Competing To the Death

President Bush's much heralded competitive sourcing program is on life support.

Seven years ago, President Bush launched what some envisioned would be the most radical transformation of government operations in a generation. Competitive sourcing would leave the Texas Republican's market-based imprint on the ethos of Washington by requiring federal employees who perform commercially available work to justify their positions through direct competitions with the private sector. Although opposition was expected from unions and Hill Democrats, the administration anticipated that the performance improvements and taxpayer savings spun from the initiative eventually would win over intractable critics. As with many administration predictions, cold hard reality would soon trump optimism.

As the theory goes, competitive sourcing drives cost savings and efficiency by requiring agencies to put jobs that could be performed commercially up for competition with contractors or other agencies to determine which organization can accomplish the work most economically. Money would be saved even if the federal team won, because the competitions would force agencies to streamline their operations. But some say the program not only threatens federal jobs, but fails to produce results.

As the Bush administration enters its final year, competitive sourcing is on life support, suffering a slow and debilitating decline that could incapacitate the program for the next nine months. Legislative restrictions have burdened the program virtually since its outset, with pockets of resistance taking hold in the Republican-controlled Congress. But those constraints amounted to little more than a hiccup compared with the complete program overhaul of the past year.

Democratic-backed legislation has halted more than a half-dozen planned competitions or swung the pendulum in favor of federal employees by removing health care and retirement benefits from the cost comparison process for the ones allowed to continue. Stressed with a bevy of other issues, agencies have become increasingly tentative toward major competitive sourcing projects while the private sector, frustrated with the perceived imbalance in the competitions, has all but thrown in the towel. Even the Office of Management and Budget, the program's most ardent defender, apparently sees the writing on the wall, focusing on verifying past savings rather than on initiating competitions.

"It's been death by a thousand cuts," says William Lucyshyn, visiting senior research scholar at the Center for Public Policy and Private Enterprise at the University of Maryland and author of one of the signature reports on competitive sourcing. "They are probably not going to ban competitive sourcing. But when you have all these different rules for all these different agencies, the program is just going to dry up and die."

On Jan. 20, 2009, the next administration likely will pull the plug on President Bush's version of competitive sourcing. For many, that date can't come soon enough.

Congress to the Rescue

It is said that to the victor goes the spoils. But that sentiment hardly applies to competitive sourcing participants. Take, for example the Labor Department, where in-house groups have won the past four competitions. To hold off their private sector rivals, however, the federal team-known under OMB Circular A-76 as the most efficient organization, or MEO-had to shrink some units by as much as 10 percent. Vacant positions were eliminated and some full-time employees were destined for pink slips; others would be downgraded to save on salaries. Morale, already depleted at an agency that had hosted 23 competitions in the past four years, was sinking fast. Some employees opted for early retirements.

As has been the case often in recent years, Congress would soon ride to the rescue. An amendment that Sen. Barbara Mikulski, D-Md., inserted in the fiscal 2008 omnibus spending bill halts future Labor Department competitions and prevents the agency from implementing changes based on the past four contests until 60 days after the Government Accountability Office reports to Congress on the status of the program. Such a scenario almost certainly will not occur before a new administration takes office, and barring a turnover in Congress, the results of competitions at Labor and other agencies, could soon be erased.

"There's a lot of relief now," says Alex Bastani, president of American Federation of Government Employees Local 12, which represents Labor employees in the Washington region. "If you would have told them a year ago that [the amendment] would have been passed, they would have laughed at you."

Labor employees aren't the only ones breathing a sigh of relief. The omnibus and fiscal 2008 Defense authorization bills put a halt to public-private competitions, part of the A-76 program, at the Bureau of Prisons, Federal Prison Industries Inc., Army Corps of Engineers, Forest Service, the Coast Guard's National Vessel Documentation Center and for positions related to the Human Resources Lines of Business initiative. As a sign of how much competitive sourcing has slid down the administration's priority list, not a single veto threat was issued in response to the measures-a common tactic when similar restrictions were proposed in past years.

Previous legislative restrictions halted competitions at the Veterans Affairs Department-the political fallout from the scandal over living conditions at Walter Reed Army Medical Center-and for specific programs at the Agriculture and Homeland Security departments. Unions, meanwhile, have seen many of their top competitive sourcing priorities enacted into law, among them the exclusion of health care and retirement from the cost comparison process and the establishment of protest rights for the federal team. A proposal to repeal those two measures was included in the president's 2009 fiscal budget. In 2005, Congress also precluded the use of "best value" to judge competing proposals on cost and quality, rather than just cost.

