GAO

United States General Accounting Office

Report to the Chairman, Subcommittee

on Military Readiness, Committee on

Armed Services, House of

Representatives

August 2000 DOD COMPETITIVE

SOURCING

Some Progress, but

Continuing Challenges

Remain in Meeting

Program Goals

GAO/NSIAD-00-106

Page 1 GAO/NSIAD-00-106 DOD Competitive Sourcing

Contents

Letter 3

Appendixes Appendix I: Scope and Methodology 24

Appendix II: The A-76 Process 26

Appendix III: Strategic Sourcing 30

Appendix IV: Comments From the Department of Defense 34

Appendix V: GAO Contacts and Staff Acknowledgments 36

Related GAO Products 37

Tables Table 1: DOD Positions Planned for A-76 and Strategic Sourcing

Studies as of February 2000 9

Table 2: Positions Announced for A-76 Studies 12

Table 3: Number of Positions for Which A-76 Studies Have Been

Completed 13

Table 4: Estimated Study and Transition Costs and Savings From

A-76 and Strategic Sourcing Studies for Fiscal Years

1997-2005 15

Figures Figure 1: Overview of the A-76 Process 27

Figure 2: Strategic Sourcing Decision Process 31

Abbreviations

DOD Department of Defense

OMB Office of Management and Budget
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Page 3 GAO/NSIAD-00-106 DOD Competitive Sourcing

United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-285359 Letr

August 8, 2000

The Honorable Herbert H. Bateman

Chairman, Subcommittee on Military Readiness

Committee on Armed Services

House of Representatives

Dear Mr. Chairman:

Since 1995, the Department of Defense has had a significant effort under

way to use competitive sourcing under Office of Management and Budget

Circular A-76 to achieve greater organizational efficiencies and reduce

operating costs. In accordance with guidance contained in the circular,

Defense components perform studies to determine whether it would be

more cost efficient to maintain commercial activities in-house or contract

with the private sector for their performance. The Department has recently

subsumed its A-76 program under a broader initiative referred to as

strategic sourcing,1 expanding the number of positions to be studied and

savings expected to be realized. The concept of strategic sourcing extends

to activities that are considered to be inherently governmental2 and involve

a wide range of options, including restructuring or reengineering of

activities, privatization, and the termination of obsolete services or

programs. The strategic sourcing approach provides for a complete

functional or organizational assessment of functions and activities, but

initially does not involve competition between the public and private

sectors. However, a function may become a candidate for A-76 study after

being reviewed under the strategic sourcing program.

You asked us to review the Department’s progress in implementing its A-76

program and the impact of strategic sourcing on the program. Accordingly,

we assessed (1) progress the Department has made in achieving its A-76

1

While strategic sourcing includes A-76 studies, the Department commonly uses the term to

refer to all reinvention efforts other than A-76. For purposes of this report, our reference to

strategic sourcing will not include A-76 studies.

2

The A-76 Supplemental Handbook defines an inherently governmental activity as “one that

is so intimately related to the exercise of the public interest as to mandate performance by

Federal employees.” Positions deemed inherently governmental are not subject to the A-76

program.
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goals and the extent to which strategic sourcing is affecting these goals and

(2) the extent to which savings from A-76 and strategic sourcing are likely

to be achieved. Our scope and methodology are included in appendix I.

Results in Brief The Department has made progress in implementing its A-76 program, but

it has not advanced as quickly as initially expected. While the goals have

changed over time, the Department now projects studying activities which

would encompass about 203,000 positions under A-76 during fiscal years

1997-2005. Also, because they could not identify activities with enough

positions to study under the A-76 program, most of the Defense

components are planning to use the broader strategic sourcing approach to

meet some of the study goals previously associated with just the A-76

program. However, to date, only the Navy has identified specific strategic

sourcing goals; it plans to review activities involving about 42,000 positions

under this expanded program, including some positions previously

targeted for A-76 studies. Because of the Navy’s shift in emphasis, the

Department is now planning to study activities involving about 25,000

fewer positions under A-76 during fiscal years 1997-2005—a reduction of

about 11 percent of the 229,000 previously reported. The number of

positions to be studied under A-76 during this period will likely decline

further when other components submit their strategic sourcing plans.

These decreases do not diminish the fact that the Department launched

A-76 studies involving about 97,000 positions from fiscal years 1997-1999.

However, the A-76 studies are taking longer than the expected average of

2 years to complete.

Our work continues to show that while savings are being achieved, the

Department’s savings estimates are overstated, at least in the short term,3

and that strategic sourcing has added to uncertainties regarding the overall

magnitude of savings. The Department projects the A-76 program will

generate savings of about $9.2 billion during the period 1997-2005, with

recurring savings of almost $2.8 billion each year thereafter. Together, the

A-76 and strategic sourcing study goals are expected to produce an

estimated cumulative savings of almost $11.7 billion, with about $3.5 billion

in recurring savings. However, these estimates do not fully account for

costs associated with completing the studies or implementing the results,

which will reduce the amount of savings realized in the short term. Also,

3

For purposes of this report, we consider the short term to be until the program reaches a

steady state of recurring savings.
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delays in completing the studies will postpone the realization of savings.

Further, officials from the Office of the Secretary of Defense emphasize

that the estimated costs and potential savings of strategic sourcing efforts

are difficult to project at this point. Nonetheless, Defense components have

begun to reduce their operating budgets based on projected savings from

these programs. In addition, the services are not planning to reduce

military personnel end strength as a result of these studies. Rather, the

services will reinvest military spaces freed up as the result of these studies

in other areas where personnel shortfalls exist. This practice will make

additional funding for operation and maintenance accounts necessary to

fund replacement civilian or contractor personnel.

This report contains recommendations for improving the management of

the A-76 and strategic sourcing initiatives. Overall, the Department agreed

with the report while providing some clarifications regarding selected

issues.

Background Since 1955, the executive branch has encouraged federal agencies to obtain

commercially available goods and services from the private sector when

the agencies determined that such action was cost-effective. The Office of

Management and Budget (OMB) formalized the policy in its Circular A-76,

issued in 1966. In 1979, OMB supplemented the circular with a handbook

that included procedures for competitively determining whether

commercial activities should be performed in-house, by another federal

agency through an interservice support agreement, or by the private sector.

OMB updated this handbook in August 1983, March 1996, and June 1999. As

part of this process, the government identifies the work to be performed—

described in the performance work statement—and prepares an in-house

cost estimate, based on its most efficient organization, and compares it

with the winning offer from the private sector. From 1978-1994,

competition decisions were split about evenly between the private and

public sectors. (App. II contains a more detailed description of the

A-76 process.)
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Because of lengthy time frames previously required to perform cost

comparisons, a provision was included in the Department of Defense

(DOD) Appropriations Act for Fiscal Year 19914 and in subsequent DOD

appropriations acts requiring that single function competitions (under

Circular A-76) be completed within 24 months and multifunction

competitions within 48 months.5

Administrative and legislative constraints from the late 1980s through 1995,

resulted in a lull—and even a moratorium—on awarding contracts

resulting from competitions for a time. In 1995, congressional and

administration initiatives placed more emphasis on A-76 as a means of

achieving greater economies and efficiencies in operations. The Deputy

Secretary of Defense in 1995 directed the services to make outsourcing of

support activities a priority, and the effort subsequently was incorporated

as a major initiative under the Secretary’s November 1997 Defense Reform

Initiative.

