President and CEO

By Amelia Gruber

July 15, 2004

George W. Bush's ambitious management reform agenda is only beginning to show results.

When President George W. Bush calls a Cabinet meeting, he expects members to arrive with a copy of a simple score card rating their accomplishments in five areas of federal management reform. The traffic-light-style score card, updated by the Office of Management and Budget each quarter, better not appear overwhelmingly red, says Clay Johnson, Bush's ex-Yale roommate turned management adviser.

Attorney General John Ashcroft "had a blown-up version of his score card in the last Cabinet meeting, and I know John Snow was sitting next to him and was quite nervous because the Justice Department had fewer reds than the Treasury Department," Johnson says. "There's the competition thing, and they know the president pays attention."

As OMB's deputy director for management, Johnson is responsible for helping agencies earn better grades. Those marks are gradually creeping upward, and Johnson says it's because federal executives are internalizing the management ideals exemplified in the score card. But so far, the results of Bush's efforts are largely theoretical. Observers say the first president to hold an MBA would need another term to demonstrate substantial results across all five fronts of his ambitious management reform plan.

Setting the Agenda

On June 9, 2000, then-candidate Bush offered the first glimpse of his philosophy on federal management. Government reform should be "guided by three principles," he said in a speech at Philadelphia's Carpenters' Hall, where the First Continental Congress convened in 1774. "Government should be citizen-centered, results-oriented and, wherever possible, market-based," he said.

After his inauguration, Bush translated these broad principles into the President's Management Agenda, an outline of five governmentwide initiatives: personnel reform, increased public-private competition, improved financial management, expanded electronic government efforts, and the linking of budget decisions to program performance.

The initiatives built on previous management reforms. For example, a series of laws passed in the 1990s, including the Government Management Reform Act, Federal Financial Management Improvement Act and Chief Financial Officers Act, provided the basis for Bush's financial management goals. The Program Assessment Rating Tool, a questionnaire used by OMB to evaluate a sampling of federal programs each budget cycle, has a natural tie-in to the 1993 Government Performance and Results Act, says Paul Posner, managing director of federal budget analysis at the General Accounting Office.

Even Bush's controversial effort to let contractors bid on tens of thousands of federal jobs-known as competitive sourcing-asks civilian agencies to embrace a practice that dates back to the 1950s. The Defense Department got serious about running public-private competitions in the 1970s.

"I think as all presidents do, [Bush] came into the office wanting to argue that what he was going to do was fundamentally different," says Philip Joyce, associate professor of public policy and administration at The George Washington University. "I don't think what he's done is that different than what [presidential rival Al] Gore would have done, particularly in the budget area. That doesn't mean I think it's a bad thing."

But unlike past administrations, the Bush camp has not focused heavily on reducing the size of government. Indeed, the government (including both federal employees and the shadow workforce of contractors) is growing, in large part because of dramatically heightened attention to security, both at home and abroad. Bush also has distinguished himself by institutionalizing his reform efforts in existing offices and agencies rather than by creating an external organization to run them. His advisers, unlike many of President Clinton's, work in traditional management-oriented positions in OMB and at the agencies. (Clinton's were centered in the National Partnership for Reinventing Government that he created.) Mitch Daniels, Bush's first OMB director, mentioned management issues regularly in press briefings-a rarity for a federal budget chief.

OMB's quarterly score card gives managers across agencies objective standards for success and a clear idea of Bush's expectations. Managers say the grading also provides strong incentives for improving performance and a set of common goals.

The emphasis is clearly on results, says Michael Ryan, the Environmental Protection Agency's deputy chief financial officer. Jack Martin, CFO at the Education Department, agrees. "The laws have been around before and people didn't really comply," he says.

Bush "is a very results-oriented person," Johnson says, recalling the day advisers presented the president with plans for the Homeland Security Department. "He said, 'OK, I understand the logic of it. But tell me what really happens different on the border. I have a customs agent, I have an [immigration] agent. . . . Why can't we just get them to work together better? Why do we need a department?' "

Taking Stock

During the 2000 campaign, Bush pledged to save $88 billion over five years by streamlining bureaucracy, eliminating wasteful spending and holding agencies more accountable to taxpayers. Asked about that figure, Johnson leans back in an armchair in a meeting room near his office in the Old Executive Office Building and uses cocktail-napkin math to make the case that the Bush agenda actually has far greater savings potential.

