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The long awaited final version of Office of Management and Budget Circular A-76 will be issued soon. A-76 is the OMB rulebook for deciding whether federal employees or the private sector will perform commercial services.

Angela Styles, the head of the Office of Federal Procurement Policy, the OMB arm that oversees public-private competition, said last week that the new A-76 would be out in early June. That would put the final rule on the street fully six months later than OMB had planned when it floated a draft revised circular last November.

OMB received close to 700 responses during the comment period and it now appears that the final version will ease up on some of the more controversial provisions in the draft, including a redefinition that would presume all federal activities to be commercial unless an agency head could make a sound case, in writing, that they are inherently governmental.

But OMB is clearly winning the war, even as it tactically retreats from a few of the battles. The Bush administration's competitive sourcing (i.e., A-76) policy manages, quite strikingly and with very little fanfare, to shift the terms of the debate about how best to transform commercial organizations.

The draft circular acknowledges right off the bat that the "longstanding policy of the federal government has been to rely on the private sector for needed commercial services." The draft then proceeds to put the final nail in the coffin of the Eisenhower-era policy that "the government will not compete with its citizens." It does so by putting all its eggs in the basket of public-private competition and proposing to make A-76 look pretty much like any other procurement action, up to and including those sanctioned by Part 15 of the Federal Acquisition Regulation dealing with "best value" competitions.

But the notion of attempting to drive organizational transformation solely through the narrow tunnel of competition bears reexamination.

It is brutally clear that to the administration, the name of the game is competition, and competition alone, regardless of who wins, public sector or private. OMB appears far more concerned about the process than the outcome, a position that flies in the face of a large body of management research over the past 30 years as well as the administration's oft-cited commitment to results-oriented government. The problem with this rigid, unyielding faith in the new religion of competition is that it can lead agencies down a singular, lockstep path to organizational change, even if it may not always be the right one.

By focusing on competition exclusively, the new policy, perhaps unintentionally, implies that there are few other strategic tools that agencies should consider before jumping on the competition bandwagon. By so doing, the administration runs the risk of dragging agencies - now civilian as well as Defense - forcibly and inexorably toward the A-76 process, likely causing many to forego options that may better align with their culture, history, and missions.

Among the alternative strategic tools OMB has chosen to ignore or discourage in the new A-76:

• Strategic sourcing (pioneered by Navy and then adopted throughout Defense), in which an organization considers a broad array of reengineering techniques to achieve savings and streamline processes, whether commercial or inherently governmental.
• Privatization, the complete spin-off of an operation that does not result in a services contract since the agency is no longer responsible for the activity.
• Public-private (and public-public) partnerships, efforts that foster collaboration in lieu of competition.
• The creation of high-performing organizations (HPOs), called "performance-based organizations" during the Clinton administration and "results-based organizations" by President Bush. In return for greater performance accountability, HPO's are given expanded regulatory freedom to manage their human and financial resources. HPOs were strongly endorsed last year by the Commercial Activities Panel, chaired by David Walker, head of the General Accounting Office.

Most observers acknowledge that competition as a change strategy can be a valuable tool for improving processes and reducing costs. But it is only one tool among many - and a potentially limiting one at that.

Walker addressed this issue head-on in GAO's official response to the draft A-76 in a letter to OMB in January. An agency's policy on what source to use to deliver services "is not just about choosing among potential service providers," he wrote. "Rather, an agency's sourcing policy should be viewed as part of an overall strategy for how best to accomplish the mission of the agency, including how it conducts human capital planning."

Walker added that OMB's proposed revisions would discourage public-private partnerships and fail to establish a clear link between competitive sourcing policy and agencies' performance goals. For example, the draft circular says "agencies shall not perform work as a contractor or subcontractor to the private sector or a public reimbursable source [emphasis added] unless ...prior written OMB approval is obtained." A mindset that discourages an agency from collaborating, not only with the private sector, but also with interagency service providers, elevates the exclusive benefits of competition to evangelical levels.

There is virtually no language in the new circular that addresses alternative methodologies of the type outlined above. Ironically, the introduction to the existing A-76 Circular contains a compelling statement in support of what it characterizes as "more businesslike" processes that encompass "a wide range of options, including the consolidation, restructuring or reengineering of activities, privatization options, make-or-buy decisions, the adoption of better business management practices, the development of joint ventures with the private sector, asset sales, the possible devolution of activities to state and local governments, and the termination of obsolete services or programs."