In recent years, some in Congress have also sought to encourage greater

reliance on the private sector for commercial activities being performed by

government employees. Accordingly, Congress enacted the Federal

Activities Inventory Reform Act of 1998. The act directs federal agencies to

submit to OMB by June 30th of each year an inventory of all their activities

that are performed by federal employees but are not inherently

governmental functions and to make their inventories public. Guidance

implementing the legislation also permitted agencies to exempt many

activities from competitive sourcing consideration based on legislative

restrictions, national security considerations, and other factors.6

4

Section 887, P.L. 101-511.

5

A single function competition could, for example, involve studying the custodial services at

an installation, while a multifunction competition could involve studying both custodial

services and refuse collection and disposal services.

6

DOD’s initial Federal Activities Inventory Reform Act inventory identified 308,000 positions

potentially subject to competitive sourcing consideration. Even then, as discussed later in

this report, the location of these positions and the organizations to which they are assigned,

and other factors, could affect how many of them are ultimately studied for potential

contracting. We have a separate review under way that contrasts the Department’s

development of this inventory with an earlier effort under a Defense Reform Initiative

Directive.
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As we and others have reported,7 A-76 competitions can achieve savings

regardless of whether the competitions are won by the public or the private

sector. Savings may increase if multiple functions can be grouped together

under a single contract, where appropriate, rather than under multiple

contracts. Because the average military position is more costly than its

civilian equivalent, greater savings may occur if DOD converts military

support positions to civilian positions or contractor performance.

However, we have also expressed caution about whether savings as large

as the DOD has projected are likely to occur in the short term due, in part,

to delays in launching and completing these studies and the need to offset

up-front investment costs (such as the cost of conducting studies) before

net savings begin to accrue on a recurring basis.

Guidance for completing A-76 studies is contained in OMB’s Circular A-76

Supplemental Handbook, which is updated periodically. The March 1996

update clarified numerous areas, including the application of the A-76 cost

comparison requirements. The handbook’s introduction describes a wide

range of options in addition to the A-76 process that government officials

must consider as they contemplate reinventing government operations.

They include consolidation, restructuring or reengineering activities,

privatization, joint ventures with the private sector, and the termination of

obsolete services.8

During fiscal year 1999, based on a request from the Navy—which was

experiencing difficulty in identifying activities involving a sufficient

number of positions to study under A-76 to meet its competitive sourcing

goals—DOD approved use of the broader reinvention options noted above

to complement the A-76 program. This larger program is commonly

referred to as strategic sourcing.

Office of the Secretary of Defense and service officials stressed that neither

the idea nor implementation of strategic sourcing is new—services have

been conducting such reviews for years as part of their manpower

management program. The officials stated that strategic sourcing provides

for smarter decisions since it addresses the question of whether an activity

should be performed before it answers the question of who should perform

7

A complete list of recent GAO reports and testimonies dealing with DOD competitive

sourcing is included at the end of this report.

8

DOD includes all of these options in its strategic sourcing program.
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it. However, the fiscal year 2001 President’s budget is the first time that

strategic sourcing efforts have been counted toward the goals of the A-76

program. Appendix III provides additional information on this expanded

program.

A-76 Progress and

Challenges

The Department has made progress in implementing its large A-76 program

that uses competitive sourcing to gain economies and efficiencies in its

operations and to reduce support costs. However, progress has not

occurred as quickly as initially expected. Recognizing the difficulty in

meeting study targets under A-76 alone, most of the services are planning

to use strategic sourcing to help them meet the study goals previously

associated with the A-76 program. DOD’s fiscal year 2001 budget request

projects studying 25,000 fewer positions under A-76 from fiscal years

1997-2005 than projected last year for fiscal years 1997-2003. However,

when its current projections for the A-76 and strategic sourcing programs

are combined, the Department’s study goals are now about 16,000 positions

greater than were planned last year under the A-76 program alone. To date,

only the Navy has identified numbers of positions to be reviewed under

strategic sourcing, but other Defense components are expected to do so in

the future. This could further change the number and mix of positions

expected to be studied under A-76 and strategic sourcing. While studies

involving about 97,000 positions began in fiscal years 1997-1999, this is

significantly less than planned. Studies involving only about

12 percent of these positions have been completed.

Study Goals Continue to

Change

The Department plans to study and review functions involving over 245,000

positions in its expanded program for fiscal years 1997-2005, including

203,625 government positions under the A-76 program. While still a large

program, this represents an 11-percent reduction over the Department’s

stated goal last year of studying functions involving 229,000 positions under

A-76. At the same time, the Department’s expanded program emphasis is

based on the Navy having identified 41,879 positions to be reviewed under

strategic sourcing, helping it to meet study and savings goals previously

planned to be realized using only A-76.

Table 1 provides detail on the number of positions DOD plans to study

under both the A-76 and strategic sourcing programs.
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Table 1: DOD Positions Planned for A-76 and Strategic Sourcing Studies as of February 2000

a

Positions for fiscal years 1997-1999 represent positions under study and differ from announced

positions reported in table 2.

b

Figures do not include 10,000 positions from fiscal year 1993 through fiscal year 1996 that previously

have been considered part of the Air Force’s current efforts to achieve program savings.

Source: President’s Budget for Fiscal Year 2001, exhibit 42.

Table 1 reflects reductions made to the Department’s study projections for

fiscal years 1997-1999 since fewer A-76 studies were launched than

planned. For example, last year DOD projected it would study 52,630

positions in fiscal year 1998 and 60,113 in fiscal year 1999 but, as table 1

indicates, it has reduced those positions to 30,316 and 41,818 positions,

respectively. About 82 percent of the positions (200,688) identified in

table 1 are civilian positions, while about 18 percent (44,816) are military

positions. The Army and Air Force each account for about 42 percent of the

military positions to be studied.

Fiscal year

Component by

program 1997 1998 1999 2000 2001 2002 2003 2004 2005 Total

A-76

Army 14,176 11,909 11,630 12,910 14,781 5,726 0 0 0 71,132

Navya 7,478 5,783 11,646 13,689 7,856 23 59 0 0 46,534

Air Forceb 3,786 9,203 9,083 8,605 5,537 4,177 3,839 42 0 44,272

Marine Corps 0 0 2,583 2,300 2,300 0 0 0 0 7,183

Defense agencies 1,938 3,421 6,876 8,508 4,838 1,697 2,413 2,621 2,192 34,504

Total −A-76 27,378 30,316 41,818 46,012 35,312 11,623 6,311 2,663 2,192 203,625

Strategic sourcing

Navy 0 9,177 13,961 12,435 3,691 1,365 1,250 0 0 41,879

Total−strategic

sourcing

0 9,177 13,961 12,435 3,691 1,365 1,250 0 0 41,879

Grand Total 27,378 39,493 55,779 58,447 39,003 12,988 7,561 2,663 2,192 245,504
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Table 1 shows the Navy included strategic sourcing positions for review

beginning in fiscal year 1998, although the Navy did not present its strategic

sourcing plan to the Office of the Secretary of Defense until the fiscal year

2001 budget cycle. The Navy was allowed to retroactively include some

reviews under this broader strategic sourcing program.9 This broader

thrust came about as the Navy began to execute its A-76 program and

officials had difficulty finding activities involving sufficient numbers of

positions for study. For example, the Navy planned to announce 15,000

positions in fiscal year 1998, but announced only 8,980 (about 60 percent of

planned). The Navy planned to announce 20,000 positions in fiscal year

1999, but announced just 10,807 (about 54 percent of planned).