Despite these victories, union leaders who have battled competitive sourcing on the grounds that it amounts to little more than a thinly veiled outsourcing and privatization agenda, remain convinced that, even in its weakened state, the program is still viable and a threat to its members. "We believe the competitive sourcing system is still alive," says Randy Erwin, legislative director for the National Federation of Federal Employees in Washington. "Agencies will still be making decisions to privatize work, and A-76 will still be around as the method by which to do it. What we will not continue to see is a free-for-all, where every conceivable federal job is being shipped to the private sector regardless of the problems it may cause."

John Threlkeld, assistant legislative director for AFGE, says, "These changes make the process fairer and less political. But we have to see to what extent [the administration] will comply with the new regulations. And you'll have to excuse me for being skeptical, given their history."

Others look at the congressional directives as self-serving, pork barrel politics, in which the good of the few outweighs the needs of the many. Paul A. Denett, administrator of the Office of Federal Procurement Policy at OMB, argues that the recent legislation handcuffs the budgets of many agencies, preventing them from utilizing a tool that reduces cost at a time when discretionary funding is limited. "We are disappointed that the Congress has put additional impediments in the way of competitive sourcing," Denett says. "In some respects we almost view these as another form of earmarks . . . They are saying, 'Don't look at it. We don't want to see what the most effective way is to run it.' It's a special interest; keep your hands off our area."

Lost in the squabble, experts bemoan, is a serious public discussion about the necessity and consequences of the legislative fixes. "In the past few years, A-76 has been transformed from a management tool to a political tool with virtually no debate about ramifications for agency management or for competition," says Stan Solo-way, president of the Professional Services Council in Arlington, Va., a trade group that represents federal contractors.

What Could Have Been

While not known as competitive sourcing until recently, public-private competitions have been around for decades under Circular A-76. In fact, according to Lucyshyn's report, which he co-authored with former undersecretary of Defense Jacques Gansler, the most active period of competitions was in the 1980s under President Ronald Reagan. Fewer positions were competed annually under presidents George H.W. Bush and Bill Clinton, both of whom focused primarily on Defense-related positions following the post-Cold War drawdown of the U.S. military.

George W. Bush, however, who ran on a platform that he would "open government to the discipline of competition," took the process into uncharted territory. He immediately made competitive sourcing a top priority, incorporating it into his President's Management Agenda. And, in 2001, he laid down the gauntlet, mandating that agencies, both civilian and defense, compete a whopping 425,000 positions by 2007-half of all federal jobs deemed suitable for competition. Unions, Congress and GAO quickly shot down the figure as arbitrary, forcing the administration to lower its target to 127,000 positions. By 2003, Congress banned the use of quotas unless they were based on "considered research and sound analysis of past activities," leaving it up to agencies to determine which, and how many, positions would be competed. Threlkeld says OMB still uses its quota system, albeit more discreetly, but administration officials say long-term competition plans are determined by agency heads.

Despite lofty goals, the net results of the competitive sourcing agenda never quite lived up to the hype. In the past four years, agencies conducted 1,243 competitions for 46,825 full-time positions, representing just 12 percent of commercially available jobs. In fiscal 2006, agencies competed 6,678 positions, down significantly from nearly 10,000 in the previous year.

Although not the cultural breakthrough once envisioned, competitive sourcing likely will be remembered as at least a partial success. "If you look at it objectively, there are parts of it that have been successful when it's been allowed to operate," Lucyshyn says. "Generally, costs go down, performance is improved and, by and large, people are not hurt that badly."

OMB statistics bear out Lucyshyn's claims. According to the administration's most recent annual report on competitive sourcing, published in May 2007, the cumulative estimated net savings from competitions in the past four years is $6.9 billion, the lion's share of which would be realized in the next three to five years. Complex competitions for IT services for the Army Corps of Engineers (won by the employees) and to modernize flight service stations at the Federal Aviation Administration (won by the contractor) are expected to save billions alone.

