a

GAO

United States General Accounting Office

Report to Congressional Requesters

June 2004 HUMAN CAPITAL

Selected Agencies’ 

Use of Alternative 

Service Delivery 

Options for Human 

Capital Activities

GAO-04-679
www.gao.gov/cgi-bin/getrpt?GAO-04-679.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact J. Christopher 

Mihm at (202) 512-6806 or mihmj@gao.gov. 

Highlights of GAO-04-679, a report to 

congressional requesters 

June 2004

HUMAN CAPITAL

Selected Agencies’ Use of Alternative 

Service Delivery Options for Human 

Capital Activities 

The selected agencies were using ASD for the full range of their human 

capital activities. The figure below groups like human capital activities that 

the agencies provided through ASD into three overlapping tiers and 

identifies their associated drivers and the options used. 

Summary of Selected Agencies’ ASD Characteristics for Three Tiers of Human Capital 

Activities

Tier I

Recordkeeping, information 

technology, and traditional 

service delivery

Examples:

Payroll, human resource 

information design and 

delivery, employee assistance 

programs

Primary ASD drivers:

Reduce cost, avoid direct 

investment in new technology, 

focus on core activities

Primary ASD options used:

Public and private sector 

providers

Tier II

Implementation of human 

capital strategy and policy, 

including advisory services 

Examples:

Training development and 

delivery, recruitment, 

mediation

Primary ASD drivers:

Focus on core activities, 

confront reduced human 

capital staffing with flexible 

cost structures for occasional 

services

Primary ASD options used:

Public and private sector 

providers

Tier III

Formulation of human 

capital strategies and policy 

support

Examples:

Workforce planning, 

performance management 

systems, organizational 

assessment

Primary ASD drivers:

Gain access to expertise, 

ability to respond quickly to 

changing environment

Primary ASD options used:

Private sector providers

Tier I Tier II Tier III

High High

Technical focus Strategic focus

Source: GAO.

Agencies generally approached their management of ASD in similar ways. 

They conceptually agreed that human capital activities that did not require 

an intimate knowledge of the agency, oversight, or decision-making 

authority could be considered for ASD, although in practice they showed 

differences in their choices of ASD activities. GAO identified several lessons 

the agencies had learned about ASD management, such as the importance of 

understanding the complexity and requirements of an activity before making 

an ASD decision. As the President’s agent and adviser for human capital 

activities, OPM also has a central role in assisting agencies’ management of 

ASD. Several agencies noted that they used OPM’s Training and 

Management Assistance program, which provides human capital contract 

assistance. However, the officials also cited the need for sharing information 

about specific ASD efforts, useful metrics, and lessons learned. 

Human capital offices have 

traditionally used alternative 

service delivery (ASD)—the use of 

other than internal staff to provide 

a service or to deliver a product—

as a way to reduce costs for 

transaction-based services. 

GAO was asked to identify which 

human capital activities agencies 

were selecting for ASD, the reasons 

why, how they were managing the 

process, and some of the lessons 

they had learned. Eight agencies 

were selected to provide 

illustrative examples of ASD use. 

GAO is making a recommendation 

to the Director of the Office of 

Personnel Management (OPM) to 

work with the Chief Human Capital 

Officers Council to share and 

distribute information about ASD. 

OPM stated that the 

recommendation is consistent with 

their concern for overseeing human 

capital contracting, for which OPM 

has the lead. OPM expressed 

concern about two issues it 

believes were not sufficiently 

covered in the report—OPM’s 

support for agencies’ ASD efforts 

and agency accountability issues 

when using ASD providers. GAO 

believes that both issues are 

covered by this recommendation. 
Page i GAO-04-679 Alternative Service Delivery Options

Contents

Letter 1

Results in Brief 3

Background 7

Selected Agencies Reported Using ASD for the Full Range of Their 

Human Capital Activities 9

Selected Agencies Approached Their Management of ASD in Similar 

Ways and Shared Similar Lessons Learned 15

Conclusions 24

Recommendation for Executive Action 25

Agency Comments and Our Evaluation 26

Appendixes

Appendix I: Objectives, Scope, and Methodology 28

Appendix II: Examples of Alternative Service Delivery Options Available 

to Federal Agencies for Accomplishing Human Capital 

Activities 30

Intragovernmental Revolving Fund Services 30

Franchise Fund Services 30

Cooperative Administrative Support Unit Services 31

Interagency Contract Service Programs 31

Contracting for Services 32

Partnerships 32

Appendix III: Comments from the Office of Personnel Management 33

Appendix IV: Comments from the Department of the Interior 35

Appendix V: GAO Contacts and Staff Acknowledgments 36

GAO Contacts 36

Acknowledgments 36

Figures Figure 1: Summary of Selected Agencies’ ASD Characteristics for 

Three Tiers of Human Capital Activities 4

Figure 2: Description of OPM’s Training and Management 

Assistance Program 23
Contents

Page ii GAO-04-679 Alternative Service Delivery Options

Abbreviations

ASD alternative service delivery

CASU cooperative administrative support unit

CHCO Chief Human Capital Officers 

COTR contracting officer’s technical representative

DOE Department of Energy

EEO equal employment opportunity

FWS U.S. Fish and Wildlife Service

GSA General Services Administration

IR intragovernmental revolving

IT information technology

MMS Minerals Management Service

NAPA National Academy of Public Administration

NFC National Finance Center

NGA National Geospatial-Intelligence Agency

NIMA National Imagery and Mapping Agency

OMB Office of Management and Budget

OPM Office of Personnel Management

SER-CASU Southeast Regional Cooperative Administrative Support Unit

TMA Training and Management Assistance

USCG United States Coast Guard

USDA United States Department of Agriculture

USITC United States International Trade Commission

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Page 1 GAO-04-679 Alternative Service Delivery Options

United States General Accounting Office

Washington, D.C. 20548

A

June 25, 2004 Letr

The Honorable George V. Voinovich

Chairman

Subcommittee on Oversight of Government Management,

the Federal Workforce, and the District of Columbia

Committee on Governmental Affairs

United States Senate

The Honorable Jo Ann Davis

Chairwoman

Subcommittee on Civil Service and Agency

Organization

Committee on Government Reform

House of Representatives

In an April 2003 report on selected agencies’ use of human capital 

strategies to attain mission results, we noted that improved ways of 

providing services can enable agencies’ human capital offices to reallocate 

their resources to better meet expanded roles as strategic partners.1

 As part 

of this, agencies need to consider how best to accomplish their human 

capital activities, including who the service provider should be. Alternative 

service delivery (ASD)—the use of other than internal staff to provide a 

service or to deliver a product—has traditionally been used for transactionbased services, such as payroll administration, as a way to reduce costs. 

However, many public and private sector human capital leaders are now 

advancing it as an approach that can also help free their staff to focus on 

core strategic activities and expand their access to expertise. As the 

number, scope, and quality of ASD options, such as reimbursable services 

from other agencies and private sector providers, continue to increase and 

the experience of agencies continues to mature, human capital leaders 

expect that ASD will become an increasingly significant consideration in 

the delivery of human capital products and services. For a broader 

discussion of the federal government’s sourcing policies and procedures,

1

U.S. General Accounting Office, Human Capital: Selected Agency Actions to Integrate 

Human Capital Approaches to Attain Mission Results, GAO-03-446 (Washington, D.C.: Apr. 