Currently, the Navy plans to study activities involving 46,534 positions

under A-76 from fiscal years 1997-2005, despite the fact that it had

identified about 71,500 positions as eligible for competition under the

Federal Activities Inventory Reform Act. However, Navy officials stated

that the smaller number currently planned for A-76 study reflects the

difficulties they had in ultimately determining how many positions could be

studied. They stated that many of these positions were already part of other

study initiatives, such as regionalization and consolidation. They also noted

that other factors, such as geographic location and an inability to separate

commercial from inherently governmental activities, can prevent the

packaging of some commercial positions into suitable groups for

competition. Navy officials therefore searched for another way to meet its

goals.

As table 1 shows, the Navy plans to study activities involving 46,534

positions under A-76 and review activities involving 41,879 positions under

strategic sourcing, for a total of 88,413 positions from fiscal years

1997-2005. For the Navy, this represents a net increase of about

8,000positions over prior plans as reported in our February 1999 report,10

but a 42-percent reduction in positions expected to be studied under A-76

alone. Guidance issued by the Office of the Secretary of Defense11 and by

9

An Office of the Secretary of Defense official told us that the inclusion of strategic sourcing

studies in fiscal years 1998 and 1999 was based on initiatives that were ongoing but from

which projected savings had not been included in other programs.

10See DOD Competitive Sourcing: Questions About Goals, Pace, and Risks of Key Reform

Initiative (GAO/NSIAD-99-46, Feb. 22, 1999).

11“Strategic Sourcing Program,” Department of Defense Strategic and Competitive Sourcing

Program Interim Guidance, April 3, 2000.
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the Navy12 emphasizes that the strategic sourcing program is not intended

to be a substitute or replacement for A-76; rather, it is intended to be a

supplement to the A-76 program. Nonetheless, nearly half the total

positions the Navy plans to study are under the strategic sourcing program

and, in some instances, positions previously identified for study under A-76

have been shifted to strategic sourcing. A senior departmental official told

us that strategic sourcing has changed the nature of the A-76 program and

that, while the Department is still committed to conducting A-76 studies,

strategic sourcing provides a broader approach to accomplish improved

performance for an entire function or organization at a reduced cost.

The Army and the Air Force have also had some difficulty identifying

enough positions to meet their A-76 goals. The Air Force sought relief

through a broader reengineering proposal, similar to the Navy’s, during the

prior year’s budget cycle, but Office of the Secretary of Defense officials

told us the Air Force did not have sufficient justification at that time for

them to approve the plan. However, Air Force and Army officials told us

they may seek approval to use strategic sourcing next year for

approximately 14,000 and 16,000 positions, respectively.

Large Numbers of Studies

Are Under Way, but

Progress in Initiating and

Completing Studies Has

Fallen Short of

Expectations

In our February 1999 report, we reported that DOD expected to complete

more A-76 studies over the next several years even though the services

were experiencing difficulties in meeting the previous goals. A senior

official in the Office of the Secretary of Defense agreed the program’s goals

are ambitious, but told us that it was important to keep the goals at a high

level to ensure that the services strive to meet them. Even so, data show

that the services and Defense agencies continue to have difficulties

meeting their study goals. Table 2 provides information on the number of

positions announced for study13 during the previous 3 fiscal years.

12“Strategic Sourcing: A Broader Approach−A Guide to Conducting Functionality

Assessments” (Draft) Department of the Navy Strategic Sourcing Support Office (Jan. 2000).

13DOD considers a study to be announced once it has given notice to Congress of its intent

to study a particular function at a particular location.
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Table 2: Positions Announced for A-76 Studies

Note: In some cases, positions actually announced for study differ from initial goals or planned

announcements cited in table 1 due to difficulties encountered in identifying activities at specific

locations to be studied.

a

Includes Defense Logistics Agency, Defense Finance and Accounting Service, and Defense

Commissary Agency.

Source: Military services and Defense agencies from data available as of April 30, 2000.

The number of positions announced for study was about 65 percent of the

number of positions planned for study during the 1997-1999 period

(149,783), as reported in our February 1999 study. In addition to falling

behind in its timetable for initiating A-76 studies, the Department has also

had difficulties in completing its studies within the average 2-year goal it

established for these studies. Table 3 shows the number of positions DOD

reported were studied under the A-76 program.

Fiscal year

Component 1997 1998 1999 Total

Army 13,739 11,909 11,334 36,982

Navy 10,663 8,980 10,807 30,450

Air Force 3,906 8,638 8,732 21,276

Marine Corps 0 0 3,722 3,722

Defense agenciesa 365 2,152 2,264 4,781

Total 28,673 31,679 36,859 97,211
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Table 3: Number of Positions for Which A-76 Studies Have Been Completed

Note: Includes full studies, streamlined studies, and direct conversions for the military services. Also

includes positions announced prior to 1997.

a

Includes Defense Logistics Agency, Defense Finance and Accounting Service, and Defense

Commissary Agency.

Source: Military services and Defense agencies from data available as of April 30, 2000.

A majority of these positions (8,558) reflect full cost comparison studies

completed under the A-76 process. They also include 659 positions

examined under streamlined cost comparison studies and 2,551 positions

directly converted to or from contract performance without cost

comparison studies, as authorized under A-76 guidelines.14

While precise comparisons between fiscal years is not possible,

tables 2 and 3 provide an indication that Defense components are

experiencing difficulties in completing their A-76 studies as planned. For

example, studies involving nearly 29,000 positions were announced for

study in fiscal year 1997; however, studies involving only 11,768 positions

were completed from fiscal years 1997-1999. (Figures on studies completed

during fiscal years 1997 and 1998 would also include studies that began

before 1997.)

Fiscal year

Component 1997 1998 1999 Total

Army 32 235 987 1,254

Navy 94 200 1,858 2,152

Air Force 1,503 3,675 2,212 7,390

Marine Corps 0 0 0 0

Defense agenciesa 357 299 316 972

Total 1,986 4,409 5,373 11,768

14The Circular A-76 Revised Supplemental Handbook provides streamlined cost comparison

procedures that may be used for activities involving 65 full-time equivalent positions or less,

and permits the direct conversion of a function with 10 full-time equivalents or less without

cost comparison. Also, military positions may be directly converted without A-76 cost

studies.
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Overall Magnitude of

Savings Is Overstated

While our work continues to show that the savings estimates are likely

overstated, at least in the short term, the Department has revised its

savings goals for A-76, combined them with projected savings from

strategic sourcing, and increased its overall savings goal for the two

initiatives. Although the Department is now giving greater recognition to

the up-front investment cost estimates associated with its A-76 studies than

it did last year, we believe these cost estimates remain understated and give

an overly optimistic picture of savings likely to be realized in the short

term. The Department also continues to have difficulties realizing its

short-term savings because of delays in launching and completing A-76

studies. Further, prospects for long-term savings are clouded by what

Department officials acknowledge are uncertainties over cost estimates

and savings associated with strategic sourcing. Nonetheless, Defense

components have begun to reduce their operating budgets based on

projected savings from these programs. In addition, the services are not

planning to reduce the end strength of their military personnel as a result of

these studies, so no budgetary savings will be generated from studying

military positions. Rather, because some of the functions previously

performed by the military personnel will need to be performed by

government civilian or contractor personnel, the result will likely be an

increased requirement for the operation and maintenance budget accounts

to pay for the civilian salaries or contracts. Some military officials

expressed concern that this added cost could adversely affect their ability

to meet regular operating requirements.

