Death Knell for A-76

n April, the Commercial Activities Panel, a congressionally chartered group of 12 representatives from the Defense Department, the Office of Management and Budget, private industry, federal unions and academia, unanimously agreed on 10 principles that lay the foundation for a new federal outsourcing policy. A two-thirds majority voted to urge OMB to scrap the current process, embodied in OMB Circular A-76, for conducting public-private competitions for federal services and replace it with "best value" competitions based on the Federal Acquisition Regulation. Having described the A-76 commercial activities effort as the "program everyone loves to hate," I'm not surprised that the panel, headed by Comptroller General David Walker, has sounded its death knell.

The panel had a broad mandate to study federal outsourcing issues, but focused instead on the competitions governed by Circular A-76. That means that decisions about what agencies should include on their inventories of jobs open to competition will continue to be informed by OMB Circular 92-1, which details inherently governmental functions, such as warfighting, setting policies and approving contracts. Circular 92-1 also describes many support and advisory type functions that can legitimately be performed by contractors. The panel argues that A-76, with its overriding focus on cost, has failed to keep up with the acquisition reforms of the last decade. Most large-scale procurements follow a "best value" evaluation process. While costs are important in every acquisition, it is such nonprice factors as innovation in getting the job done that frequently tip the scale for the winning bidder. The panel suggests that these types of considerations should apply equally in the competitive sourcing environment. Federal unions and other observers believe that this change could put federal workers at a disadvantage because the lowest bid would no longer automatically prevail. Panel member Stan Soloway, president of the Professional Services Council, says the new process needs "to treat everybody as a bidder," not only during the competitive process, but also afterwards. Whichever competitor wins, be it a company or an agency team, its work should be governed by a contract, Soloway says.

Transformation to a process governed by acquisition rules will pose definite challenges, since those rules govern business with private firms, not governmental entities. New requirements will have to be drafted for government agencies. The panel recommended that "although some changes in the process will be necessary to accommodate the public sector proposal," the private and public sectors should have the same basic rights and responsibilities, "including accountability for performance and the right to protest." Ironically, the Defense Department cannot use the FAR-based, best-value method until Congress repeals a statute that prohibits it, so Defense, which has conducted more A-76 competitions than any other agency, will have to wait for legislators to clear the way before it can take advantage of the changes suggested by the panel.

The panel acknowledged these sorts of constraints on implementation of its recommendations, suggesting that current A-76 competitions continue and the A-76 process be improved simultaneously with development of a new FAR-based approach. Specifically, the panel recommended agencies adopt activity-based costing, improve labor-management cooperation in the sourcing process, and strengthen rules governing which agency employees are permitted to oversee evaluations of competitive sourcing proposals. Each recommendation is aimed at countering criticisms of the current A-76 process.

Finally, the panel urged the development of continuously improving High Performance Organizations, "independent of the use of public-private competitions." These organizations would, for a time, be exempt from competitive-sourcing studies and could reinvest any savings to further refine and improve their operations. Soloway suggests that inherently governmental functions, rather than those deemed commercial, become HPOs. Inherently governmental activities stand to improve the most under the high-performance approach since they lack the competition necessary to leverage the best result for the taxpayers, he says.

The HPO idea should sit well with those who contend the government ought not increase its reliance on the private sector for the provision of services. This camp also will welcome the panel's recommendation that both public and private teams be allowed to compete for work currently performed in-house, work currently contracted to the private sector and new work. In fact, OMB will add language along these lines to the guidance it is giving to agencies on how to develop their competitive sourcing plans.

Despite criticism from unions and others, Comptroller General Walker believes the new approach will be better than the old. "I care as much or more about public service as anybody," he says. "There is no way I would have voted for it if it weren't fair and balanced." And he expects to stay involved, in part because he leads the panel, and also because he believes the issue is important to government performance and, therefore, the taxpayer. That's good news. His continuing involvement should help what promises to be a knotty transformation go more smoothly.