11, 2003).
Page 2 GAO-04-679 Alternative Service Delivery Options

see the final report of the Commercial Activities Panel released in April 

2002.2

To obtain a better understanding of federal agencies’ use of ASD for 

accomplishing their human capital activities, you asked us to report on 

how federal agencies determine the human capital activities to retain and 

those for which they would consider using outside providers. Specifically, 

you asked that we identify (1) the human capital activities selected 

agencies are accomplishing through the use of ASD options and the basis 

on which they decided to use ASD and (2) how the use of ASD is being 

managed and the lessons learned by the selected agencies. The agencies we 

selected were the Department of Energy (DOE), the Department of the 

Interior’s U.S. Fish and Wildlife Service (FWS) and Minerals Management 

Service (MMS), the National Geospatial-Intelligence Agency (NGA),3

 the 

U.S. Coast Guard (USCG), the U.S. Department of Agriculture’s (USDA) 

headquarters, the U.S. International Trade Commission (USITC), and the 

U.S. Mint’s headquarters. Agencies were selected through research that 

identified them as using ASD for some human capital activities and based 

on the recommendations of human capital experts from the National 

Academy of Public Administration (NAPA), George Washington University, 

and a private sector consultant for federal contract management. The 

agency selection process was not designed to produce findings that could 

be considered representative of the use of ASD for human capital activities 

in the federal government as a whole, but rather to provide illustrative 

examples of how selected agencies were using ASD.

To meet our objectives, we analyzed information from a review of the 

literature on the use of ASD for human capital activities in both public and 

private sector organizations. We then interviewed human capital officials 

from the selected agencies to identify the activities for which they were 

using ASD, the basis on which they decided to use it, how the selected 

agencies managed their use of ASD, and the lessons learned from the 

agencies’ experiences. Some of the agencies provided supporting 

documentation, such as contracts and project plans, for review. We did not 

verify the agencies’ cost savings estimates. After reviewing and analyzing 

the agencies’ responses, we developed a framework for organizing and 

2

Commercial Activities Panel, Final Report: Improving the Sourcing Decisions of the 

Government (Washington, D.C.: 2002).

3

The National Geospatial-Intelligence Agency (NGA) was formerly known as the National 

Imagery and Mapping Agency (NIMA).
Page 3 GAO-04-679 Alternative Service Delivery Options

discussing their use of ASD for human capital activities. Our review was 

conducted in accordance with generally accepted government auditing 

standards from August 2003 through February 2004. Appendix I provides 

additional information on our scope and methodology.

Results in Brief The selected agencies reported using ASD for the full range of their human 

capital efforts including their transaction-based, administrative, and 

strategy and policy support activities. For the purposes of this report, we 

grouped the activities the agencies provided through ASD into three tiers 

and identified the primary drivers and options associated with each tier.4

4

We are using the construct of “tiers” of activities to discuss similar types of human capital 

activities that are not discrete categories, but rather groups of like activities with some 

degree of overlap among the tiers. 
Page 4 GAO-04-679 Alternative Service Delivery Options

Figure 1: Summary of Selected Agencies’ ASD Characteristics for Three Tiers of 

Human Capital Activities

All of the agencies said they used ASD for some activities in tier I, such as 

payroll administration and employee assistance programs. In addition to 

freeing staff to focus more on core activities,5

 agency officials regarded 

purchasing services, such as payroll, from specialized providers as a way to 

reduce costs through economies of scale. All of the agencies used ASD for 

some activities in tier II, such as components of their training development 

and delivery, often to focus on core activities and respond to reductions in 

human capital staffing. They used a mix of options to accomplish both tier I 

and tier II activities, including interagency reimbursable services and 

private sector contracts. In a more recent development in the use of ASD, 

5

We use the term “core activities” throughout the report to refer to those areas where the 

human capital office can add strategic value and act as a strategic partner with the agency.

Tier I

Recordkeeping, information 

technology, and traditional 

service delivery

Examples:

Payroll, human resource 

information design and 

delivery, employee assistance 

programs

Primary ASD drivers:

Reduce cost, avoid direct 

investment in new technology, 

focus on core activities

Primary ASD options used:

Public and private sector 

providers

Tier II

Implementation of human 

capital strategy and policy, 

including advisory services 

Examples:

Training development and 

delivery, recruitment, 

mediation

Primary ASD drivers:

Focus on core activities, 

confront reduced human 

capital staffing with flexible 

cost structures for occasional 

services

Primary ASD options used:

Public and private sector 

providers

Tier III

Formulation of human 

capital strategies and policy 

support

Examples:

Workforce planning, 

performance management 

systems, organizational 

assessment

Primary ASD drivers:

Gain access to expertise, 

ability to respond quickly to 

changing environment

Primary ASD options used:

Private sector providers

Tier I Tier II Tier III

High High

Technical focus Strategic focus

Source: GAO.
Page 5 GAO-04-679 Alternative Service Delivery Options

agencies reported gaining access to expertise as a primary driver for 

activities in tier III. These included projects such as workforce planning 

and organizational development, which involved the formulation of human 

capital strategy and policy support. Almost all of the eight agencies used 

ASD for a tier III activity and generally used the private sector as their ASD 

option for these developmental and consulting services. Of the selected 

agencies, the Mint was the only one engaged in a competitive sourcing 

initiative involving most of its human capital functions. 

The selected agencies approached their management of ASD in similar 

ways and shared similar lessons learned about the process. The 

approaches and lessons are consistent with those we have identified as 

part of our larger body of work on sourcing practices.6

 Agency officials 

generally agreed that any human capital activity that did not require an 

intimate knowledge of the agency, oversight, or decision-making authority 

could be a suitable ASD candidate. In practice, however, there were 

differences in their choices of activities for which they used ASD. A lesson 

learned about making ASD decisions included the need to understand the 

complexity and requirements of an activity prior to making a decision. 

Human capital officials said that they used a number of different methods 

to develop their ASD contracts and select their providers, and several 

emphasized specifying flexible terms with measurable performance 

standards in their contracts as essential requirements for meeting ASD 

objectives. Agencies used both formal and informal ways of monitoring 

their contracts. They noted using similar types of performance measures to 

assess their ASD use depending on the type of activity. For example, 

several said they used customer satisfaction surveys to check the 

effectiveness of their ASD efforts for their employee services and used 

established models to evaluate their training efforts. Agency officials said 

that finding an ASD provider with whom they could build a relationship 

was an important aspect of monitoring. Agencies noted that they used the 

Office of Personnel Management’s (OPM) Training and Management 

Assistance (TMA) program to aid their management of ASD, which 

provided them with access to a pool of professionals who could help them 

select providers and negotiate and monitor agreements. As the President’s 

agent and adviser for human capital activities, OPM also has a central role 

6

See, for example, U.S. General Accounting Office, Information Technology: Leading 

Commercial Practices for Outsourcing of Services, GAO-02-214 (Washington, D.C.: Nov. 30, 

2001).
Page 6 GAO-04-679 Alternative Service Delivery Options

in agencies’ management of ASD through its authority to oversee 

management of human capital activities. 

Agency officials pointed to the need for partnering with other federal 

agencies to learn from each other about effective ways to use ASD for their 

human capital activities. OPM sees as part of its role the need to develop 

tools and provide support to agencies in their human capital 

transformation efforts and to assist in making the federal government a 

high-performing workplace. In addition, OPM has expressed a desire to 

improve oversight of human capital contracts. In light of this, this report 

contains a recommendation to the Director of OPM to work with the Chief 

Human Capital Officers (CHCO) Council7

 to serve as a resource in sharing 

and distributing information, such as metrics and lessons learned, about 

agencies’ use of ASD for human capital activities.

We provided a draft of this report to the Director of OPM and the 

departments representing the eight agencies for their review and comment. 

We received written comments from OPM and the Department of the 

Interior, which are included in appendixes III and IV. OPM stated that the 

report contained a good model for looking at human capital ASD use and 

that the recommendation was consistent with the agency’s concern for 

human capital contracting, for which OPM has the lead. However, they 

expressed concerns that the report did not address the efforts of their 

human capital officers in helping agencies improve their human capital 

practices or how agencies ensure that their ASD providers comply with 

regulatory and statutory requirements. We did not assess the actions of the 

OPM human capital officers because their role did not surface in our 

interviews with agency officials. Regarding the concern of ensuring 

functions provided through ASD meet appropriate federal regulatory and 

statutory requirements, we agree with OPM’s concern and believe our 

recommendation can help address this important issue OPM raises. The 

Department of the Interior suggested that GAO or OPM conduct an 

additional study that would examine the quality and value of various ASD 

products and providers to allow agencies an objective comparison of 

providers for similar services. The other agencies generally had no 

comments on the report or technical corrections. 