Savings Goals Revised and

Expanded but Do Not Fully

Account for Likely Impact

of Investment Costs

We reported last year that DOD projected its A-76 program would realize

nearly $6 billion in savings for fiscal years 1997-2003, with over $2 billion

savings expected annually thereafter. More recently, the President’s Budget

for Fiscal Year 2001 expanded the time frame for completing its studies to

2005 and projected that cumulative savings for fiscal years 1997-2005 would

be about $11.7 billion—$9.2 billion for the A-76 program and nearly

$2.5 billion for the strategic sourcing program. It projected that annual

recurring savings from both (approximately $2.8 billion from A-76 studies

and $0.7 billion from strategic sourcing studies) would total $3.5 billion

annually thereafter.

Table 4 provides the Department’s current estimates of investment costs

and cumulative net savings from A-76 and strategic sourcing from fiscal

years 1997-2005.
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Table 4: Estimated Study and Transition Costs and Savings From A-76 and Strategic

Sourcing Studies for Fiscal Years 1997-2005

a

Transition costs represent the costs to implement the A-76 studies, including separation costs.

Source: President’s Budget for Fiscal Year 2001, exhibit 42.

The Department has increased its estimated study costs considerably since

last year, and has given greater recognition to the estimated cost of

implementing the results of the A-76 studies, including such costs as

employee separation pay.15 Nevertheless, we found that the Department is,

in some instances, still likely underestimating these costs.

A-76 Study Costs Are

Underestimated

The President’s fiscal 2001 budget projections for study costs for A-76 cost

comparisons vary considerably by service, ranging from $1,321 per position

in the Army to $3,718 per position in the Navy. Likewise, the amount of

funding the services provide their subcomponents to conduct their studies

also varies. Yet various officials believe these figures underestimate the

costs of performing these studies.

Dollars in millions

Army Navy Air Force

Marine

Corps

Defense

agencies Total

Study costs 94 317 60 18 66 555

Transition

costsa

284 539 202 63 200 1,288

Cumulative

net savings

2,786 5,169 1,739 311 1,680 11,685

15Only the Navy previously considered separation costs in calculating its savings estimates.
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The Navy and the Air Force provide their subcomponents $2,000 per

position studied, while the Army provides $1,500 per position, an amount

scheduled to increase to $2,000 beginning in fiscal year 2001. At the same

time, various Defense officials told us that the cost of conducting these

studies, which includes use of in-house personnel as well as costs of

contractor personnel used to complete the studies, is much greater than

these estimates. For example, officials at one Army major command

estimated that their study costs would be at least $7,000 per position.

Another Army command estimated the cost could be as much as $5,000 per

position.16 One Navy command estimated its costs would be at least $4,000

per position, while another command projected its study costs to be

between $8,500 and $9,500 per position. Our own recent assessment of a

sample of completed A-76 studies within the Army, Navy, Air Force, and

Defense agencies showed that the costs ranged from an average of $364 to

$9,000 per position studied.

A-76 Transition Costs May Be

Underestimated

In addition to study costs, significant costs can be incurred in

implementing the results of the A-76 studies. The President’s Budget for

Fiscal Year 2001 represents the first time all Defense components have

estimated costs associated with implementing the A-76 competitions. The

budget shows components have estimated a total of almost $950 million for

transition costs resulting from A-76 studies for fiscal years 1997-2005. This

includes an estimate of $284 million for the Army, $400 million for the Navy,

and $202 million for the Air Force. While we view this as a positive step

toward fully identifying costs associated with these studies, we believe

these cost estimates may still be underestimated, depending on the number

of studies completed.

Transition costs represent the separation costs for civilian Defense

employees who lose their jobs as a result of competitions won by the

private sector or when in-house organizations win the competitions and the

most efficient organizations require a smaller civilian workforce. Such

separation costs include the costs of voluntary early retirement, voluntary

separation incentives, and involuntary separations through

16A U.S. Army Audit Agency report estimated that the cost of an A-76 study at one

installation in this command was nearly $5,000 per position for the first phase of the study.

Phase I, completed from January 6, 1997, through September 30, 1998, ended with the

receipt of industry proposals. Army officials told us these study costs are not representative

of the whole Army; therefore, results of this study should not be generalized to the Army’s

entire A-76 program.
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reduction-in-force procedures. Each service estimates the average cost per

person separated. The Army estimates this average cost to be $21,000; the

Navy and Marine Corps, $25,000; and the Air Force, $33,000.

Unlike study costs, not all positions competed will incur a separation

cost—this cost will only be generated if civilians are separated from federal

service. Based on the results of prior competitions, the Department expects

that about 50 percent of military and civilian positions studied under A-76

will likely be eliminated. However, our examination of DOD’s fiscal year

2001 budget submission indicates that the services’ estimates of the

magnitude of civilian separations and transition costs associated with A-76

studies may be significantly underestimated.

Using the services’ budget data, we calculated the number and percentage

of positions for which the services estimated separation costs and

compared it to the anticipated 50-percent separation rate mentioned above.

We found that the Air Force had identified transition costs for only

24 percent of the civilian positions planned to be studied under A-76; the

Army, 26 percent; the Marine Corps, 40 percent; and the Navy, 51 percent.

Assuming the 50-percent separation rate continues, Army and Air Force

transition costs could be nearly twice as much as their current estimates—

assuming they complete their studies as planned.

Studies Are Taking Longer

Than Planned and Will

Likely Delay Savings

As previously noted, A-76 studies have taken longer than initially projected,

which will also delay the onset of savings. From fiscal years 1997-1999, the

services announced activities involving over 97,000 positions for study but

had completed fewer than 12,000. While our work has shown that savings

are being realized from individual A-76 studies, overall program costs to

date are still exceeding realized savings.17 The President’s Fiscal Year 2001

budget submission reports that during fiscal years 1998 and 1999, the

overall costs of the A-76 program have exceeded the expected savings.18

An Army A-76 official acknowledged that A-76 studies have taken longer

than expected, and consequently savings have been delayed. He said that

17We are now conducting a separate review examining the accuracy of the Department’s

savings estimates.

18The Air Force, which reported savings in fiscal year 1998, accounted for almost two-thirds

of the completed studies as seen in table 3. The Air Force began many of its studies before

1997 and has realized savings, in part, because it is further along in the program.
B-285359

Page 18 GAO/NSIAD-00-106 DOD Competitive Sourcing

instead of the expected savings of $48 million for fiscal year 1999, the Army

achieved gross savings of about $22 million. However, the $22 million

savings estimate did not include transition costs, estimated to be about

$31 million, which created a shortfall of about $9 million that year.

Nonetheless, the official predicted that in the long run, the A-76 program

would generate significant savings for the Department. Further, he said that

the Army expects to see net savings during fiscal year 2000 or 2001.