"First of all, on competitive sourcing," Johnson says, "Half of the work that's done is really commercial, and half of that half is what we focus on. So that's a fourth and the total [federal] payroll is $100 billion." At least 10 calculations later, after drawing in savings to be realized from reducing overpayments to beneficiaries of federal programs and by simply running programs more efficiently, he announces, "so all of a sudden, what was $88 billion, which was $18 billion a year, that's way low."

But when Johnson speaks of savings, he is talking mostly of potential. OMB lacks comprehensive estimates of the savings produced by its management initiatives. And to dwell on savings, Johnson says, means missing the larger point. "I think we've succeeded at creating a series of habits," he says. There are numerous examples.

Two months ago, the Internal Revenue Service announced that a record 60 million taxpayers used the agency's electronic filing system-one of the best known e-government initiatives. OMB evaluators have rated the performance of 400 federal programs, representing 40 percent of the total, and are on track to grade an additional 20 percent before the release of Bush's fiscal 2006 budget request. Of those evaluated so far, OMB deemed 40 percent either effective or moderately effective.

Agencies are preparing to hand in this year's financial statements by Nov. 15, just 45 days after the close of the fiscal year. Last year and in 2002, the deadline was Feb. 1. Before that, agencies had until Feb. 27 to submit the paperwork. The Education Department and Environmental Protection Agency already have experimented with the new schedule. In order to meet tighter deadlines, EPA financial managers had to work closely with the agency's inspector general office, Ryan says. "That meant we did a better job of identifying problems earlier."

EPA and Education also supply accurate and timely financial data to program managers in a user-friendly format. Education's financial office, for instance, sends out a monthly report called "Fast Facts" to program managers. Both Ryan and Martin say they have enjoyed success in financial management partly because they've acquired the technology to upgrade reporting systems. The majority of agencies, however, still lack such capabilities.

While techniques for measuring performance are improving, 40 percent of programs still failed to demonstrate results on the latest PART evaluations. And the tool has yet to fully take hold on Capitol Hill. OMB's evaluations help identify program shortcomings, says Vice Adm. Conrad Lautenbacher Jr., the administrator of the National Oceanic and Atmospheric Administration at the Commerce Department. But the ratings don't necessarily capture the intricacies of every program, he says.

NOAA's Pacific Coastal Salmon Recovery Fund, for instance, an environmental grant program, has received a "results not demonstrated" rating two years in a row. The program, administered partly at the state level, doesn't really fit in with OMB's evaluation process, Lautenbacher says. OMB's evaluation system works best for programs under agencies' direct control. But that doesn't mean the ratings will never work for the salmon program, he adds. "I'm a believer in measuring [performance] and output, even when it's hard."

A mixed picture also emerges in e-government. Agencies point to individual successes, but a recent General Accounting Office assessment found that of 25 electronic government projects, only two-Health and Human Services' Web site and the Internal Revenue Service's e-filing system-have fully achieved goals set in May 2002.

In personnel reform, agencies still aren't taking full advantage of existing hiring flexibilities, according to a recent Office of Personnel Management report. Both the Homeland Security and Defense departments are completely overhauling personnel systems, and as a result, most federal employees soon will work outside the standard civil service system. The DHS and Defense efforts, however, have drawn fervent opposition from federal employee unions.

Tough Competition

Of all Bush's management initiatives, competitive sourcing has the most checkered record, in part simply because an extensive record exists. From the get-go, union officials attacked Bush's initial goal of letting contractors bid on 425,000 federal jobs-half of the positions classified by agencies as commercial in nature in 2000-as an "arbitrary privatization quota."

But Angela Styles, the former head of competitive sourcing at OMB and now a partner at Miller & Chevalier, a Washington firm specializing in contract law, says she never viewed the targets as quotas. "I looked at it as, if people learn about [competitive sourcing], it's a huge success," she says. The Bush administration eventually abandoned the governmentwide goal, allowing agencies to set custom targets.