7

The CHCO Council, headed by the Director of OPM, is responsible for advising and 

coordinating agencies’ efforts concerning modernization of their human resources systems, 

improvement of the quality of human resources information, and legislation on human 

resources operations and organizations.
Page 7 GAO-04-679 Alternative Service Delivery Options

Background Recent research on private sector companies indicates that many 

companies are using ASD, generally referred to in the private sector as 

“outsourcing,” as an integral and permanent part of their human capital 

strategies. Along with extensive use of technology and consolidation of 

service delivery units, outsourcing accompanies the desire of many human 

capital offices to move their focus from transaction-based activities toward 

becoming more of a strategic partner. A 2002 Conference Board study, 

based on responses from 125 surveyed companies, found that two-thirds 

currently outsource a major human capital activity and most of these 

companies are seeking to expand their outsourcing activities.8

 The study 

reported that pressure to cut costs, improve the quality of human capital 

services, gain access to specialist expertise and technology, and free staff 

to concentrate on core business activities drove the companies’ 

outsourcing decisions. Slightly more than 50 percent of survey respondents 

reported that they had fully achieved their outsourcing objectives, 42 

percent had partially achieved them, and less than 1 percent of outsourced 

human capital functions had been brought back in-house. A December 2003 

study from the Corporate Leadership Council found, from a survey of 162 

of its member organizations, that most human capital activities continue to 

be largely performed in-house, although aspects of almost every activity 

are outsourced.9

The research on the private sector’s use of outsourcing also indicates that 

the range of human capital activities outsourced is increasing. According to 

a 2003 report from the University of Southern California, the large 

corporations they surveyed were most likely to outsource employee 

assistance and benefits administration.10 This report noted that 

compensation, benefits, employee training, human resource information 

systems, recruitment, performance appraisal, affirmative action, and legal 

affairs all showed statistically significant increases in the use of 

8

Lisa Gelman and David Dell, HR Outsourcing Trends (New York: The Conference Board: 

2002). 

9

Corporate Leadership Council, Strategic HR Outsourcing: A Quantitative Assessment of 

Outsourcing Prevalence and Effectiveness (Washington, D.C.: Corporate Executive Board: 

December 2003).

10Edward E. Lawler III and Susan Albers Mohrman, Creating a Strategic Human Resources 

Organization: An Assessment of Trends and New Directions, Center for Effective 

Organizations, Marshall School of Business, University of Southern California, Stanford 

University Press (Stanford, Calif.: 2003). 
Page 8 GAO-04-679 Alternative Service Delivery Options

outsourcing from 1995 to 2001. No activity was less likely to be outsourced 

in 2001 than it was in 1995. In addition, some organizations are following a 

path where they transfer the majority of their human capital activities to a 

single contractor.

Research on the federal government’s use of human capital ASD includes a 

1997 NAPA report that was intended to provide federal managers and 

human capital staff with a practical guide to the issues that must be 

addressed in approaching ASD for human capital functions.11 The report 

recommended that because of the risks involved with ASD, including a 

potentially negative effect on the general workforce, agencies must 

recognize that its use requires careful planning. It maintained, however, 

that as in the private sector, federal government executives were in a 

position of managing a decrease in resources along with increased 

performance expectations and that ASD was a viable approach to help 

meet this challenge. 

Federal agencies have a number of ASD options available to them. 

Examples include human capital services offered by other federal agencies, 

contracts with private sector and nonprofit organization providers, and 

partnerships with other organizations. USDA’s National Finance Center is 

an example of an interagency service provider, supporting a number of 

other federal agencies, including GAO, with automated information 

systems services for personnel and payroll. Private sector providers of 

human capital services have increased in both their number and the range 

of their services geared toward the federal human capital community. For 

instance, in 2000 the General Services Administration (GSA) introduced a 

new schedule of contracts from more than 50 different contractors for 

activities such as recruitment and position classification. Another ASD 

option includes the use of partnerships with other organizations, which 

may not necessarily involve exchanges of funds. The Bureau of the Census, 

for example, partnered with national, state, and local organizations to help 

the agency recruit census takers for the 2000 Census.12 Appendix II has 

more detail on ASD options available to federal agencies.

11National Academy of Public Administration, Alternative Service Delivery: A Viable 

Strategy for Federal Government Human Resources Management (Washington, D.C.: 

November 1997).

12U.S. General Accounting Office, 2000 Census: Review of Partnership Program Highlights 

Best Practices for Future Operations, GAO-01-579 (Washington, D.C.: Aug. 20, 2001).
Page 9 GAO-04-679 Alternative Service Delivery Options

Selected Agencies 

Reported Using ASD 

for the Full Range of 

Their Human Capital 

Activities

Human capital officials from the selected agencies reported using ASD for 

a variety of specific human capital activities that we grouped into “tiers,” a 

construct we created to discuss how agencies use ASD for similar types of 

human capital activities; they are not discrete categories, but rather groups 

of activities that overlap. All of the agencies used ASD for at least some tier 

I activities, such as payroll and employee assistance programs, and tier II 

human capital activities involving the implementation of human capital 

policy and strategy. Most of the agencies had contracted for assistance, 

generally with the private sector, for tier III activities, such as special 

projects involving workforce planning and organizational assessments. Of 

the eight agencies, the Mint was the only agency currently engaged in a 

competitive sourcing initiative involving most of its human capital 

functions.

Agencies Regarded ASD Use 

for Tier I Activities as a Way 

to Reduce Costs in Some 

Cases and to Free Staff to 

Focus on Core Activities

Similar to private sector experience, agency officials regarded the use of 

ASD for some of the tier I activities involving transactional human capital 

functions, the acquisition and maintenance of technology, and specialized 

services as a way to reduce or avoid costs. Agencies have been using ASD 

for these activities for a number of years, and updated cost savings 

estimates were not available. In general, however, using ASD for more 

standardized, transactional activities allows human capital offices to make 

use of high-volume providers’ investments and capabilities that realize 

economies of scale. For instance, OPM is leading the effort to collapse the 

operations of 22 executive branch agencies that currently run payroll 

systems into what will eventually be only two systems at a projected 

savings of $1.1 billion through fiscal year 2012.13 We reported that it is 

evident that cost savings can be found by reducing the number of payroll 

systems operated and maintained by the federal government and avoiding 

the costs of updating or modernizing those systems, but have noted the 

significant challenges in realistically estimating the financial savings from 

this initiative.14 Likewise, although cost savings estimates were not 

available, agency officials regarded consolidating the purchase of human 

resource information systems and specialized services that would be 

13The e-payroll initiative is one of OPM’s five e-government initiatives aimed at transforming 

the way human capital functions and services are carried out in the federal government.

14U.S. General Accounting Office, Electronic Government: Progress and Challenges in 

Implementing the Office of Personnel Management’s Initiatives, GAO-03-1169T

(Washington, D.C.: Sept. 23, 2003).
Page 10 GAO-04-679 Alternative Service Delivery Options

expensive to duplicate internally, such as purchasing commercial-off-theshelf software or using a specialized provider of employee assistance 

programs, as a way to reduce individual costs to the agency. In prior work 

on how companies were taking strategic approaches to acquiring services, 

we noted one tactic involved using a companywide approach to procuring 

services. When the companies analyzed their spending on services, they 

realized that individual units of the company were buying similar services 

from numerous providers, often at greatly varying prices. In some cases, 

after this analysis, thousands of suppliers were reduced to a few, enabling 

the companies to negotiate lower rates.15

Common examples of the types of tier I activities for which the eight 

agencies used ASD are 

• payroll processing,

• components of human resource information technology,

• employee assistance programs,

• health screening and wellness services,

• employee fitness programs, and 

• drug and alcohol testing.16

As previously noted, federal agencies have used ASD for tier I human 

capital activities for a number of years. NAPA reported in 1997 that human 

capital outsourcing by federal agencies was already substantial in these 

areas.17 All of the agencies used ASD for some of their tier I activities, and 

most of the agencies reported using ASD for their payroll administration 

and at least some component of their information technology. NGA, for 

example, partnered with another agency to share contracts for human 

capital information technology development and maintenance. NGA said 

that the arrangement allowed it to access expertise not resident in-house 

15U.S. General Accounting Office, Best Practices: Taking a Strategic Approach Could 

Improve DOD’s Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18, 2002).

