OMB moves to open support services to private competition

Private sector firms will gain full access to the lucrative federal market for support services under a new proposal from the Bush administration. In a Federal Register notice issued Monday, the Office of Management and Budget proposed opening all Inter-Service Support Agreements (ISSAs) between agencies to competition from the private sector. As agencies focus on their core missions, many have used ISSAs to obtain support services from other agencies or from federal franchise operations. While ISSAs created after 1997 are already subject to recurring competition from the private sector, service agreements negotiated before 1997 are not. "Agencies have long provided commercial support services to other agencies and departments on a reimbursable basis, through ISSAs, without the benefit of competition," said Angela Styles, administrator of the Office of Federal Procurement Policy, who announced the ISSA proposal last week in testimony before the House Subcommittee on Technology and Procurement Policy. The administration's proposal would change the Supplemental Handbook to OMB Circular A-76 to require competition for all ISSAs every three to five years. Competitions will follow the cost comparison process outlined in the circular. Mandatory A-76 competitions will also close a budgeting loophole that obscures the full cost of ISSAs, according to OMB. While customer agencies that buy services through an ISSA pay a reimbursable fee, vending agencies use both this fee and their appropriated funds to finance the services they provide, OMB Deputy Director Sean O'Keefe said in the notice. "Even when a reimbursable rate or price is charged by a providing agency, it may not cover the full cost of the goods and services provided to programs--in part because the support activity agencies themselves are not charged for the full cost of the resources because they use or get some financing from direct appropriations," said O'Keefe. Franchise operations do not receive federal funding. Under the Government Management Reform Act of 1994, agencies were allowed to establish franchises that would compete to sell their services across the government. Franchises operated by such agencies as as the Interior Department's Minerals Management Service and the interagency Cooperative Administrative Support Unit Program should not be hurt by increased competition, according to Mike Serlin, a retired Treasury Department official who headed the National Performance Review team that developed the franchising concept in the mid-1990s. "To the extent the organizations providing service to other agencies are counting all their costs accurately, and are operating in an environment where their customers have a choice of providers, they should be able to deal with competition from other federal service providers and from the private sector," said Serlin. But OMB's proposal could complicate the franchising process, according to Barry Hudson, managing director of franchising operations at Treasury. "This just adds more complexity and confusion to the process," Hudson said. "We have upwards of 2,000 agreements [with customer agencies] a year. A lot of those are performed by contractors, so it doesn't make sense to make ISSA's compete agreements that are already performed by contractors." About 80 percent of the work solicited by franchises is passed along to private firms, according to Hudson and Serlin. At the subcommittee hearing last week, Rep. Jim Turner, D-Texas, said the competition mandate could hurt agencies, such as the Defense Finance and Accounting Service, that have made heavy investments in systems to provide services to other agencies. "If some of our agencies lose these contracts, it may create losses to us that are difficult to evaluate because we would be losing economies of scale," he said. ISSAs within an agency are not subject to the competition mandate, according to OMB. Agencies and members of the public may submit comments on the proposed change until August 16. Comments should be sent to: Office of Federal Procurement Policy
NEOB Room 9013
Office of Management and Budget
725 17th Street, NW
Washington, DC 20503
Comments may also be faxed to: (202) 395-5105.
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