End of the road for A-76?

Commercial Activities Panel report

The Bush administration is expected to make significant changes to rules governing how federal agencies and vendors compete for billions of dollars' worth of business, potentially creating more opportunities for outsourcing government work.

The proposed changes, detailed in a report released last week by a panel of top-level administration and private-sector officials, are not intended to promote outsourcing but to provide a more accurate accounting for the government's cost of performing services that resemble commercial activities.

Industry officials have complained for years that the existing rules, set forth in the Office of Management and Budget's Circular A-76, do not force agencies to measure the true cost of their work.

The net result could be a dramatic shift in competition, said Bobby Harnage, national president of the American Federation of Government Employees and a member of the 12-person Commercial Activities Panel, which wrote the report. Federal agencies, which currently win about 60 percent of public/private competitions, could end up winning as little as 10 percent of the bids, Harnage said.

Others do not expect a shift of that magnitude. They say the intended, and likely, result will be better competition.

"If you're continually using a competitive environment, you at least have the confidence that what you're getting is the optimal solution," said Stan Soloway, another member of the panel, president of the Professional Services Council and former Defense Department deputy undersecretary for acquisition reform.

The concept of best-value bids, now the basis of most federal acquisitions, is especially important, the panel said.

"Cost is important, but cost is not everything. Certain things cannot be quantified into dollar terms," said David Walker, comptroller general at the General Accounting Office and chairman of the panel.

Other members of the panel included Angela Styles, administrator of OMB's Office of Federal Procurement Policy, and Kay Coles James, director of the Office of Personnel Management.

Time for a Change

The panel agreed with many critics in government and industry who say that A-76, which has been used primarily in DOD, has outlived its usefulness and must be replaced as quickly as possible.

In its report, the panel recommended developing new guidelines based on the Federal Acquisition Regulation (FAR), which takes a more commercial approach to acquisitions than A-76 does. While A-76 focuses primarily on low cost, the new FAR-based rules are intended to help government gauge the overall quality of bids, a so-called best-value approach.

The panel recommended developing the new rules over several years, with pilot projects testing proposed changes and with agencies using a modified A-76 in the interim. But the end result should be the complete disappearance of A-76 as it is currently known, experts said.

The panel recommendations (see box) will lead to a new "integrated competition process," based on the FAR but also incorporating elements of A-76, that would provide rules for competition considered to be fair by most people inside and outside government, according to the report. The report included 10 "sourcing principles" unanimously approved by the panel that should shape the final rules.

A-76 has received increased attention in recent years because of the Bush administration's interest in using competition to evaluate whether commercial work should be performed by government employees or by contractors.

The Federal Activities Inventory Reform (FAIR) Act of 1998 requires agencies to list all functions they consider suitable for outsourcing to the private sector. As part of the competitive sourcing initiative of the President's Management Agenda, the Bush administration wants agencies to outsource 5 percent of their FAIR Act inventory in fiscal 2002 and another 10 percent in fiscal 2003.

OMB is charged with developing the plan for implementing the recommendations. Many of the most difficult questions facing the administration involve making sure both the public- and private-sector offerors are treated fairly during a process originally designed solely for competition among commercial firms, Styles said.

"What does it mean to have the public sector competing under that rubric? I don't fully know what the implications of that are yet," she said.

Because developing the integrated process could take a while, the panel recommends limited modifications to A-76. Potential changes include strengthening conflict-of-interest rules, improving auditing and cost accounting, and providing for binding performance agreements.

OMB is putting together a working group of experts from across government "to look at how we can implement the [panel's] recommendations into the existing circular," Styles said. The working group plans to publish proposed modifications in the Federal Register within the next few months, with the final version available in a year.

"I want to move as quickly as possible," Styles said.

The panel also calls for OMB to submit a detailed report to Congress on the benefits and costs of the new process within one year of implementation and again a year later. Those reviews would enable OMB to make any changes or corrections necessary without affecting every agency, according to the report.

Change will not come easy for DOD. The department will have to repeal or amend existing laws that require the use of A-76.

But the department is already working on new policies that will address many of the recommendations from the panel that can be put in place without statutory changes, said Joseph Sikes, director of competitive sourcing and privatization at DOD and a contributor to the panel.

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Course of action

Recommendations of the Commercial Activities Panel include:

* Adopting the 10 sourcing principles developed by the panel, such as the need to support agency goals, create incentives for high-performing organizations in government and avoid arbitrary numerical goals.

* Creating an integrated competition process, based on the Federal Acquisition Regulation but also incorporating elements of Office of Management and Budget Circular A-76, where public- and private-sector proposals are considered on a best-value basis.

* Making modifications to A-76 to incorporate FAR principles into current competitions until a final integrated process is in place.

* Taking steps within government to encourage "high-performing organizations," independent of public/private competitions, particularly by selecting a limited number of government functions to be evaluated as pilot tests of the concept.