16GAO analysis of agency data.

17NAPA, Alternative Service Delivery.
Page 11 GAO-04-679 Alternative Service Delivery Options

and promoted knowledge transfers between the two agencies. Using ASD 

for traditional employee services was also common among the selected 

agencies. Many of them used ASD for their employee assistance programs, 

wellness and fitness centers, health units, or drug and alcohol testing, often 

using interagency services to provide these functions. By going to outside 

providers for these specialized services, agency officials believed that they 

were able to focus more on core activities in addition to gaining efficiencies 

by joining other agencies’ efforts. A DOE official, for example, said that the 

department used ASD for its fitness centers to avoid liability issues so that, 

for example, if an employee were injured using the center it would not be 

the responsibility of the department. DOE also reported joining another 

department’s large contract for drug and alcohol testing to reduce its 

workload by not having to commit resources to contracting for the service 

itself. Officials also said they gained the benefit of having a neutral thirdparty provider, which was believed to be important because employees 

may be less likely to use services such as employee assistance programs 

when internally provided due to confidentiality issues.

Agencies Regarded ASD Use 

for Tier II Activities as a Way 

to Free Staff to Focus on 

Core Activities

All of the selected agencies used ASD for at least one of their tier II 

activities, which involve the implementation of human capital policy and 

strategy, including advisory services. Common examples of the agencies’ 

ASD tier II activities are 

• training development and delivery,

• classification and staffing support,

• classification appeals and reviews,

• equal employment opportunity (EEO) and administrative investigations,

• recruitment, and

• mediation.18

Many of these activities entail services dealing with recruiting, developing, 

and retaining employees, and they occupy the middle ground between the 

18GAO analysis of agency data.
Page 12 GAO-04-679 Alternative Service Delivery Options

primarily technical work in tier I and the increased strategic focus needed 

for tier III activities. Drivers for this tier of activities included freeing staff 

to focus on core activities and supplementing a lack of staff to perform the 

activity. Tier II activities often involve partial outsourcing, using ASD for 

only a component of the human capital function, whereas a tier I activity 

such as drug testing may be completely outsourced. NGA’s Training and 

Doctrine Directorate, for example, used OPM’s TMA program to select and 

evaluate providers for its Leadership Program. The agency used a 

combination of in-house expertise and contractors to design and deliver 

the leadership training. 

Within tier II activities, components of training development and delivery 

were the most frequently cited human capital activities for which the 

agencies used ASD. NAPA’s 1997 report also noted outsourcing of training 

by federal agencies as substantial.19 As one example, USDA turned to a 

private sector contractor to help develop the design for a corporate 

leadership development program to prepare upper-level managers for 

future leadership roles at USDA. One of the rationales for relying on a 

contractor was that the contractor had the research edge on best practices 

gleaned from completing needs assessments with other organizations. In 

addition to using the private sector, several agencies used the training 

services of providers such as the USDA Graduate School and the Federal 

Executive Institute. OPM is also working on another training tool for 

federal agencies to use. E-Training, one of OPM’s e-government initiatives, 

is designed to create a governmentwide e-Training environment to support 

the development of the federal workforce and provide a single source for 

on-line training and strategic human capital development for all federal 

employees. OPM expects that its initiative will allow agencies to focus their 

own training efforts on unique needs, thus maximizing the effectiveness of 

their expenditures on workforce performance.

Agencies also used ASD for tier II activities such as investigations, 

mediation, classification and staffing, and recruiting. FWS, for example, 

contracted for classification appeals and studies, EEO and administrative 

investigations, and mediations. The agency maintained that ASD was useful 

in this case because, given the sporadic nature of some of these activities, it 

could contract for services only when it needed them. MMS contracted 

with a retired employee to perform staffing, classification, and employee 

relations functions. Two of the agencies used ASD for some component of 

19NAPA, Alternative Service Delivery.
Page 13 GAO-04-679 Alternative Service Delivery Options

their recruitment function. For example, although the contract is new and 

NGA has not yet directly tracked changes due to this initiative, the agency 

anticipates that contracting for some of its recruitment activities will 

provide better customer service and help confront reduced human capital 

staffing. 

Agencies Regarded ASD Use 

for Tier III Activities as a 

Way to Gain Access to 

Expertise

Tier III activities, which involve the formulation of human capital strategy 

and policy support, represent a more recent application of ASD for human 

capital activities. Examples of the agencies’ tier III ASD activities are

• strategic workforce planning,

• skills gap analysis,

• strategic human capital management planning,

• organizational assessment survey,

• performance management system,

• pay compensation, and 

• benchmarking.20

These activities involved expanding their base of expertise and gaining 

access to new ideas and methodologies. All but one of the agencies 

reported using ASD for some activities within tier III, often using private 

sector providers. 

Several agencies noted that the use of ASD for tier III activities enabled 

their human capital offices to obtain access to the right mix of skills quickly 

in order to meet critical deadlines, thereby providing the agency with new 

tools and capabilities. USITC, for example, through OPM’s TMA program, 

contracted for initiatives in strategic workforce planning. The agency used 

contractors to help define its human capital vision and models and to 

develop occupation guides and a human capital plan. USDA teamed with a 

contractor to conduct a skills gap analysis to identify critical workforce 

20GAO analysis of agency data.
Page 14 GAO-04-679 Alternative Service Delivery Options

skills and analyze skills gaps. USDA reported that the contractor provided 

third-party objectivity in retrieving and assessing information, used its own 

technology to analyze data, and produced a model based on its own 

scientific expertise that assisted USDA managers in determining workforce 

skills needs for closing the gaps in the next 5 years. USCG contracted for 

the use of OPM’s Organizational Assessment Survey after sporadic, 

unsatisfactory in-house attempts to manage the survey development, 

administration, data collection, analysis, and required reporting. Instead of 

investing in three full-time employees supplemented by six part-time 

employees that USCG believed would be needed to manage an annual 

survey, it reduced the resources needed to manage the survey effort to one 

full-time employee supplemented by two part-time employees. According 

to an agency official, the estimated annual cost for the project was reduced 

by approximately $300,000.

The Mint Is Engaged in a 

Human Capital Competitive 

Sourcing Initiative

All of the above examples of ASD for the three tiers of activities concerned 

were specific activities that were outsourced to a variety of different 

providers. Within private sector human capital offices, however, there is a 

beginning trend toward aggregating multiple human capital activities into 

one ASD contract. The 2002 Conference Board report on human resources 

outsourcing trends found that although most of the companies they 

surveyed used more than one source provider, 12 percent of the companies 

surveyed outsourced the bulk of their human capital functions to a single 

provider and 9 percent were in the process of doing so or plan to over the 

next 3 years.21 Aggregating activities into one contract can result in better 

contracting leverage. This is riskier, however, in terms of the complexity of 

the arrangement and the assumption that one vendor can deliver and 

maintain the same level of service previously provided in-house or by a 

variety of different providers. 

