Government Executive - Authors - Robert J. Agresta

OPM Needs a Mission—Not a Funeral

Robert J. Agresta — Thu, 25 Sep 2014 09:00:00 -0400

From the archives of Government Executive…

September 1994—The death knell has sounded, and the long knives are dripping blood. The only question that seems to remain is, “When is the funeral?”

That’s what the pundits are saying about the Office of Personnel Management, the much-maligned arbiter of the rules and regulations on the hiring, firing and retiring of federal workers. Although it stopped far short of calling for OPM’s demise, Vice President Gore’s National Performance Review report painted a picture of an agency pitiably adrift, flailing about “to find its identity.” The NPR has strongly recommended a complete cultural overhaul of the place, while seriously doubting the agency’s ability to pull off such a transformation.

More recently, in these pages, columnist Paul Light cited OPM’s dwindling resources and organizational confusion in proposing what appears to many to be the logical next step: abolishing OPM and dispersing its essential functions—retirement and insurance processing, Title 5 compliance checking, centralized job information, etc.—to other agencies. (See “Management Focus,” March 1994.)

OPM’s identity crisis began when the agency was established in 1979 with a strangely mixed bag of missions that confused client agencies and OPM itself.

One the one hand, OPM was charged with setting personnel policy for all agencies covered under Title 5 and with making sure the rules were being followed; these “central control” functions were (and still are) supported by appropriated funds.

On the other hand, OPM has always had a service function that has nothing to do with its policy/oversight role. Activities such as doing background investigations, providing training and conducting research projects are done under contract with other agencies, which reimburse OPM through payments into a revolving fund. Demand for these services has been shrinking, with the result that OPM this year has been forced to lay off more than 700 people.

Public organizations that try to simultaneously perform dual roles of control and service simply never work well. A number of recent studies—see Michael Barzelay’s Breaking Through Bureaucracy (University of California Press, 1992) and my own article, “The Service Marketplace,” in the spring 1993 issue of The Public Manager —have documented the importance of separating customer-focused service functions from those that are rule-based. The mind-sets are fundamentally divergent, if not contradictory, and to allow them to exist side by side often results in confused strategy, wasted resources, energy-sapping conflicts and diffused accountability.

The fact that OPM has had dual missions throughout its history is at the core of its problem. Could the Office of Management and Budget or the General Accounting Office be expected to perform their oversight and control functions if they were also required to try to sell their expertise to the very same federal agencies they were reviewing and evaluating? This is precisely what Congress has allowed to continue for far too long at OPM.

The agency itself has been exacerbating the problem in recent months by thrusting its very talented policy-setting and oversight staffs into an ill-defined entrepreneurial mode without clearly redefining fundamental roles and responsibilities. Attempting to charge agencies for OPM’s statutorily based functions of policy and oversight raises legal and ethical problems, which the agency is choosing to ignore.

After serving seven years as a senior executive at OPM, ending when I retired last March, I have concluded that there is a middle ground between those who are calling for the funeral cortege to begin and those who are saying “hands off OPM.”

It is clear that the agency cannot be abolished now; federal workers are far too valuable an asset to leave untended, without central strategic management. Congress is not yet ready for so dramatic a step, nor would it palatable to cede OPM’s core policymaking and oversight roles to OMB. Does anyone really think that OMB, having virtually abdicated its “M” function, would suddenly take the leadership responsibility for a “soft” area like personnel management seriously?

Yet it would also be foolhardy to simply allow OPM to attenuate indefinitely in its current form. Instead, the Administration and Congress must quickly decide what they want OPM to be: credible policy maker/adviser/evaluator, or entrepreneurial purveyor of human resource management services. Both roles are valid and valuable, but they must not be allowed to co-exist in a single agency.

The first role provides a locus of accountability for the governmentwide personnel management system, something Congress is not likely to jettison soon. Indeed, this function will have to remain in the government somewhere, whether in a smaller OPM or in a broader agency akin to the “Office of Federal Management” that some say should be created.