Meanwhile, over the life of the program, 83 percent of competitions-and a record high 87 percent in 2007-were won by federal teams. But the National Treasury Employees Union, a frequent critic of the program, says employees can pay a steep price in downgrades, reassignments and early retirements-even when their organizations win competitions. The union calls the administration's promised savings "phantom and speculative," arguing that they fail to include the costs incurred while agencies prepare for a competition and the litigation that could follow a decision.

Denett plans to spike that argument. With the assistance of various inspectors general, private contractors and in-house auditors, the administration will review 90 competitions decided this year, covering roughly $3.5 billion in projected savings, to validate OMB's estimates. Early results, he says, have been positive. "We think this should lay to rest once and for all the boogeyman that the claimed savings doesn't actually take place," Denett says.

An Uncertain Future

The future of competitive sourcing is in doubt. Prior to the recent congressional limits, agencies indicated they would compete nearly 18,000 positions in fiscal 2008. But early projections often fall short of their targets. For example, agencies planned to hold competitions in 2006 for almost 27,000 positions; they ended up competing just a quarter of those jobs.

Most of the planned 2008 competitions have not been prohibited by Congress-10,000 are for Defense Department positions exempt from legislative restrictions-but it is unclear what level of participation the administration can expect from agencies and the private sector. Defense, the government's largest agency and arguably most important participant in competitive sourcing, has been focused on fighting two wars and preparing for the next Quadrennial Defense Review. Observers familiar with the Pentagon's thinking on competitive sourcing indicate that the department might have lost interest in the time-consuming and bureaucratic competition process.

For many years, the A-76 Institute in Washington, which offers training to federal officials on the competition process, held a pair of annual competitive sourcing forums that were widely attended by Defense contracting staff. Beginning in 2005, Pentagon officials began to demur, saying the timing was not right, and the events have since been canceled, says Gilbert Ginsburg, co-director of the institute and a visiting lecturer on government contracts at The George Washington University. "The Defense Department espouses public-private competitions, and A-76 is still an important vehicle," Ginsburg says. "But I think it's fair to say that their heart is just not in it."

The same could be said for industry. According to 2006 statistics, two or more private sector offers were received in only 30 percent of the standard competitions compared with an average of 53 percent in the past three years. Meanwhile, 17 percent of competitions in that same period had not a single private sector participant.

Federal agencies should expect even more contractor ambivalence in the coming months. Soloway of the Professional Services Council says companies have little incentive to spend their time and resources on competitions they likely will not win-and even if they did, Congress could discard the results. "The marketplace has determined, in large part because of the restrictions, that the risks and costs of it just don't add up in terms of a legitimate competition and a competitive environment," he says. "What the market is basically saying is that we want to compete; we are willing to compete. We just can't compete when the market is so tilted. "

Even consulting firms that work with the government to shore up their competitive sourcing plans are preparing for the program's disappearance. Scott Rawls is director of competitive sourcing and privatization services at Abacus Technology Corp., a Chevy Chase, Md., firm that specializes in A-76 consulting. Although his office is working with the government on seven competitions, including four at the Navy, Rawls plans to transition away from the program if interest continues to dissipate. "We're always trying to plan ahead just in case," he says.

The future of competitive sourcing could be determined by who occupies the White House next year. Embedded in policy, rather than law, the program will not flourish without administration encouragement. Experts generally concur that the program could be revived if a Republican wins the presidency. But if the winner is a Democrat such as Sen. Hillary Clinton of New York, who has vowed to cut 500,000 contractor jobs if elected, the program could be finished. Just don't try telling that to the staff at the National Vessel Documentation Center in Falling Waters, W.Va. In 2003, the Coast Guard planned to turn the 100-person office, which documents the nationality of vessels that fish or trade in U.S. waters, into a government corporation through a direct conversion. That process, now prohibited, allowed the government to avoid direct competition. Officials at the center were able to turn back the effort with the help of their home state senator, Democrat Robert Byrd. But in 2007, the Coast Guard revived a plan to compete nearly all of the organization's nonmanagement positions. Although that plan was scuttled in the omnibus bill, again by Byrd, the once-bitten staff at the documentation center is wary that competitive sourcing could emerge again for one last gasp.

"We hope it's over, but everyone is still worried that they will try again," says Demetrios Stroubakis, president of AFGE Local 43, which represents the center. "They've come after us twice now. When will it end?"

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