The Mint was the only one of the eight selected agencies currently 

considering using one ASD provider for the majority of its human capital 

activities through a competitive sourcing initiative governed by the Office 

of Management and Budget’s (OMB) Circular No. A-76. The initiative 

involves all of the Mint’s human capital functions except employee and 

labor relations and policy, and the agency expects to complete the 

competitive sourcing study no later than February 2005. Although a Mint 

21Gelman and Dell, Outsourcing Trends.
Page 15 GAO-04-679 Alternative Service Delivery Options

official reported challenges maintaining morale and staff during the formal 

cost comparison, the agency expects that the study will eventually result in 

reduced costs. Our work looking at the progress selected agencies were 

making in establishing competitive sourcing programs also found that 

ensuring and maintaining morale was a challenge for those agencies.22

NAPA reported that trust between agency leaders and employees can be 

shaken by the consideration of nontraditional staffing.23 In addition, 

employees may suffer stress-induced illness, increased absenteeism, 

hostility, and depression, other symptoms of changed organizations. The 

report noted that providing an authoritative source for employees to get 

accurate information minimizes the unknown and helps control rumors 

and miscommunication.

Selected Agencies 

Approached Their 

Management of ASD in 

Similar Ways and 

Shared Similar Lessons 

Learned

We examined the agencies’ management of ASD by looking at their 

approaches to three phases of contract management. The phases included 

(1) making the sourcing decision, (2) developing the contract and selecting 

the provider, and (3) monitoring the provider’s performance. Our review 

also identified some of the lessons the agencies learned and the role that 

OPM plays in assisting agencies with their management of ASD.

Agencies Approached 

Sourcing Decisions in a 

Similar Way on a 

Conceptual Level but 

Showed Differences in 

Practice

To make a sourcing decision, organizations need to determine whether 

internal capability or external expertise can more effectively meet their 

needs. The Commercial Activities Panel, chaired by the Comptroller 

General of the United States, noted that determining whether the public or 

the private sector would be the most appropriate provider of the services 

the government needs is an important, and often highly charged, question.24

The report also stated that determining whether internal or external 

sources should be used has proved difficult for agencies because of 

systems and budgeting practices that (1) do not adequately account for 

22U.S. General Accounting Office, Competitive Sourcing: Greater Emphasis Needed on 

Increasing Efficiency and Improving Performance, GAO-04-367 (Washington, D.C.: Feb. 

27, 2004).

23NAPA, Alternative Service Delivery.

24Commercial Activities Panel, Improving the Sourcing Decisions. 
Page 16 GAO-04-679 Alternative Service Delivery Options

total costs and (2) inhibit the government’s ability to manage its activities in 

the most effective manner possible. In prior work examining the 

competitive sourcing initiatives of selected agencies, we reported that 

several agencies had developed strategic and transparent sourcing 

approaches.25 The approaches included the comprehensive analysis of 

factors such as mission impact, potential savings, risks, current level of 

efficiency, market conditions, and current and projected workforce 

profiles. To make good human capital sourcing decisions, NAPA’s ASD 

report also suggested identifying constraints on the process, such as the 

lack of capacity within the organization to manage the ASD contract and 

the legal, regulatory, and ethical issues related to the governmental nature 

of the work.26

The selected agencies reported similarities on a conceptual level in how 

they made their sourcing decisions. Officials generally agreed about which 

human capital activities were suitable candidates for ASD. Their 

considerations were consistent with the Commercial Activities Panel 

sourcing principles. For example, agency officials recognized that some 

activities are inherently governmental27 or are functions that should be 

performed by federal workers and that both quality and cost factors should 

be considered.28 The general consensus was that virtually any activity could 

be an ASD candidate as long as it did not require an intimate knowledge of 

the agency or involve oversight or decision-making authority that should 

belong with the agency. There was also general consensus that ASD should 

be considered in situations where it could improve quality without 

increasing costs or keep the same quality at a lower cost and in situations 

where activities cannot be accomplished with the agency’s current skills 

and resources. Some of the agencies excluded from ASD any activity 

directly related to policy, while one official maintained that policy 

development, as opposed to policy decision making, was appropriate for 

ASD. 

25GAO-04-367.

26NAPA, Alternative Service Delivery.

27An “inherently governmental” activity is an activity that is so intimately related to the 

public interest as to mandate performance by government personnel.

28Commercial Activities Panel, Improving the Sourcing Decisions.
Page 17 GAO-04-679 Alternative Service Delivery Options

Notwithstanding the broad conceptual agreement among the agencies, they 

showed differences in their choices of human capital ASD activities. This 

may be partially due to differences in the activities they deemed to be 

essential to the agency or to the human capital office. The USITC Human 

Resources Director, for example, noted that USITC staffing was a function 

that required intimate knowledge of the agency and one that it would not 

consider for ASD. Private sector research also indicates that some 

companies are reluctant to outsource activities such as employee 

communications, assessment, and recruiting because they are critical to 

the company’s corporate culture and provide a “personal touch.”29 The 

differences may also be due to variations in existing capacity and in how 

ASD was used in the agencies’ overall human capital strategy. FWS, for 

example, noted that as the agency continues to identify areas for 

consolidation and efficiency, it sees its use of ASD increasing as a means to 

provide better customer service and supplement human capital skills not 

present in the current workforce. Several of the agencies, NGA and USITC 

in particular, remarked that ASD was integral to their overall human capital 

strategy. In fact, an NGA official said that the agency was established in 

1996 with a design that encouraged the use of ASD. On the other hand, 

USDA stated that it used ASD primarily to meet critical deadlines.

Lesson learned: Understand the complexity and requirements of the 

activity prior to making an ASD decision. In order to strategically and 

objectively make a sourcing decision, several agency officials emphasized 

the importance of laying out ASD requirements and goals and letting these 

expectations guide the process. In order to do this and to manage for 

results, they underscored the importance of knowing as much as possible 

about the complexity and requirements of the activity before making an 

ASD decision. As a USCG human capital official expressed it, throwing a 

“problem” over the transom to a provider and waiting for a “solution” to be 

thrown back is not a viable model. Similarly, a human capital official from 

MMS said that in cases where ASD did not work well, there was a lack of a 

clear vision about the work to be done, and a NAPA panel report examining 

human capital outsourcing experiences noted that from the contractor’s 

viewpoint, poorly defined requirements are a major flaw in government 

management of outsourcing.30 To help solve this problem, one of the 

29Gelman and Dell, Outsourcing Trends.

30National Academy of Public Administration, Advancing the Management of Homeland 

Security, Lifting the Winner’s Curse and Avoiding Buyer’s Remorse: Lessons from HR 

Outsourcing Experiences (Washington, D.C.: June 25, 2003).
Page 18 GAO-04-679 Alternative Service Delivery Options

leading commercial practices for outsourcing of information technology 

(IT) services includes incorporating lessons learned from peers who have 

engaged in similar sourcing decisions.31

Agencies Approached 

Developing Their Contracts 

and Selecting Their 

Providers Similarly

The ASD contract defines the legal terms of the relationship between the 

agency and the provider and sets the expectations for service levels and 

delivery of essential services. These critical requirements are captured in 

the contract as fundamental expectations. The development of the contract 

is the foundation on which the relationship with the provider is built, and 

once the agency understands the essential contractual requirements, it can 

begin to identify providers that can meet its needs.32 According to the 

NAPA human capital ASD report, the scope of the activity being converted 

to ASD and its relative criticality to the agency mission should determine 

the level of effort needed to develop the contracts and select the 

providers.33

Human capital officials from the agencies reported using similar methods 

to develop their ASD contracts and select their providers. Officials said that 

they followed the guidance provided by the contract and procurement 

office representative who solicited the bids and awarded the contract. NGA 

stated that its general strategy was to rely on agency subject matter experts 

who created detailed statements of work. For example, the agency expert 

in the interpreting field provided the expertise needed for cost comparison, 

evaluation, and program management for NGA’s interpreting services. 

Officials listed reputation and experience of the provider as important 

factors in the selection process. Some agencies noted using the panel 

award approach to select providers. To select its employee assistance 

program provider, for example, NGA assembled a panel comprised of 

agency officials who conducted interviews with each of the candidates and 

required the finalists to make presentations. Some officials stressed the 

importance of using established contract vehicles, such as GSA’s contract 

schedule or OPM’s TMA program, because it made the procurement 

process easier. Agencies also noted that joining other agencies’ contracts 

31GAO-02-214.

32GAO-02-214.