The second role offers large cost efficiencies that flow from the economies of scale that a central service provided can yield. The “business” operations of OPM could be reconstituted as a quasi-commercial organization (perhaps a public corporation) offering human resource management services to the agencies on a pay-as-you-go basis and funded solely in that manner, as has happened in Australia and New Zealand.

Whichever mission is chosen for the agency, a strategically realigned, mission-directed OPM would have a chance to succeed—much smaller probably, but with a real sense of purpose. The time has come to make a choice. Otherwise, we will be left with an agency leading what the existentialists call a kind of “death-in-life”—breathing perhaps, but not thriving; moving about, but not in any particular direction. This kind of agency deserves to be cut off from life-support systems in preparation for a long-overdue burial.

In 1994, Bob Agresta was a senior associate with RJA Associates, a human resource development research and consulting firm based in New York.

]]>

It’s Time To Rethink Entrepreneurialism

Robert J. Agresta — Tue, 01 Oct 2002 00:00:00 -0400

Conventional wisdom says entrepreneurial entities save money and resources, but no serious study has proven that claim.

ne of the more curious aspects of the president's management ag-enda has been the way fee-for-service entities have managed to fly beneath the radar of the administration's controversial competitive sourcing initiative. The Office of Management and Budget has required agencies to compete 15 percent of their commercial jobs, ranging from lawn care to data processing, by October 2003. The eventual goal is 50 percent. But OMB has set its sights almost exclusively on conventionally funded activities. Also, the Commercial Activities Panel's April report, "Improving the Sourcing Decisions of the Government," virtually ignores fee-for-service operations in its plan to revamp outsourcing rules.

Consider this:

Why does the Central Intelligence Agency sell administrative services?
Do the executive coaching and related consulting services offered by the Treasury Department advance the agency's mission?
Should the Interior Department's Minerals Management Service be brokering fee-based procurement deals for non-Interior bureaus?

Unlike traditional in-house administrative shops that exist to support their agencies, these fee-charging entities also target external markets and operate much like businesses.One would be hard-pressed to deny that they are classically commercial as defined by the 1998 Federal Activities Inventory Reform Act and OMB Circular A-76, which governs the outsourcing of federal jobs. Yet not one of these fee-for-service organizations is slated for competitive study or privatization.

FRANCHISE FUNDS

Matthew Weinstock's article, "Building Entrepreneurs," (June) cites the purported benefits of this growth in entrepreneurialism over the past eight years. Among them are leaner support staffs, greater cost transparency and price sensitivity, and innovation through competition.

Many agencies have been authorized to provide interagency reimbursable services for 60 years, since the 1932 Economy Act, but the acceleration triggered by the Clinton administration's reinventing government drive has been vertiginous. Most notable was the passage of the 1994 Government Management Reform Act (GMRA), which launched franchise fund pilots at six departments.

These funds soon will be up for reauthorization and perhaps expansion across government. Neither the General Accounting Office nor OMB has seriously studied the pilots, and no congressional hearings have been scheduled to examine the reauthorization question.

These franchise funds have grown rapidly, to say the least. Treasury alone has 11 entities operating as franchise funds, whose revenues have more than tripled in the past four years.

Weinstock pegs annual franchise fund revenues at the six pilot agencies at about a half billion dollars, but other estimates are higher. Treasury's revenues alone totaled $223 million in fiscal 2001, and the department is by no means the largest franchise fund operator in government.

BEYOND THE MISSION

Franchise funds are only the latest version of working capital, industrial and revolving funds that enable agencies to supplement their congressional appropriations through interagency sales, which now total close to $150 billion a year. Franchise fund agencies are unique, however, because GMRA extended interagency sales authority beyond agencies' core missions to include common support services.But unlike traditional administrative shops, franchise fund activities were not established to support their agencies' missions, but rather to increase market share, produce cost efficiencies, and generate revenue to sustain their existence. They were expected to survive-even thrive-without dipping into their agencies' appropriations.