In the meantime, however, the services’ operation and maintenance

budgets are being reduced in anticipation of projected savings from A-76

studies. Estimated savings are based on average cost of salary and benefits

per position studied. The Army uses a factor of 20 percent per position

planned for study when estimating savings; the Air Force uses 25 percent;

the Marine Corps uses 30 percent. Half of the estimated savings are

programmed out of the budget in the third year of the study, and the full

amount is taken every year thereafter. The Navy previously used a factor of

30 percent, but officials told us they now develop individual estimates for

each A-76 study. The Navy assumes these savings will begin in the third

year after the studies are begun, and budgets are reduced accordingly.

In addition to delayed savings, the reported costs of the A-76 program have

been higher than estimated, and commands have been absorbing these

additional expenses out of their current budgets as well. Various service

officials expressed concern about the impact of such reductions given their

perception that they are already operating under constrained resources in

relation to their operating requirements.

Expected Savings From

Strategic Sourcing Are

Uncertain

The Navy estimates that almost $2.5 billion—nearly half its projected

$5.2 billion savings from fiscal years 1997-2005—will come from the

strategic sourcing program. However, some departmental and service

officials we met with expressed concern that fewer savings could be

forthcoming from strategic sourcing and said they lack a rigorous basis for

projecting costs and savings.
B-285359

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Department of Defense and Navy officials acknowledge much uncertainty

over study costs and savings estimates for strategic sourcing. Data

included in the President’s fiscal year 2001 budget submission indicate that

the Navy estimated that study costs and savings generated from strategic

sourcing efforts are virtually the same as those generated from A-76 studies

for each position studied. However, according to the budget submission

data, strategic sourcing efforts are expected to result in manpower savings

of less than 10 percent while A-76 studies are expected to generate

manpower savings of 60 percent.19

Office of the Secretary of Defense officials acknowledged uncertainties

over the projected costs and savings from strategic sourcing, saying that it

would likely take some years before the results of strategic sourcing

initiatives can be measured. They also noted that there is wide variation in

the types of initiatives that make up strategic sourcing, and consequently,

there can be wide variation in the resultant savings.

In general, Office of the Secretary of Defense and Navy officials expect that

savings per position reviewed under strategic sourcing will be less than

under A-76, primarily because fewer positions will be eliminated than if a

decision to contract or implement the most efficient organization were

made. Office of the Secretary of Defense officials expect that a larger

number of positions will need to be reviewed to generate the same level of

savings expected in A-76 studies.

Retaining Military Personnel

Will Affect Costs and

Savings

The Army, Air Force, Navy, and Marine Corps are planning to study

activities involving a total of 44,816 military positions and will likely

replace many of these military positions with government civilian or

contractor personnel. Yet officials told us that regardless of the results of

those competitions and functional assessments, none of the services plan

to reduce the military end-strength levels resulting from these

conversions.20 Rather, the services plan to transfer the affected military

personnel and their slots to fill other priorities.

19We calculated these costs and savings from data reported in the President’s Budget for

Fiscal Year 2001.

20The Air Force intends to retain its military positions “until the variance between military

requirements and military authorizations (funding) is minimal.” Service officials do not

know when this may occur.
B-285359

Page 20 GAO/NSIAD-00-106 DOD Competitive Sourcing

We have previously reported that the conversion of positions from military

to civilian (either government or contractor) as part of the A-76 process

could save money, assuming that the elimination of the military positions

results in corresponding reductions in the services’ authorized end

strengths.21 However, currently the services do not intend to eliminate

these positions, but rather reallocate them to other areas where shortages

exist (e.g., combat and combat support). While this practice can be

considered a reasonable resource reallocation or reinvestment decision, it

does have two practical implications for costs and savings. First, while

such conversions are a relatively small part of the A-76 program at this

time, such conversions will reduce the dollar savings available to reallocate

to modernization needs since end strength is not being eliminated. Second,

such conversions will require the services to increase their funding for

operation and maintenance accounts, because it is from those accounts the

services must fund replacement civilian or contractor personnel.22 For

example, the Marine Corps, which plans to compete activities involving

915 military positions, estimates the cost to replace its military positions

with government civilian or contractor personnel to be about $35 million

through fiscal year 2005. Various officials expressed concern about

whether adequate replacement funds were being programmed in the

operation and maintenance accounts.

Conclusions The Department of Defense has established ambitious A-76 and strategic

sourcing programs, and the effects of failing to achieve its goals could be

significant. The Department is already reducing future operating budget

estimates in anticipation of savings, and such reductions can create

operational difficulties for service components. While savings are

expected, DOD’s anticipated savings projections have not adequately

accounted for the estimated costs of conducting and implementing the

studies, which could significantly reduce the anticipated level of savings in

the short run. Also, cost comparison studies are likely to take longer than

initially projected, further reducing the annual savings that will be realized

in the short term. Consequently, the estimated savings from fiscal years

21See Base Operations: Challenges Confronting DOD as It Renews Emphasis on Outsourcing

(GAO/NSIAD-97-86, Mar. 11, 1997).

22The costs of military positions are funded through military personnel appropriation

accounts, whereas costs associated with government civilian or contractor personnel are

funded through operation and maintenance appropriation accounts.
B-285359

Page 21 GAO/NSIAD-00-106 DOD Competitive Sourcing

1997-2005 are likely overstated. In addition, rather than eliminating military

positions as a result of A-76 studies, the reallocation of military positions to

other needs will necessitate increases in operation and maintenance

accounts to provide funding for replacement government civilian or

contractor personnel.

Because of difficulties in meeting its A-76 study targets, the Department is

now permitting its components to complement this effort with its broader

strategic sourcing initiative. While this expanded emphasis has the

potential to achieve greater operating efficiencies than might have been

achieved under A-76 studies alone, this initiative will likely require even

more up-front investment costs which must be offset before net savings are

realized. Results of these reviews will require close monitoring to provide a

basis for more realistically projecting the time and resources required to

complete those studies and to identify the magnitude and timing of savings

likely to be achieved.

Recommendations Considering the delays in implementing the studies and offsetting the initial

investment costs, we recommend that the Secretary of Defense require

DOD components to periodically determine if savings are being realized

commensurate with the reductions being made in the operating accounts.

We also recommend that the Secretary of Defense take steps to ensure that

the services increase funding for operation and maintenance accounts, as

necessary, to fund the civilian or contractor personnel replacing military

positions that have been transferred to meet other needs.

Agency Comments and

Our Evaluation

The Deputy Under Secretary of Defense (Installations) provided written

comments on a draft of this report. Overall, the Department of Defense

agreed with the report and generally agreed with the recommendations,

while providing additional insights concerning savings involving military

personnel. The Department also provided a number of technical comments,

which we incorporated into the report, where appropriate. DOD’s overall

comments are included in appendix IV.

The Department agreed with our recommendation that DOD components

should periodically determine if savings are being realized commensurate

with the reductions being made in the operating accounts. In addition to

sponsoring studies of savings from competitions, the Department noted
B-285359

Page 22 GAO/NSIAD-00-106 DOD Competitive Sourcing

that it has efforts under way to develop Activity Based Cost accounting

systems, which it believes will improve management oversight.