33NAPA, Alternative Service Delivery.
Page 19 GAO-04-679 Alternative Service Delivery Options

reduced the administrative effort needed on their part in terms of contract 

development. 

Lesson learned: Articulating ASD contract terms that are flexible 

but include identified outcomes and measurable performance 

standards is an essential requirement for meeting ASD objectives.

After determining what the use of ASD should accomplish, several agencies 

shared the importance of translating these expectations in the ASD 

contract into flexible terms with measurable outcomes. Accordingly, an 

essential part of the contract is to define the level and quality of service 

required of the ASD provider as well as specific evaluation criteria. A Mint 

official said that performance-based contracts with metrics and quality 

assurance plans helped the agency ensure that expectations were met. 

Congress and OMB have also encouraged greater use of performancebased contracting, which emphasizes spelling out the desired end result, 

while leaving the manner in which the work is to be performed up to the 

contractor. Other attributes of performance-based contracting include 

measurable performance standards; quality assurance plans that describe 

how the contractor’s performance will be evaluated; and positive and 

negative incentives, when appropriate.34 In developing contracts and 

selecting providers, leading commercial practices for acquiring IT services 

also suggest that the contract must be flexible enough to adapt to 

changes.35 The practices note that the contract should include clauses for 

issues such as resolving disputes promptly, conducting regularly scheduled 

meetings, and declaring a significant event that can lead to a change in the 

contract. A Mint contract, for example, specified how the contract would 

be changed if access to desired data was not an option.

Agencies Also Approached 

Monitoring Performance in 

Similar Ways

The monitoring phase of ASD management involves ensuring that the ASD 

provider is meeting performance requirements. The previous phases 

addressed the extensive preparation that must precede the ASD provider’s 

assuming responsibility for an activity. Monitoring includes examining 

performance data for specific activities and making sure that the overall 

objectives for using ASD are being met. According to commercial practices, 

organizations need to examine internal service levels as well as maintain an 

34U.S. General Accounting Office, Contract Management: Guidance Needed for Using 

Performance-Based Service Contracting, GAO-02-1049 (Washington, D.C.: Sept. 23, 2002).

35GAO-02-214.
Page 20 GAO-04-679 Alternative Service Delivery Options

external view of the performance of other ASD providers to make certain 

that their current relationship is still advantageous to the organization.36

The agencies reported both formal and informal ways of monitoring their 

ASD contracts. A contracting officer’s technical representative (COTR) or a 

designee generally performed the formal oversight on an ongoing basis 

with line managers being in position to perform the informal monitoring. 

DOE, for example, described monitoring its human capital processing 

functions by having a COTR work in conjunction with the program or 

technical monitors, DOE’s office of procurement, and the direct customers 

to ensure that problems were resolved and needs and expectations met. 

NGA looked at the measures built into its quality assurance plans, which 

included descriptions of the deliverables, performance standards, 

acceptable quality levels, and methods used to assure quality, such as 

random testing. The agency also noted that it periodically checks prices 

with outside service providers to make sure it is not paying more than the 

market rate for the contracted services. An MMS human capital official said 

that accountability for monitoring the overall success of the ASD strategy 

for a particular function belongs to the line manager responsible for that 

function, who determines if program goals are being met. 

Many of the agencies said that they used performance measures as part of 

their ASD monitoring process. The types of metrics used varied with the 

types of ASD human capital activities, but generally included elements of 

quality or timeliness. For projects dealing with human capital strategy and 

policy support, agencies mentioned that along with quality, their measures 

included timely completion and evaluation of interim deliverables during 

the project. The USITC Human Resources Director stressed that when 

using ASD for a specific project, it was important to incorporate ongoing 

milestones into the contract as markers for how well the project is 

progressing. Agencies using ASD for training and development activities 

also reported using similar measures to monitor the success of the 

activities. For example, NGA and DOE stated that they used a multilevel 

training evaluation model37 to assess the effectiveness of the methodology, 

media, and delivery mechanisms used by their ASD providers. Several of 

the agencies used client satisfaction surveys to gauge the quality of their 

36GAO-02-214.

37U.S. General Accounting Office, Human Capital: A Guide for Assessing Strategic 

Training and Development Efforts in the Federal Government, GAO-04-546G (Washington, 

D.C.: March 2004). 
Page 21 GAO-04-679 Alternative Service Delivery Options

employee services provided through ASD. USCG, for example, used 

surveys and had one-to-one contact with members who used its employee 

assistance program. 

Lesson Learned: Creating a relationship with the ASD provider is 

key to resolving issues that may arise in addressing concerns and 

directing work. Human capital officials emphasized that smooth and 

constructive interaction between the agency and the ASD provider at an 

operational level is crucial to achieving the expectations of the ASD 

arrangement. Relationship management goes beyond the structure of the 

contract and if a good relationship exists between the agency and the ASD 

provider, many problems that may arise can be worked out. As the USITC 

Human Resources Director remarked, the agency needs to have the 

capacity to manage relationships, not just contracts, with ASD providers. In 

looking at leading commercial practices for outsourcing IT services, we 

included relationship management as one of three critical success factors 

contributing to successful outsourcing, a capability that must be present to 

implement good outsourcing practices.38 The Director of OPM also 

emphasized the importance of program managers’ ability to work inside 

partnerships and relationships to help develop a new paradigm of 

government-contractor relationships. She said that OPM plans to analyze 

human capital contracts that were poorly managed and use those lessons 

to improve the process.39

OPM Has a Central Role in 

Assisting Agencies’ 

Management of ASD

OPM has a central role in agencies’ management of ASD by providing 

assistance and guidance in operating human capital programs. As the 

President’s agent and adviser for human capital activities, OPM’s overall 

goal is to aid federal agencies in adopting human resources management 

systems that improve their ability to build successful, high-performance 

organizations. The agency’s five e-government initiatives are examples of 

this effort. In addition, several agencies used OPM’s TMA program to help 

them manage their ASD efforts. The TMA contracting vehicle assists 

government agencies with training and human capital technical assistance 

projects. (See fig. 2 for more details.) OPM’s TMA program may be 

appropriate when agencies have a need for (1) outside expertise to help 

38GAO-02-214.

39Remarks by Kay Coles James, Director, U.S. Office of Personnel Management, Human 

Resource Outsourcing World Conference and Exposition, New York Hilton, July 30, 2003.
Page 22 GAO-04-679 Alternative Service Delivery Options

define human capital needs and frame requirements, (2) help doing 

something the agency has never done before, (3) short-term help to get a 

specific task accomplished because internal resources are not available, 

(4) long-term supplemental assistance to accomplish ongoing, missioncritical objectives and activities, and (5) plans to competitively source 

certain learning or human capital activities or functions. USITC, for 

example, used TMA to screen and qualify a select group of contractors to 

assist the agency in its workforce planning initiatives. The agency’s Human 

Resources Director said TMA facilitated USITC’s ability to appropriately 

identify a contractor that could work best in the agency’s culture. She also 

noted that the TMA program assists smaller agencies in gaining clout with 

contractors because of the program’s large volume of contracts.
Page 23 GAO-04-679 Alternative Service Delivery Options

Figure 2: Description of OPM’s Training and Management Assistance Program 

OPM also plays a role in assisting agencies’ management of ASD through its 

authority to oversee management of human capital activities. The Director 

of OPM has called for more rigorous oversight of federal contracts used to 

acquire personnel management services for agencies and their employees.40

In addition, to ensure professional oversight of contracts, OPM has 

40Remarks by Kay Coles James, Director, U.S. Office of Personnel Management, Human 

Resource Outsourcing World Conference and Exposition, New York Hilton, July 30, 2003.

Process: 

TMA project managers work with agencies on:

1. developing statements of work,

2. completing interagency agreements,

3. selecting providers,

4. attending project kick-off meetings,

5. reviewing and approving management plans, and 

6. monitoring projects to completion.

Products and Services: 

Agencies can receive customized 

and integrated services in areas 

such as knowledge management, 

training, compensation, and 

performance management.