Before GMRA, reimbursable interagency sales under the Economy Act were, for the most part, limited to those that flowed naturally from agencies' core missions. For example, the Office of Personnel Management (and its predecessor, the Civil Service Commission) has been selling services to sister agencies since the 1950s, but always in the fields of training, human resource management and background investigations-areas grounded in OPM's mission. OPM, like all fee-for-service providers, engages in questionable head-to-head competition with private sector firms and other agencies, but its reimbursable services grow directly from the desire of other agencies to tap OPM's personnel expertise and rely on its statutory credibility. This is not the case with franchise funds.

The conventional wisdom is that these entrepreneurial entities reduce overhead costs across government and free up agency resources for mission-directed activities. But there has yet to be any serious study to verify the claim. And there appears to be just as much basis for questioning the relative cost-effectiveness of fee-for-service operations, at least when compared with similar services provided by the private sector.

When asked why franchise, revolving and working capital funds should not be privatized or outsourced, managers usually say they already contract out 70 percent to 80 percent of their work. While this is apparently true, they rarely mention the number of employees who manage these activities. When salaries, benefits and unfunded liability costs are factored in, the governmental funds committed to these classically commercial activities jumps markedly.

Indeed, one of the real dangers of fee-for-service entities is their potential to mask the true costs of government and reduce Congress' ability to track funds and oversee agency operations. A senior director at the Joint Financial Management Improvement Program characterizes interagency sales as being in a state of chaos. "Everybody does something different, even in the same department," she says. At some agencies, revolving fund revenues have even helped subsidize the costs of inherently governmental activities. As Weinstock says, "Entrepreneurs often find themselves at odds with a power structure that does not like losing control." Perhaps, but Congress probably needs to exercise more control, not less.

The administration has taken several steps that indicate it plans to scrutinize entrepreneurialism more. OMB recently proposed a rule that will require agencies to open interservice support agreements, so-called

ISSAs, to competition every three to five years. Previously, these agreements-which predominantly have been creatures of entrepreneurial federal entities such as franchise, working capital and revolving funds-could be renewed repeatedly by a customer agency without competition. This is one of the monopolistic advantages federal agencies have traditionally held over the private sector. OMB's rule levels the playing field, since these agreements will now more closely resemble standard contracts, and the agency providing the service will be forced to keep a close eye on costs since it will eventually face competition.

In another effort to get a better handle on interagency transactions, FAIR Act guidance from OMB in fiscal 2002 required agencies to report the number of employees funded through reimbursable agreements. Administration sources say additional steps are being considered.

TIME TO RECONSIDER

It is time for the stakeholders-specifically congressional oversight committees, GAO and OMB-to take a long, hard policy look at fee-for-service operations in government. With the administration's push to competitively source commercial activities, the imminent reauthorization and likely expansion of franchise funds, and the seemingly untrammeled growth of entrepreneurialism even in central management agencies such as the General Services Administration and OPM, we need to identify the true costs of fee-based entities. That means looking at the number and cost of employees devoted to these classically commercial, non-mission activities, and, most important, the core questions regarding their very existence.

The Bush administration seems to sense the danger in letting these activities get out of hand. Now it needs to start a serious conversation about the past, present and future of entrepreneurialism.

Bob Agresta, a former senior executive for OPM, is director of strategic sourcing services for Denver-based energy, environmental and consulting firm CH2M HILL Inc. He can be reached at bagresta@ch2m.com. The views expressed are not necessarily those of CH2M HILL. ]]>

Arbitrary Outsourcing

Robert J. Agresta — Sat, 01 Sep 2001 00:00:00 -0400

A major impetus behind the initiative is the administration's desire to close gaping loopholes in the 1998 Federal Activities Inventory Reform (FAIR) Act and OMB's policy guidance. The FAIR Act requires agencies each year to publish lists of jobs that could be performed in the private sector; in 2000 there were 850,000 of them. The issue relates to the language in the law that calls for agency heads to review their annual commercial activities "within a reasonable period of time after the date on which a notice of public availability . . . is published."

