OMB puts federal jobs up for grabs

OMB Circular A-76

The Bush administration last week published the long-awaited revised rules for deciding whether government work should be outsourced, warning agencies they can no longer protect jobs from competition.

The new Office of Management and Budget Circular A-76, which took effect May 29, is intended to provide a more equitable basis for comparing the cost and value of outsourcing work vs. keeping it in-house. It also is designed to force agencies to run such competitions on a regular basis and in a timely fashion.

Over the past several years, OMB has required agencies to identify jobs that qualify as commercial activities as opposed to those that are inherently governmental — a requirement that at last count produced a list of 858,000 positions, or nearly half of federal employees. Yet those jobs, for the most part, "remain insulated from the dynamics of competition," according to OMB's new rule.

As part of the President's Management Agenda, agencies have been required to develop plans for opening their commercial activities to private-sector competition. The revised A-76 is intended to ensure that agencies implement those plans using a systematic process.

The new rule is intended to be simple to understand and implement, answering long-standing complaints that A-76 is too complicated for agencies to use, said outgoing OMB Director Mitchell Daniels Jr. at a press conference May 29 announcing the final rule.

Because of that complexity, Daniels said, "We've had far too few competitions and far too few competitors."

Federal employee unions have fought hard against the A-76 concept. In response to union concerns, OMB dropped some of the most controversial provisions present in its original version of the rule. It eliminated a process of "direct conversions," which allowed agencies to declare some work involving small numbers of people to be commercial without going through any sort of evaluation. The final rule includes a streamlined evaluation process to be used instead for activities involving 65 or fewer full-time equivalent jobs.

Critics on the other side have been concerned that the A-76 process did not recognize the added expertise that contractors bring to a job.

The new A-76 includes a "trade-off" process for information technology activities and other purchases where agencies might want expertise at a higher cost. This provision addresses a long-standing complaint about A-76, said Alan Chvotkin, senior vice president of the Professional Services Council.

"More and more awards are made on a technology basis," he said. "That's one of the biggest complaints that's been made about the A-76 process, that it compared function to function and you can't look at it on an enterprise basis. Everybody complained. It didn't matter that you could spend a little more on the current function to achieve downstream savings."

Shirl Nelson, a principal at Acquisition Solutions Inc., which provides consulting services to agencies, said the trade-off process "falls a bit short of true best value." Overall though, she said the A-76 revision succeeds. "It's a vast improvement over the original process and even over the first revision," she said.

The final product is still bad for federal workers and taxpayers, according to opponents. Figures compiled by the Commercial Activities Panel show that from 1997 to 2001, Defense Department competitive sourcing decisions came down in favor of contractors 63 percent of the time. However, direct conversions accounted for many cases where the federal workers lost. Federal workers won 60 percent of the standard cost comparisons and 98 percent of the streamlined cost comparisons that the panel examined.

"We're happy about ending direct conversions. That's a big thing," said Randy Erwin, assistant to the president of the National Federation of Federal Employees. Direct conversion belied the government's claim that A-76's purpose was to make the government more competitive, he said. "Getting rid of it legitimizes the argument."

However, removing direct conversions is "about the only good thing" about the final rule, he said.

Angela Styles, administrator of the Office of Federal Procurement Policy, said that opening work to competition cuts costs by an average of 30 percent no matter who wins. The 30 percent figure has been widely used by administration officials, but a key supporting study, conducted by the Center for Naval Analyses, examined only 16 competitions, or 15 percent of the total number of jobs competed between 1988 and 1996, opponents argue.

Likewise, while federal employees won the majority of the 364 regular or streamlined cost comparisons that the Commercial Activities Panel examined, that data was compiled between 1997 and 2001 — the height of the technology boom when IT labor was selling for premium prices.

Agencies are working on ways to implement the new rule. Competitive sourcing decisions should be "treated as acquisition projects," with the agency's acquisition leaders involved upfront, said David Litman, senior procurement executive for the Transportation Department, speaking at a forum sponsored by AFCEA International's Bethesda, Md., chapter.

"Government employees don't know how to prepare proposals," Nelson said. "They have the advantage of having the job, but the disadvantage of not knowing how to compete."

Implementation of the guidelines will be the real test, said David Walker, comptroller general of the General Accounting Office and chairman of the Commercial Activities Panel. A key issue for the rule is "what kind of technical and financial support employees will receive to be able to compete with industry," he said.

At the bottom of all of this is the need for OMB to help agencies modernize their workforce management systems and practices so officials know what skills are in place and what capabilities need to be augmented, Walker said.

Some critics say the revisions don't go far enough. Paul Brubaker, former DOD deputy chief information officer who is now a consultant, said agency employees should only carry out work that is part of the agency's core mission.

"I don't mean to be insensitive, but we've got to decide whether we want an efficient government or we want a jobs program. And if we want a jobs program, let's call it a jobs program," he said. "The problem is that the whole debate is in the context of the old A-76. If they're serious about changing the way we operate and the way we're trying to do competitive sourcing, they should basically start with a clean sheet of paper."

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By the numbers

The 11 agencies with the greatest number of positions deemed commercial in 2001, the most recent year for which data is available:

Defense — 412,756 Veterans Affairs — 189,399 Agriculture — 42,691 Health and Human Services — 32,843 Treasury — 29,395 Interior — 23,186 Social Security — 11,953 Transportation — 11,526 State — 10,492 Justice — 10,260 Energy — 9,889

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Key changes in the new A-76 rule

* Competitions must be completed within 12 months, with the option of a six-month extension. Previously, there was no time limit and competitions could take years to complete.

* Outsourcing decisions must be based on a combination of cost, technology and other best-value factors, not cost alone.

* Direct conversions, in which work is immediately outsourced, are prohibited except in rare cases. Agencies may use streamlined procedures for activities that involve small numbers of employees.

* Agencies that identify functions as inherently governmental must justify their classification.

* As part of their expanded accountability, agencies must track their competition process and submit quarterly reports to the Office of Management and Budget. Agencies must also monitor the performance and costs of private contractors or federal employees chosen to carry out an activity through the A-76 process.