The Department partially agreed with the recommendation contained in

our draft report that called for DOD components to adjust their savings

estimates to reflect that military positions which are the subject of

competitive sourcing and strategic sourcing studies will be retained and

will not result in a reduction in authorized end strength. The Department

noted that these military spaces are being reinvested in other areas where

shortages exist in order to address readiness concerns. They acknowledge,

however, that this practice will require the services to provide additional

funding for operation and maintenance accounts to fund replacement

government civilian or contractor personnel in implementing the results of

the competitive and strategic sourcing studies. We have modified our

recommendation to reflect the need for the services to provide such

replacement funding.

We are providing copies of this report to Representative Solomon Ortiz,

Ranking Minority Member, Subcommittee on Military Readiness, House

Committee on Armed Services; and Senator James M. Inhofe, Chairman,

and Senator Charles Robb, Ranking Minority Member, Subcommittee on

Readiness and Management Support, Senate Committee on Armed

Services. We are also sending copies of this report to the Honorable

William S. Cohen, Secretary of Defense; the Honorable Louis Caldera,

Secretary of the Army; the Honorable F. W. Peters, Secretary of the Air

Force; the Honorable Richard Danzig, Secretary of the Navy; General

James L. Jones, Commandant of the Marine Corps; and the Honorable

Jacob Lew, Director, Office of Management and Budget. Copies will be

made available to others upon request.
B-285359

Page 23 GAO/NSIAD-00-106 DOD Competitive Sourcing

If you have any questions regarding this report, please contact me on

(202) 512-8412. Other GAO contacts and other key contributors to this

assignment are listed in appendix V.

Sincerely yours,

David R. Warren, Director

Defense Management Issues
Page 24 GAO/NSIAD-00-106 DOD Competitive Sourcing

Appendix I

Scope and Methodology ApApenednxidexiIs

The objectives of this report were to assess (1) progress the Department of

Defense has made in achieving its study goals and the extent to which

strategic sourcing is affecting these goals and (2) the extent to which

savings from A-76 and strategic sourcing are likely to be achieved.

To evaluate the Department’s progress in achieving its study goals and

savings estimates, we met with the Deputy Under Secretary of Defense for

Acquisition Reform, the Deputy Under Secretary of Defense for

Installations, and representatives from their offices. We also contacted the

Office of the Under Secretary of Defense (Comptroller and Chief Financial

Officer) regarding the movement of money from the operation and

maintenance account to other accounts. We obtained and analyzed the

planning assumptions each military service and Defense agency used.

Working with headquarters officials from each of the services and Defense

agencies, we obtained information on the numbers of positions planned for

study, which they used as the basis for projected savings from fiscal years

1997-2005. We obtained data on past, ongoing, and future A-76 studies from

the services and Defense agencies and estimates on savings and costs. We

gathered and analyzed information on the number of A-76 full

competitions, streamlined cost studies, and direct conversions. We

considered a cost study to be completed when an award was made to a

contractor or the final decision was made to keep the function in-house.

To assess the impact of the strategic sourcing program, we met with

responsible officials from the Office of the Secretary of Defense, the Army,

the Air Force, the Navy, and the Marine Corps. We also contacted officials

from the Defense agencies. We gathered information on plans, timetables,

goals and objectives from Navy officials. However, the Army and Air Force

were in the planning stages of their strategic sourcing programs, and could

offer little information on their objectives and timetables. The Marine

Corps had no plans to participate in strategic sourcing. Therefore, our work

was limited regarding this objective.

We performed our work at the Office of the Army Assistant Chief of Staff

for Installation Management, Pentagon; the Army Materiel Command,

Alexandria, Virginia; the Office of the Chief of Naval Operations, Logistics,

Pentagon; the Office of the Assistant Secretary of the Navy (Financial

Management, Comptroller), Pentagon; the Naval Sea Systems Command,

Arlington, Virginia; the Air Force Directorate of Manpower and

Organization, Pentagon; the U.S. Marine Corps; and the Office of the

Secretary of Defense. We contacted officials at the Defense Finance and

Accounting Service, Arlington, Virginia, and the Defense Logistics Agency,
Appendix I

Scope and Methodology

Page 25 GAO/NSIAD-00-106 DOD Competitive Sourcing

Fort Belvoir, Virginia. We also visited and performed work at the Army

Forces Command, Atlanta, Georgia; the Army Training and Doctrine

Command, Fort Monroe, Virginia; the U.S. Atlantic Fleet, Norfolk, Virginia;

the Naval Air Systems Command, Patuxent River, Maryland; the Naval

Surface Warfare Center, Crane, Indiana; the Air Force Air Education and

Training Command, San Antonio, Texas; and the Air Force Materiel

Command, Dayton, Ohio.

During the course of our study, many of the numbers changed, in part,

because of delays in reporting. Data provided in this report represent

information available as of April 30, 2000. We expect the numbers may

change again, so what we reported may not represent final figures.

We conducted our review from September 1999 through April 2000 in

accordance with generally accepted government auditing standards.
Page 26 GAO/NSIAD-00-106 DOD Competitive Sourcing

Appendix II

The A-76 Process ApendxiI

In general, the A-76 process consists of six key activities—(1) developing a

performance work statement and quality assurance surveillance plan;

(2) conducting a management study to determine the government’s most

efficient organization; (3) developing an in-house government cost estimate

for the most efficient organization; (4) issuing a Request for Proposals or

Invitation for Bids; (5) evaluating the proposals or bids and comparing the

in-house estimate with a private sector offer or interservice support

agreement and selecting the winner of the cost comparison; and

(6) addressing any appeals submitted under the administrative appeals

process, which is designed to ensure that all costs are fair, accurate, and

calculated in the manner prescribed by the A-76 handbook.

Figure 1 shows an overview of the process. The solid lines indicate the

process used when the government issues an Invitation for Bids or Request

for Proposals, requesting bids or proposals on the cost of performing a

commercial activity. This type of process is normally used for more routine

commercial activities, such as grass-cutting or cafeteria operations, where

the work process and requirements are well defined. The dotted lines

indicate the additional steps that take place when the government wants to

pursue a negotiated, “best value” procurement. This type of process is often

used when the commercial activity involves high levels of complexity,

expertise, and risk.
Appendix II

The A-76 Process

Page 27 GAO/NSIAD-00-106 DOD Competitive Sourcing

Figure 1: Overview of the A-76 Process

The circular requires the government to develop a performance work

statement. This statement, which is incorporated into either the Invitation

for Bids or Request for Proposals, serves as the basis for both government

estimates and private sector offers. If the Invitation for Bids process is

used, each private sector company develops and submits a bid, giving its

price for performing the commercial activity. While this process is taking

place, the government activity performs a management study to determine

the most efficient and effective way of performing the activity with

Prepare in-house

cost estimate

MEO

management study

Prepare technical

proposal

Revise

MEO

Revise

in-house

cost estimate

Conduct technical

evaluation of MEO

Compare selected

best value and MEO

technical proposals

Accept

contractor

bid/proposals

Conduct technical

evaluation of

bids/proposals

Compare

costs/select

contractor

Select lowest

cost alternative

Issue performance

work statement and

RFP or IFB

Most Efficient Organization (MEO) activities

Government technical evaluation activities

Process for invitation for bid (IFB)

Additions steps required for request for proposals (RFP)
Appendix II

The A-76 Process

Page 28 GAO/NSIAD-00-106 DOD Competitive Sourcing

in-house staff. Based on this “most efficient organization,” the government

develops a cost estimate and submits it to the selecting authority. The

selecting authority concurrently opens the government’s estimate along

with the bids of all private sector firms.