The Training and Management Assistance (TMA) Program, a fee-based 

interagency contract service program, provides comprehensive, end-to-end 

service that agencies can use for their training and human capital needs.

Background:

Source: GAO representation of OPM information.
Page 24 GAO-04-679 Alternative Service Delivery Options

instructed the Federal Executive Institute and the management 

development centers to begin to train and retrain a new cadre of program 

managers with the skills necessary to manage relationships and establish 

partnerships with their peers in the procurement industry. The CHCO 

Academy, created by OPM to educate chief human capital officers about 

human capital management issues, included outsourcing human resource 

services as one of its agenda topics. 

While OPM has made efforts to help agencies with their human capital ASD 

initiatives, there are additional opportunities to assist the agencies in 

compiling, analyzing, and disseminating information on federal agencies’ 

use of ASD for human capital activities. Several agency officials noted that 

having a clearinghouse of ASD information, such as posting information on 

ASD projects and providers, and more communication sharing in general 

would help them manage their ASD projects. They observed that joining 

other agencies with existing contracts can be an effective strategy and that 

communication among agencies about the reputation of ASD providers 

plays a role in their selection process. An NGA official noted that (1) 

partnering with other federal agencies could provide a venue to learn from 

each other versus developing individually and (2) agencies could learn 

more from each other’s ASD accomplishments and mistakes. OMB, for 

example, is developing a competitive sourcing data-tracking system to 

facilitate the sharing of competitive sourcing information by allowing 

agencies to identify planned, ongoing, and completed competitions across 

the government. The agency plans to use the system to generate more 

consistent and accurate statistics, including those on costs and related 

savings.41 The importance of sharing information about human capital ASD 

efforts has recently gained attention as a few agencies have signed large 

contracts for human capital services. Legislation creating the CHCO 

Council also highlighted the importance of this activity by detailing that 

one of the responsibilities of the Council is to advise and coordinate agency 

activities for improving the quality of human resources information.42

Conclusions Recent studies looking at private sector organizations suggest that ASD use 

for human capital activities is being leveraged to achieve a variety of 

41GAO-04-367.

42Title XIII of Pub. L. No. 107-296, Nov. 25, 2002, Chief Human Capital Officers Act of 2002, 

codified at U.S.C. ch 14. 
Page 25 GAO-04-679 Alternative Service Delivery Options

strategic and tactical objectives within human capital offices. The range of 

human capital activities and the reported objectives for the selected 

agencies’ use of ASD indicated the same. Although more evaluation needs 

to be done, the agencies’ use of ASD for activities such as strategic human 

capital management and workforce planning showed that ASD provides 

access to new skills, expertise, and technology that can facilitate 

implementation of new human capital initiatives. Likewise, freeing human 

capital staff from transactional and administrative tasks such as payroll 

administration and training delivery pointed to cost savings and an 

improved ability to focus on mission-critical activities. 

Given its potential benefits, it appears that, similar to its use in the private 

sector, the use of ASD for human capital activities will increase among 

federal agencies. There currently is not, however, a widely shared body of 

knowledge about federal agencies’ use of ASD for human capital activities. 

By sharing experiences and lessons learned, agencies may be able to tap 

into the benefits of using ASD while avoiding some of the problems. 

Although OPM’s TMA program appears to help agencies manage their use 

of ASD, OPM could supply another necessary link to the agencies by 

providing comprehensive information about how to use ASD for human 

capital activities. The CHCO Council could be an excellent vehicle to assist 

in this area.

Recommendation for 

Executive Action

Given the need expressed by agency officials about the importance of 

sharing data and lessons learned concerning the use of ASD for human 

capital activities and consistent with OPM’s ongoing efforts in this regard, 

we recommend that the Director of OPM take the following action:

• Work with the CHCO Council to create additional capability within OPM 

to research, compile, and analyze information on the effective and 

innovative use of ASD and strengthen its role as a clearinghouse for 

information about when, where, and how ASD is being used for human 

capital activities and how ASD can be used to help agency human 

capital offices meet their requirements. OPM should work with the 

CHCO Council to disseminate the type of spending data that human 

capital offices could use to leverage their buying power, reduce costs, 

and provide better management and oversight of their ASD providers. 

Such data would include the types of human capital services being 

acquired, which ASD providers are being used for specific services, how 

results are being measured, and how much is being spent on specific 

ASD activities. 
Page 26 GAO-04-679 Alternative Service Delivery Options

Agency Comments and 

Our Evaluation

We provided a draft of this report to the Director of OPM, the Secretary of 

Agriculture, the Secretary of Defense, the Secretary of Energy, the 

Secretary of Homeland Security, the Secretary of the Interior, the Chairman 

of the International Trade Commission, and the Director of the Mint. We 

received written comments from OPM and the Department of the Interior, 

which are included in appendixes III and IV. OPM stated that the report 

contained a good model for looking at human capital ASD use and that the 

recommendation was consistent with the agency’s concern for human 

capital contracting, for which OPM has the lead. OPM expressed concern, 

however, that we had not addressed the role of its human capital officers in 

helping agencies improve their human capital practices or how agencies 

ensure that their ASD providers comply with regulatory and statutory 

requirements. We did not assess the actions of the OPM human capital 

officers because their role did not surface in our interviews with agency 

officials about their use of ASD for human capital activities. Regarding the 

concern of ensuring functions provided through ASD meet appropriate 

federal regulatory and statutory requirements, we agree with OPM’s 

concern and believe our recommendation can help address this important 

issue OPM raises. In addition, the Department of the Interior suggested that 

it would be helpful if GAO or OPM followed this report with a further study 

that would examine the quality and value of various ASD products and 

providers to allow for comparisons of similar services. We believe that our 

recommendation will also help address this concern. Based on comments 

from DOE that we received by e-mail, we clarified our definition of core 

activities. DOE also suggested an alternative way to group human capital 

activities. We believe that the framework is adequate for the discussion and 

summary for which it was intended. The Department of Defense, USCG, 

and USDA noted that they had no comments on the report. USITC and the 

Mint had several technical comments that we incorporated.

As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 15 days after its 

date. At that time, we will provide copies of this report to other interested 

congressional parties, the Director of OPM, and the federal agencies and 

offices discussed in this report. We will also make this report available at 

no charge on the GAO Web site at http://www.gao.gov.
Page 27 GAO-04-679 Alternative Service Delivery Options

If you have any questions about this report, please contact me or William 

Doherty on (202) 512-6806 or at mihmj@gao.gov or dohertyw@gao.gov. 

Other contributers are acknowledged in appendix V.

J. Christopher Mihm

Managing Director, Strategic Issues
Page 28 GAO-04-679 Alternative Service Delivery Options

Appendix I

Objectives, Scope, and Methodology ApApenednxidexiIs

The objectives of this report were to

• identify the human capital activities selected agencies are 

accomplishing through the use of alternative service delivery (ASD) 

options and the basis on which they decided to use it and 

• describe how the use of ASD is being managed and the lessons learned 

by the selected agencies. 

To address these objectives, we first synthesized information from a 

literature review including articles, studies, and reports on the use of ASD 

for human capital activities in both public and private sector organizations. 

We also gathered information from a variety of sources, such as our past 

work on agencies’ contracting efforts and other reports on federal 

agencies’ use of ASD, to characterize the ASD options currently being used 

by federal agencies to accomplish their human capital activities.

On the basis of this work, we identified a set of federal agencies varying in 

size and mission that were using ASD for at least some of their human 

capital activities. We consulted with human capital experts from George 

Washington University, the National Academy of Public Administration, 

and a private sector consultant for federal contract management to assess 

whether they thought particular agencies in this set would yield examples 

of ASD use for human capital activities. On the basis of their suggestions 

and our previous research, we focused on ASD practices in eight federal 

agencies: the Department of Energy (DOE), the Department of the 

Interior’s U.S. Fish and Wildlife Service (FWS) and Minerals Management 

Service (MMS), the National Geospatial-Intelligence Agency (NGA), the 

U.S. Coast Guard (USCG), the U.S. Department of Agriculture’s (USDA) 

headquarters, the U.S. International Trade Commission (USITC), and the 

U.S. Mint’s headquarters. The agency selection process was not designed to 

produce findings that could be considered representative of the use of ASD 

for human capital activities in the federal government as a whole, but 

rather to provide illustrative examples of how the selected agencies were 

using ASD.