Unfortunately, and without explanation, this, or any similar wording, disappears from the new draft circular.

OMB has actively discouraged A-76 alternatives ever since it established its controversial - now modified - competitive sourcing quotas in March 2001. (See "Arbitrary Outsourcing," Government Executive, Sept. 2001). For example, OMB must pre-approve a privatization initiative if the agency proposing it is to gain credit against its negotiated competitive sourcing quota. Styles also appears ready to scrap the direct conversion option for activities of 10 or fewer full-time equivalents and replace it with a costly, wrong-headed competitive process spearheaded by the Interior Department.

The Defense Department alone projects more than $2.5 billion in savings as a result of various non-A-76 strategic sourcing efforts by the end of fiscal year 2005, with recurring annual savings of about $700 million thereafter. But civilian agencies have been consistently blocked from moving in this direction. One can only assume that OMB prefers the relative ease of measuring head-count reductions that flow from A-76 studies in lieu of the messier, less concrete, but just as real, benefits that other options often produce. At least to OMB's mind, the results of competition are more public and transparent, and therefore more observable and easy to capture.

A number of agencies have sought to adopt broad-gauged approaches to organizational change in commercial activities that do not dismiss A-76 outright but place it in a much wider context for analyzing needs and requirements. Specific examples include Defense's aforementioned use of strategic sourcing, the Army's new "Third Wave" initiative, National Security Agency's Groundbreaker initiatives, the National Imagery and Mapping Agency's innovative use of preferential sourcing authority, and the Internal Revenue Service's sophisticated "business case" methodology. The use of franchising and other entrepreneurial mechanisms to transform commercial functions has grown rapidly in recent years with no sign of abating.

These and other creative alternatives have pointed us in new directions that should be reflected, even stressed, in the revised circular in order to restore balance to the administration's sourcing policy. It is the only way to encourage agencies to adopt transformational strategies that take them beyond the claustrophobic vision inherent in the A-76 process.

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• Studies by the U.S. Army show that contracting is more expensive long term (over a 5 year period) than simply keeping government positions intact. Now I ask a couple of hard questions: "What happens when all of these contract employees join unions and then go on strike? government services go down the toilet and leave the average citizen wondering where congress spent all of the "savings". I've seen too many of my friends and neighbors in the unemployment line around here because of the political games. What's worse is our congressman could care less and is willing to let it happen. Charles Rigdon Posted May 29, 2003 2:17 PM
• For years government has had (and still has) other socioeconomic goals beyond "efficiency". These include such things as programs to encourage the growth and development of American businesses ("Buy American Act"), small businesses, "Small Disadvantaged Businesses" and "HUBZones". Additionally there are preferences for veteran-owned businesses, woman-owned businesses and the like. In hiring, there are prefences for Veterans and the Federal Government has made many strides in affirmative action in its own hiring, as well as requiring non-discrimination by its contractors. There are also many other requirements on the government as an employer to ensure that employees receive due process. These extra responsibilities of the government are placed by law on the government. These are by design not "cost efficient" policies; rather Congress has made the decision that Government is about more than just the bottom line. Government has missions to make this country a better place, not just run by the most cost-efficient bureaucracy. This administration, however, is opposed to many of those policies. Rather than admit it publicly, they are using the A-76 competitions to undermine the laws that make government do more for the people. Why this hasn't gotten more widely publicized by the press, I do not know. But many A-76 competitions will result in one large contractor handling an entire function of government without the socioeconomic "burdens" of government that had previously been performed by government employees and small contractors under the socioeconomic policies that have been part of our law. GovExec.com reader Posted May 21, 2003 12:22 PM
• It's not easy to see anyone lose a job. I have worked for government contractors, and contracts generally last no longer than 5 years. Has the Bush Administration given that any consideration? After the contract is up, what about the employees who lose that job? The cycle continues. Will this policy help the economy? I think not. What is going to happen is more and more people will be out of work. The rich keep getting richer, but what about the support staffs, and all the others who will be affected? GovExec.com reader Posted May 21, 2003 9:49 AM

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