If the Request for Proposals—best value process—is used, the Federal

Acquisition Regulation and the A-76 supplemental handbook require

several additional steps. The private sector offerors submit proposals that

often include a technical performance proposal and a price. The

government prepares an in-house management plan and cost estimate

based strictly on the performance work statement. On the other hand,

private sector proposals can offer a higher level of performance or service.

The government’s selection authority reviews the private sector proposals

to determine which one represents the best overall value to the government

based on such considerations as (1) performance levels, (2) proposal risk,

(3) past performance, and (4) price. After the completion of this analysis,

the selection authority prepares a written justification supporting its

decision. This includes the basis for selecting a contractor other than the

one that offered the lowest price to the government. Next, the authority

evaluates the government’s most efficient organization and determines

whether it can achieve the same level of performance and quality as the

selected private sector proposal. If not, the government must then make

changes to its most efficient organization to meet the performance

standards accepted by the authority. This is intended to ensure that the

in-house cost estimate is based upon the same scope of work and

performance levels as the best value private sector offer. After the

authority determines that the most efficient organization and the private

sector proposal are based on the same level of performance, the cost

estimates are compared.

According to the Office of Management and Budget’s A-76 guidance, the

activity will be converted to performance by the private sector if the private

sector offer is either lower by an amount equal to 10 percent of the direct

personnel costs of the in-house cost estimate or is $10 million less over the

performance period than the in-house estimate, whichever is less. The

Office of Management and Budget established this minimum cost

differential to ensure that the government would not convert performance

for marginal estimated savings.

Participants in the process—for either the Invitation for Bids or Request for

Proposals process—may appeal the selection authority’s decision if they

believe the costs submitted by one or more of the participants were not
Appendix II

The A-76 Process

Page 29 GAO/NSIAD-00-106 DOD Competitive Sourcing

fair, accurate, or calculated in the manner prescribed by the A-76

handbook.

Appeals must be submitted in writing and within 20 days after the date that

all supporting documentation is made publicly available. The appeal period

may be extended to 30 days if the cost comparison is particularly complex.

Appeals are supposed to be adjudicated within 30 days after they are

received.
Page 30 GAO/NSIAD-00-106 DOD Competitive Sourcing

Appendix III

Strategic Sourcing ApendxiI

The strategic sourcing program is intended to maximize effectiveness,

efficiencies, and savings throughout the Department by providing for a

complete functional or organizational assessment of functions and

activities that are commercial, commercial but exempt from competition,

and inherently governmental.

DOD Guidance on the

Use of Strategic

Sourcing

The Strategic Sourcing Program represents another method available to the

services to help achieve their A-76 goals. Guidance from both the Office of

the Secretary of Defense and the Navy states that strategic sourcing is

consistent with the goals and objectives of the reinvention process outlined

in A-76, which allows the consideration of a wide range of options other

than A-76 cost comparisons to determine whether processes can be

eliminated, improved, or streamlined. The Office of the Secretary of

Defense’s interim guidance does not mandate the use of strategic sourcing,

but if strategic sourcing is used to meet A-76 goals, it is subject to Office of

the Secretary of Defense reporting criteria and approval. The Navy’s draft

guidance requires that the results from strategic sourcing be kept separate

from the A-76 results. For example, savings from strategic sourcing are to

be documented in a separate database that will track baseline data on

milestones and amount of savings.

The key step in strategic sourcing is to properly define an entire function or

activity to optimize or improve the level of performance at a reduced cost,

regardless of whether the function or activity is commercial or inherently

governmental. Through the use of an elaborate decision process, service

components can then consider a wide range of options and combinations,

including elimination of obsolete practices, consolidation, adoption of best

business practices, privatization, or competitive sourcing. Functions that

cannot be eliminated, combined, or converted to private sector

performance are candidates for functional assessments, a process

reengineering-based approach designed to achieve the most efficient

operation. Figure 2 shows a graphic of the decision process.
Appendix III

Strategic Sourcing

Page 31 GAO/NSIAD-00-106 DOD Competitive Sourcing

Figure 2: Strategic Sourcing Decision Process

Source: “Strategic Sourcing Program,” Department of Defense Strategic and Competitive Sourcing

Program Interim Guidance (Apr. 3, 2000).

No

No

No

No

No

Convert

To ISSA

Yes

No

No Can another DoD

Component or

Federal Agency

perform the work 

more cost

effectively?

Yes Yes

No Yes

No

Eliminate

Activity

Yes

Can the Commercial Activity be privatized?

Yes

Seek Legislative Relief 

and, if Needed, 

Create Source

Can another DoD Component perform the

Commercial Activity more cost effectively?

Yes

Convert

To DoD ISSA

Has a qualified NIB/NISH/JWOD firm offered

to perform the work? 

Yes

Has an 8(a) Native American owned firm

offered to perform the work?

Yes

Yes

Convert

to

Contract

(If fair and reasonable

prices can be obtained)

No

Perform A-76 Cost Comparison – Is Private Sector/ISSA 

Performance more efficient & cost effective than in-house MEO?

No

Yes

Identify and Review Entire Function or Organization

(i.e., in-house/contracted commercial activities, inherently governmental, military essential, and restricted activities)

THIS CHART IS NOT ALLINCLUSIVE.

Is the Commercial Activity performed by 10 or less DoD

civilian employees and/or any number of military?

Convert

To Contract

Update CAMIS and Inventory Update CAMIS & Inherently Governmental/Commercial Activities Inventory

Convert to Government’s Most Efficient Organization

Reengineer

Or Benchmark

Using Validated

Methodologies

Are any of the Commercial Activities

New Requirements or Severable Expansions?

Is it still needed in whole or part?

(i.e., validate requirement)

Are the Commercial Activities severable from Exempt Activities?

(e.g., inherently governmental, military essential, rotation, career progression, etc.)

It is not a requirement to 

seek these sources before 

proceeding

An A-76 cost comparison 

may be limited to the MEO 

and the NAO firm

An A-76 cost comparison is 

optional

ISSA that is a non-DoD 

Component

Dotted line around text 

indicates these steps 

are optional

Convert Or Retain

(If converting, develop 

waiver, package to include 

justification, cost analysis, 

and legislative action plan)

Is an A-76 Cost Comparison Waiver desired?

(i.e., in-house or contract has no chance of winning or in-house or 

contract results in significant cost/quality improvement)

1

2

3

4

4

3

1 2

1
Appendix III

Strategic Sourcing

Page 32 GAO/NSIAD-00-106 DOD Competitive Sourcing

Implementation of

Strategic Sourcing

At this time, the Navy is the only service with a definite plan to use the

strategic sourcing program to achieve the goals of the A-76 program. Naval

headquarters officials have emphasized that the strategic sourcing program

is an effort driven and endorsed by naval commands, which are also

responsible for execution and milestones. We visited two naval commands

that are performing functionality assessments on various activities—the

Naval Sea Systems Command’s weapons station at Crane, Indiana, and the

Naval Air Systems Command, Patuxent, Maryland.