The subsequent OMB guidance, issued as a revision to the Circular A-76 Supplemental Handbook of 1996, which sets the rules for public-private competitions, adopts the language in the law but chooses not to define the phrase "reasonable time." Moreover, the language calls on agency heads only to review the activities on the list. It does not require actual decisions on whether competitions will be conducted. Nor does it call for any documentation of the review process or how any decisions to compete (or not to compete) are to be reached. As a result, agencies are free to roll over activities on their lists from year to year with a degree of impunity not intended by Congress.

In the face of this loophole, and to keep some election promises, the Bush team quickly concluded that setting specific targets for competitions or conversions to be achieved within specific time frames was the only way to kick-start an A-76 process that had grown moribund in recent years.

OMB's goals have the advantage of clarity and focus, but do they represent a defensible and effective pathway to success? One problem is that OMB has been silent on how it determined its numeric targets. It is not clear what, if any, empirical or historical data were used in arriving at the 5 percent and 10 percent goals. Further, applying the same goals rigidly to all agencies and departments regardless of mission, culture, size and past experience with competitive sourcing may not prove realistic.

'Malicious Compliance'

Rep. Tom Davis, R-Va., chairman of the House Government Reform Subcommittee on Technology and Procurement Policy, said at a June 28 hearing on outsourcing: "There is nothing that says that to arbitrarily assign federal agencies target figures is the best means to ensure cost savings for the government." Davis' use of the term "arbitrary" captures what is likely to be the reaction of many federal executives and managers faced with helping their agency heads achieve these goals. If managers view the goals as not based on a sound assessment of needs and situational requirements, many will find creative ways to circumvent them and avoid accountability. In other words, a perception of arbitrariness inevitably breeds counter-functional behavior. Some call it "malicious compliance."

Agency-Specific Analysis

The administration has wisely backed off from its ill-advised campaign promise to flatten the federal hierarchy by cutting more than 40,000 middle management jobs. Instead, OMB has substituted a much more rational approach in which it has asked each agency, using OMB- developed guidance, to systematically analyze its workforce profile against its mission and future requirements. The results of these analyses will be followed by an agency-by-agency restructuring plan that feeds directly into the fiscal 2003 budget cycle. Now, any numeric cuts, organizational flattening or restructuring will be the outcome of a comprehensive analysis, not just a knee-jerk response to an arbitrary decree issued from above. The approach, although demanding and time-sensitive, is being viewed by many agency executives as a serious attempt to involve them in the goal-setting process. Moreover, the approach is much more in line with the philosophy and procedures that underlie the 1993 Government Performance and Results Act. The word "arbitrary" is not being applied widely to the workforce analysis initiative.

A similar approach should be considered by the administration for its competitive sourcing policy. Instead of a top-down 15 percent compete-or-convert goal, agencies should be required to (1) apply OMB-developed decision criteria during their annual commercial inventory reviews and (2) rigorously document the results of their analyses.

For example, if an agency's current inventory listed 2,000 commercial jobs, the agency should be required to apply the OMB criteria to all (or some percentage) of the inventory and then document how it decided which activities to compete (or convert) and which not to compete-and why. The documentation should be reviewed regularly and addressed by agencies in their annual GPRA performance reports. Nothing like this now exists. Agency decisions on inventory status can be (and are) delayed indefinitely because of the loophole in the FAIR Act. The drafters of the FAIR Act may have envisioned an annual decision process, but that's not what's happening.

Unlike the administration's current cookie-cutter strategy (i.e., 15 percent by 2003 for everyone), specific targets for possible competition would likely vary from agency to agency under this more rational approach. Indeed, it is likely that a number of agencies should set goals higher than the 15 percent target. OMB Director Mitch Daniels recently singled out the Interior Department as falling in this category.

Carefully set targets would have the advantage of being an outgrowth of relevant analyses of agency-specific mission requirements and circumstances. They definitely would not be seen as arbitrary.

The Bush administration needs to reconsider the path it has taken before the cynicism it has engendered becomes irreversible. Too much is at stake.

Robert J. Agresta is vice president for strategic development at Star Mountain Inc. (a Provant company) based in Alexandria, Va., He leads the firm's outsourcing and privatization practice. He was formerly a member of the Senior Executive Service at the Office of Personnel Management. ]]>