We conducted semistructured interviews with human capital officials from 

the selected agencies to gather information on (1) the human capital 

activities for which the agencies were using ASD, (2) the basis of their 

decisions, (3) how they were managing the use of ASD, and (4) the lessons 

they had learned. Some agencies provided documents such as final ASD 

projects, project plans, interagency service agreements, and contracts, 
Appendix I

Objectives, Scope, and Methodology

Page 29 GAO-04-679 Alternative Service Delivery Options

which we reviewed. We did not verify the agencies’ cost savings estimates. 

After reviewing and analyzing the agencies’ material and responses to our 

interview questions, we developed a framework for organizing and 

discussing their use of ASD for human capital activities. (See fig. 1.) As 

shown in our framework, the activities are grouped into three overlapping 

tiers based on whether the activity had more of a technical or a strategic 

focus. We then identified the primary drivers and the primary ASD options 

used for each tier. Our work was conducted from August 2003 through 

February 2004 in accordance with generally accepted government auditing 

standards.
Page 30 GAO-04-679 Alternative Service Delivery Options

Appendix II

Examples of Alternative Service Delivery 

Options Available to Federal Agencies for 

Accomplishing Human Capital Activities ApendxiI

Federal agencies have a variety of types of ASD options available to help 

them accomplish their human capital activities. The options include 

mechanisms that provide reimbursable services from one agency to 

another and contracting with the private sector. Agencies also provide 

reimbursable services that help other agencies gain access to private sector 

contracts. The options listed below are some examples of ASD 

mechanisms used by federal agencies to accomplish their human capital 

activities.

Intragovernmental 

Revolving Fund 

Services 

Intragovernmental revolving (IR) funds provide common support services 

required by many federal agencies. An IR fund conducts continuing cycles 

of businesslike activity within and between government agencies. It 

charges for the sale of products or services and uses the collections to 

finance its operations, usually without a requirement for annual 

appropriations. Each IR fund is established by law. Generally, the specific 

legal authorities creating IR funds authorize these funds to enter into 

intragovernmental transactions and provide flexibility by allowing the 

client agency’s fiscal year funds to remain obligated, even after the end of 

the fiscal year, to pay for the goods or services when delivered.

One businesslike entity providing human capital services is the U.S. 

Department of Agriculture’s National Finance Center (NFC) in New 

Orleans. NFC provides a variety of other federal agencies with automated 

information systems services for personnel, payroll, and voucher and 

invoice payment systems and services.

Franchise Fund 

Services

The Government Management Reform Act of 1994 authorized the Office of 

Management and Budget (OMB) to designate six franchise fund pilots to 

provide common administrative services on a fully reimbursable basis. 

Franchise funds are a type of intragovernmental revolving fund that were 

created to be fully self-supporting competitive businesslike entities within 

the federal government. The franchise fund pilots are located in the 

Departments of Commerce, Health and Human Services, the Interior, the 

Treasury, Veterans Affairs, and at the Environmental Protection Agency. 

The six pilots provide a variety of common services, such as acquisition 

management, financial management services, and employee assistance 

programs. The legal authorities creating the franchise funds are similar to 

those of other IR funds. However, most of the franchise funds have the 

specific authority to carry over into the next fiscal year up to 4 percent of 
Appendix II

Examples of Alternative Service Delivery 

Options Available to Federal Agencies for 

Accomplishing Human Capital Activities

Page 31 GAO-04-679 Alternative Service Delivery Options

the annual income of the fund for capital equipment and financial 

management improvements. Most other IR funds do not have this authority.

The Treasury franchise fund service, for example, contains multiple 

business units operating under the brand name FedSource. FedSource 

offers various human capital services such as recruitment, employee 

assistance, position classification, and alternative dispute resolution 

through contracts with multiple vendors experienced in providing human 

capital services in the federal sector. 

Cooperative 

Administrative Support 

Unit Services

Cooperative administrative support units (CASU) have provided services 

since 1986 and most operate under the authority of the Economy Act of 

1932 as amended. CASUs are entrepreneurial organizations that provide 

the full range of support services on a reimbursable basis to federal 

agencies. Federal agencies in a local community identify services that they 

would like to share under the leadership of one or more host agencies. The 

host agency is reimbursed for all costs incurred in providing the services to 

customer agencies. Several CASUs provide services in conjunction with a 

franchise fund and operate under the authority of the franchise fund, which 

allows them to make use of provisions more expansive than those of the 

Economy Act, including permitting the customer agency’s fiscal year funds 

to remain obligated to pay for services when delivered, even after the end 

of the fiscal year.

The Southeast Regional CASU (SER-CASU) is an example of a chartered 

unit within the National CASU Network. SER-CASU offers human capital 

services, such as employee assistance program support and training 

services.

Interagency Contract 

Service Programs

Federal agencies also use fee-for-service interagency contract service 

programs. The programs are being used in a wide variety of situations, from 

those in which a single agency provides limited contracting assistance to an 

all-inclusive approach in which the provider agency’s contracting office 

handles all aspects of the procurement. The increased use of interagency 

contract service programs has come about as a result of reforms and 

legislation passed in the 1990s, which allowed agencies to streamline the 

acquisition process, operate more like businesses, and offer increasing 

types of services to other agencies.
Appendix II

Examples of Alternative Service Delivery 

Options Available to Federal Agencies for 

Accomplishing Human Capital Activities

Page 32 GAO-04-679 Alternative Service Delivery Options

The Office of Personnel Management’s Training and Management 

Assistance (TMA) program is an example of an interagency contract 

service program. The TMA program operates under the IR fund established 

by 5 U.S.C. § 1304(e). It is an expedited contracting process for federal 

agencies seeking human capital management and development in areas 

such as knowledge management, training, and workforce planning. For a 

fee, clients access project managers, technology, and prequalified 

contractors with the intended result of time and cost savings compared to 

the agency undertaking its own procurement actions. 

Contracting for 

Services

Contracting can be defined as the hiring of private sector firms or nonprofit 

organizations to provide a good or service for the government. In contrast 

to the use of IR funds, CASUs, and interagency contract service programs, 

the agency uses its own contracting authority to enter into a contract with a 

company and manages the contract. 

For example, the Department of Homeland Security has awarded a 

contract to a company to help design a human capital strategic plan, which 

would assist the department in aligning its human capital requirements 

with its mission needs.

Partnerships Partnerships can be defined as voluntary alliances with other 

organizations. They do not necessarily involve the exchange of funds. For 

example, the Census Bureau’s Partnership and Data Services program 

continues and expands upon more than 140,000 organizational 

partnerships established during Census 2000. During the census, the 

Bureau relied on its extensive network of partners at the national, state, 

and local levels to help recruit employees for more than half a million 

temporary jobs.
Page 33 GAO-04-679 Alternative Service Delivery Options

Appendix III

Comments from the Office of Personnel 

Management ApendxiI
Appendix III

Comments from the Office of Personnel 

Management

Page 34 GAO-04-679 Alternative Service Delivery Options
Page 35 GAO-04-679 Alternative Service Delivery Options

Appendix IV

Comments from the Department of the 

Interior ApendxiIV
Page 36 GAO-04-679 Alternative Service Delivery Options

Appendix V

GAO Contacts and Staff Acknowledgments ApendxiV

GAO Contacts J. Christopher Mihm, (202) 512-6806 or mihmj@gao.gov

William J. Doherty, (202) 512-6806 or dohertyw@gao.gov

Acknowledgments Judith Kordahl and Caroline Villanueva also made key contributions to this 

report.

(450196)
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