Crane and the Naval Air Systems Command strategic sourcing efforts are

based on reengineering processes. Crane’s program, begun in fiscal year

1998, has served as the strategic sourcing pilot for the Naval Sea Systems

Command, and its efforts contributed to the Navy’s decision to pursue the

use of strategic sourcing. Crane currently has 1,949 of its 3,200 (61 percent)

employees under study in its strategic sourcing program and anticipates

cumulative savings of $158 million by fiscal year 2005. (Strategic sourcing

is taking the place of 369 positions previously projected to be studied under

A-76 at this location. Slightly more than 200 positions continue in the A-76

process.) Naval Air Systems Command officials stated that they plan to

study 7,840 positions. The initial startup costs for the effort were estimated

at $32 million, to be funded from its operating budget. Net savings are

budgeted at about $395 million by fiscal year 2005. Although the services

have been conducting reengineering efforts for years, Office of the

Secretary of Defense officials stress the costs and amount of potential

savings of strategic sourcing is still unclear.

Both the Army and Air Force have stated their intentions to consider the

use of strategic sourcing to obtain the savings goals established for A-76

efforts. Both services are working with their major commands to identify

potential candidates for submission in the President’s Budget for Fiscal

Year 2002. According to an Army program official, it is likely that the Army

will propose to study about 55,000 positions through A-76 (the total is

currently over 71,000) and about 16,000 under strategic sourcing (77 and

23 percent, respectively). While the number of potential candidates the Air

Force is considering for strategic sourcing is about 14,000 positions,

officials indicated they do not plan to lower their goal of conducting A-76

studies for 40,000 positions.

Conversely, Marine Corps officials stated they have not made any

commitments to a strategic sourcing effort at this time. According to its
Appendix III

Strategic Sourcing

Page 33 GAO/NSIAD-00-106 DOD Competitive Sourcing

latest business plan, the Marine Corps is placing a strong emphasis on A-76

as the primary tool for efficiencies in commercial functions.
Page 34 GAO/NSIAD-00-106 DOD Competitive Sourcing

Appendix IV

Comments From the Department of Defense ApendxiIV
Appendix IV

Comments From the Department of Defense

Page 35 GAO/NSIAD-00-106 DOD Competitive Sourcing
Page 36 GAO/NSIAD-00-106 DOD Competitive Sourcing

Appendix V

GAO Contacts and Staff Acknowledgments ApendxiV

GAO Contacts Barry Holman (202) 512-5581

Marilyn Wasleski (202) 512-8436

Acknowledgments In addition to those named above, Debra McKinney, David Rowan, and

Arnett Sanders made key contributions to this report.
Page 37 GAO/NSIAD-00-106 DOD Competitive Sourcing

Related GAO Products

Competitive Contracting: The Understandability of FAIR Act Inventories

Was Limited (GAO/GGD-00-68, Apr. 14, 2000).

DOD Competitive Sourcing: Potential Impact on Emergency Response

Operations at Chemical Storage Facilities Is Minimal (GAO/NSIAD-00-88,

Mar. 28, 2000).

DOD Competitive Sourcing: Plan Needed to Mitigate Risks in Army

Logistics Modernization Program (GAO/NSIAD-00-19, Oct. 04, 1999).

DOD Competitive Sourcing: Air Force Reserve Command A-76

Competitions (GAO/NSIAD-99-235R, Sept. 13, 1999).

DOD Competitive Sourcing: Lessons Learned System Could Enhance A-76

Study Process (GAO/NSIAD-99-152, July 21, 1999).

Defense Reform Initiative: Organization, Status, and Challenges

(GAO/NSIAD-99-87, Apr. 21, 1999).

Quadrennial Defense Review: Status of Efforts to Implement Personnel

Reductions in the Army Materiel Command (GAO/NSIAD-99-123, Mar. 31,

1999).

Defense Reform Initiative: Progress, Opportunities, and Challenges

(GAO/T-NSIAD-99-95, Mar. 2, 1999).

Force Structure: A-76 Not Applicable to Air Force 38th Engineering

Installation Wing Plan (GAO/NSIAD-99-73, Feb. 26, 1999).

Future Years Defense Program: How Savings From Reform Initiatives

Affect DOD’s 1999-2003 Program (GAO/NSIAD-99-66, Feb. 25, 1999).

DOD Competitive Sourcing: Results of Recent Competitions

(GAO/NSIAD-99-44, Feb. 23, 1999).

DOD Competitive Sourcing: Questions About Goals, Pace, and Risks of Key

Reform Initiative (GAO/NSIAD-99-46, Feb. 22, 1999).

OMB Circular A-76: Oversight and Implementation Issues

(GAO/T-GGD-98-146, June 4, 1998).
Related GAO Products

Page 38 GAO/NSIAD-00-106 DOD Competitive Sourcing

Quadrennial Defense Review: Some Personnel Cuts and Associated

Savings May Not Be Achieved (GAO/NSIAD-98-100, Apr. 30, 1998).

Competitive Contracting: Information Related to the Redrafts of the

Freedom From Government Competition Act (GAO/GGD/NSIAD-98-167R,

Apr. 27, 1998).

Defense Outsourcing: Impact on Navy Sea-Shore Rotations

(GAO/NSIAD-98-107, Apr. 21, 1998)

Defense Infrastructure: Challenges Facing DOD in Implementing Defense

Reform Initiatives (GAO/T-NSIAD-98-115, Mar. 18, 1998).

Defense Management: Challenges Facing DOD in Implementing Defense

Reform Initiatives (GAO/T-NSIAD/AIMD-98-122, Mar. 13, 1998).

Base Operations: DOD’s Use of Single Contracts for Multiple Support

Services (GAO/NSIAD-98-82, Feb. 27, 1998).

Defense Outsourcing: Better Data Needed to Support Overhead Rates for

A-76 Studies (GAO/NSIAD-98-62, Feb. 27, 1998).

Outsourcing DOD Logistics: Savings Achievable but Defense Science

Board’s Projections Are Overstated (GAO/NSIAD-98-48, Dec. 8, 1997).

Financial Management: Outsourcing of Finance and Accounting Functions

(GAO/AIMD/NSIAD-98-43, Oct. 17, 1997).

Base Operations: Contracting for Firefighters and Security Guards

(GAO/NSIAD-97-200BR, Sept. 12, 1997).

Terms Related to Privatization Activities and Processes (GAO/GGD-97-121,

July 1997).

Defense Outsourcing: Challenges Facing DOD as It Attempts to Save

Billions in Infrastructure Costs (GAO/T-NSIAD-97-110, Mar. 12, 1997).

Base Operations: Challenges Confronting DOD as It Renews Emphasis on

Outsourcing (GAO/NSIAD-97-86, Mar. 11, 1997).

Public-Private Mix: Effectiveness and Performance of GSA’s In-House and

Contracted Services (GAO/GGD-95-204, Sept. 29, 1995).
Related GAO Products

Page 39 GAO/NSIAD-00-106 DOD Competitive Sourcing

Government Contractors: An Overview of the Federal Contracting-Out

Program (GAO/T-GGD-95-131, Mar. 29, 1995).

Government Contractors: Are Service Contractors Performing Inherently

Governmental Functions (GAO/GGD-92-11, Nov. 18, 1991).

OMB Circular A-76: Legislation Has Curbed Many Cost Studies in Military

Services (GAO/GGD-91-100, July 30, 1991).

OMB Circular A-76: DOD’s Reported Savings Figures Are Incomplete and

Inaccurate (GAO/GGD-90-58, Mar. 15, 1990).

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