conducting competitive sourcing, which is governed by OMB Circular A-76.  The Center for Naval Analysis and other evaluators have reviewed the results of DoD's competitions and found that:  (1) the net long-term savings are significant and permanent; and (2) few federal employees are worse off after competition.

DoD seeks to improve the "tooth-to-tail" ratio through competition of commercial activities, which will allow the department to shift civilian and military members to the core functions of the department, particularly war-fighting and war-support functions.  DoD is committed to reviewing half of the 452,000 positions in commercially available activities.  The Department is well on the way to competing a total of 67,800 positions during FY 2002 and 2003.  DoD estimates the announcement of new A-76 competitions for approximately 10,000 positions in FY 2003 and at least 10,000 in FY 2004.  A major DoD review of A-76 and other competitions by each Military Service and Defense Agency is scheduled this year so that the President's FY 2005 Budget can present how DoD will achieve this Presidential Management Initiative.   Based on DoD's experience with public-private competition under OMB Circular A-76 and the Department's well-established infrastructure, these goals are practical, achievable, and, in the long run, will save the taxpayers billions of dollars.        

Action is occurring at other agencies as well.  For example, the Department of Veterans Affairs is opening up the activities of 52,000 employees (primarily ancillary support functions) to competition over the next five years -- initiating studies of 25,000 of them in 2003 alone.  At the Federal Aviation Administration, about 2,900 federal flight services personnel are participating in a public-private competition.  Among other duties, these federal personnel provide weather briefings to pilots, a function that no major airline finds efficient to perform in-house.  Similarly, the Department of Energy has started public-private competition for a variety of functions (such as computer personnel, graphic designers, and financial services personnel) and locations nationwide.

Despite progress, overall use of competitive sourcing remains weak.  This is not surprising when considering that the current processes governing sourcing decisions are time consuming and unnecessarily complicated.  Therefore, OMB is committed to significantly improving how agencies determine whether commercial activities will be performed by public or private sources.

Last November, OMB proposed major revisions to OMB Circular A-76.  The proposed changes would provide for processes that are more manageable, more competitive, more even-handed, and more results-driven.  These objectives would be accomplished by:

• helping agencies more easily distinguish between commercial and inherently governmental activities by offering a more concise definition of "inherently governmental" and rescinding the more complex description currently relied on;

• making processes simpler and easier to understand, including appropriate use of certain well-tested practices in the Federal Acquisition Regulation (FAR);

• more fully accommodating a program's need for best value and innovation, while still requiring cost to remain a factor in all competitions and the deciding factor in many competitions;

• ncorporating appropriate mechanisms of transparency, fairness, and integrity (e.g., by separating the team that is formed to write the solicitation from the one established to develop the agency tender) so that competitions occur on a level playing field that results in performance by the best source;

• ensuring that sourcing decisions are made in real time by imposing deadlines that would reduce the cycle time from the current delay-plagued three years (on average) to one year; and

• improving post competition oversight so that selected sources, whether from the public or private sectors, make good on their promises to the taxpayer.

With regard to the first element, in particular, which involves distinguishing the universe of activities that may be eligible for competition from those that would not, I would emphasize that we are focused strictly on commercial functions, whether they be specialized functions or more routine functions such as hanging dry wall or mowing the lawn.  I am puzzled to hear statements that the Administration is planning to contract functions intimately related to the public interest, such as determinations on the content and application of regulations.  These types of functions must be performed by public employees and we will continue to depend on our able workforce to execute these important responsibilities on behalf of our citizenry.  This notwithstanding, we will still require agencies to identify their inherently governmental functions to ensure activities are properly characterized.  By doing so, commercial functions that should be considered for competition will not remain insulated from the savings that a fair competition can yield.  At the same time, we will not force agencies to pursue competitive sourcing for competition's sake.  We appreciate that each agency has a unique mission and workforce mix and will continue to work with agencies in tailoring competition plans accordingly.

We have been working aggressively to consider the more than 700 comments that were submitted on the proposed rule.  These comments are posted on the Internet at http://www.omb.gov and a discussion of their general disposition will be provided in the preamble to the final circular.

In analyzing the public comments, we have been keeping an especially watchful eye out for areas where processes may cause results that fall short of expectations -- e.g., instances where the process unnecessarily constrains management's ability to fully consider and compare options.  In this regard, a number of commenters pointed out that administrative convenience may drive agencies to pursue direct conversions even where in-house providers may be the better alternative.  We are examining the viability and fairness of a process that would allow for a highly simplified and streamlined consideration of public and private sector sources.

We are aiming to complete our review of public comments shortly so that agencies may soon take advantage of our transformed processes.  While final decisions have not yet been made, you should anticipate that the major elements I described a moment ago will be incorporated, in appropriate fashion, in the final revisions to the circular.

Of course, our commitment doesn't end with publication of the circular.  This is just a beginning.  We will continue to work with agencies in crafting appropriate competition plans.  Equally important, we will track results through our scorecard so that successes are promoted and shortfalls corrected.

Conclusion

We are asking federal agencies to reconsider how they accomplish their missions.  We are also asking them to test assumptions about the best provider through the competitive process.  Competitive sourcing is laying the groundwork for improved mission performance through quality service at the lowest possible cost.  Like any other effort that seeks to fundamentally transform the way we do business, this initiative has its challenges.  But if we are steadfast in our commitment to competition, which lies at the heart of competitive sourcing, we will no doubt deliver the quality service our war fighters need and taxpayers across government deserve.

This concludes my prepared statement.  I would be pleased to answer any questions you may have.