OMB released a congressionally mandated report on competitive sourcing in May 2004, providing the first governmentwide data on the initiative. In fiscal 2003, the report shows, agencies completed 662 job competitions, putting 17,595 full-time federal jobs up for competition from contractors. OMB estimates that those contests alone will produce a net savings of $1.1 billion over three to five years. Put differently, the competitions saved taxpayers roughly $12,000 a year per position considered. Union leaders are quick to point out that the savings projections could be inflated, as OMB did not factor in the cost of time that employees were distracted from regular responsibilities to help with competitions.

But while several agencies engaged in aggressive competitive sourcing efforts in 2003, others did not conduct a single competition. Seven of the 26 major agencies didn't complete any studies in 2003, 14 didn't announce any contests that year, and another six had no studies on the slate for fiscal 2004. Several agencies-OMB itself, the Smithsonian Institution, the National Science Foundation and the Agency for International Development-fell into all three categories.

The varying extent to which agencies have pursued competitive sourcing does not surprise Styles. "If you get some, then you've made progress," she says. "In some respects, that's better than anyone else has done in 50 years."

OMB's fiscal 2003 report also shows that in-house teams win contests at a high rate. Incumbent workers prevailed 89 percent of the time and won an even higher percentage of smaller contests, a pattern that industry groups and some managers find disturbing. "In any process, if it's 100 percent one way, there's a problem," says Joe Sikes, director of competitive sourcing and privatization at Defense.

In contests completed before OMB issued a revision to Circular A-76 in May 2003, Defense employees increasingly prevailed. "We had historically been sort of 50-50, or maybe 60-40" in favor of incumbent employees, he says. "In the last few years, that number has crept up to [around] 80 percent." The Center for Naval Analyses is investigating the causes of the upswing.

Despite the difficulties of competitive sourcing, Sikes remains confident that the practice saves taxpayers money. Data from contests back going to 1978 show that the Pentagon has reduced costs an average of 30 percent through competitive sourcing, he says. Civilian agencies are newer to the process, so they are understandably encountering challenges, he says.

The Forest Service has experienced a significant share of the problems. In fiscal 2002 and 2003, the agency ran a series of small job contests-which are less attractive to contractors-catching the attention of congressional investigators and OMB. Of 169 competitions completed by February 2004, agency employees won 161, or 95 percent. Seventy-eight involved fewer than two full-time equivalent positions. Of these, 36 involved only a fraction of a single full-time-equivalent position.

Forest Service officials acknowledge these mistakes, and say they are working with OMB to correct the problems. Management adviser Johnson says he sees the flawed competitions as a learning opportunity. "What we decided is that everybody owes [the Forest Service] congratulations," he says.

To Johnson, the benefits of competitive sourcing so clearly outweigh the challenges that he's convinced the initiative will persist long after Bush leaves office. "Right now, we have the potential to realize a $5 billion or $6 billion or $7 billion savings for the taxpayers," he says. "I think somebody would have to be awfully brave to stand up and say: 'I'm not interested in that.'"

Looking Ahead

Nevertheless, if Johnson has any say, President Bush won't be trumpeting such figures on the campaign trail. "There's a history of people doing management things for political purposes, going for . . . the big savings, the big photo op," he says. "To the extent that may become political, I think the federal employees get very skeptical."

A Bush campaign spokeswoman declined requests for comment on management initiatives, referring questions back to Johnson. He pledges to stay out of the campaign fray, remaining focused on helping agencies earn green marks on the management score card. Halfway through fiscal 2004, the score card showed 12 green lights, 57 yellows and 61 reds. These grades look good compared with the first score card, released in February 2002. It contained only one green light and 110 failing marks.

Despite the progress, the administration will wait until the score card shows more green lights to consider revising the standards for success, Johnson says. In July, he will provide Bush with an update on accomplishments at the three-year anniversary of the management agenda.

"The common thread in all this is about focusing on results," he says. "And that should never stop, because you can always get better and always be smarter about it."

By Amelia Gruber

July 15, 2004