1

David M. Walker

Chairman

Commercial

Activities Panel

441 G Street NW

Washington, DC 20548

www.gao.gov

April 30, 2002

The President of the Senate

The Speaker of the House of Representatives

Section 832 of the Floyd D. Spence National Defense Authorization Act of 2001 

(the Act) required that I, as Comptroller General of the United States, "convene a 

panel of experts to study the policies and procedures governing the transfer of 

commercial activities for the Federal Government from Government personnel 

to a Federal contractor . . . ." In accordance with the Act, I am pleased to transmit 

to Congress the report of the Commercial Activities Panel (the Panel) convened 

to satisfy this statutory requirement. 

Given the importance of this issue, I elected to chair this Panel and ensured that 

it was comprised of highly qualified and empowered representatives from the 

groups specified in the Act and other knowledgeable individuals. A diverse group 

of high-level members were selected as panelists in order to broaden the scope 

and enhance the quality of our deliberations, while increasing our chances of 

success. 

The Panel held a total of 11 meetings over the period of May 2001 to March 2002, 

including three public hearings in Washington, D.C., Indianapolis, Indiana, and 

San Antonio, Texas. In these hearings, Panelists heard first-hand both about the 

current process, primarily the cost comparison process conducted under Office 

of Management and Budget (OMB) Circular A-76, as well as alternatives to that 

process. Panel staff conducted an extensive amount of additional research, 

review, and analysis in order to supplement and evaluate the public testimony. 

Early in its review, the Panel adopted as its mission to: 

Improve the current sourcing framework and processes so that they reflect 

a balance among taxpayer interests, government needs, employee rights, 

and contractor concerns.

Recognizing that our mission was a challenging, complex, and controversial one, 

the Panel agreed that a supermajority of two-thirds of the Panel members would 

have to vote for a finding or proposal in order for it to be adopted by the Panel.
2

In addition, the Panel agreed that all Panel members would have an opportunity 

to make a brief written statement on the Panel's recommendations and report, if 

they so desired. Every Panel member chose to include such a statement as part 

of this report.

All Panel members took their responsibilities seriously, considered the differing 

perspectives of their colleagues, and carefully evaluated the facts and issues 

presented during Panel meetings and hearings. I commend the willingness and 

sincere efforts undertaken by all Panel members to hear, understand, and 

analyze the perspective of their colleagues and to focus more on forward-looking 

solutions rather than dwelling on past conflicts. As a result, each made 

meaningful contributions in a good faith effort to make recommendations that 

would significantly improve the current competitive sourcing system. During our 

deliberations, it became apparent that more agreement rather than disagreement 

existed. These common understandings allowed the Panel to adopt unanimously 

a set of 10 principles to guide all administrative and legislative actions in this 

area. The Panel itself used these principles to assess the government's existing 

sourcing system and to develop additional Panel recommendations. 

After much discussion and debate, a supermajority of the Panel members voted 

for an additional set of recommendations that they believe will improve 

significantly the government's policies and procedures for making sourcing 

decisions. In addition, several of the Panel members who did not vote for the 

entire set of additional recommendations noted in their oral comments and/or 

written statements that they supported one or more of them. 

The Panel members recognize that this report is the end of one process and the 

beginning of another. The detail provided in the Panel report, and the record of 

its good faith agreements, disagreements, and other deliberations, will provide 

much useful information to the Congress and the Administration when 

determining what actions should be taken to accomplish our shared goal of 

improving current competitive sourcing processes in a balanced and effective 

manner.

Finally, I would like to thank my fellow Panel members, their staffs, and the 

many GAO staff who contributed to this effort, as well as Sean O'Keefe, who 

served as the OMB representative on the Panel until his appointment as the 

Administrator of NASA in December 2001. Special thanks go to Bill Woods, who 

served as project director for the Panel. The past and prospective efforts of all 

these individuals will contribute meaningfully to the coming public debate on 

this important issue.

David M. Walker 

Comptroller General 

of the United States
3

Table of Contents

Panel Report

Chairman’s Transmittal Letter ..................................................................... 1

Section I: Executive Summary ..................................................................... 4

Section II: The Current Sourcing System ................................................. 14

Section III: Trends and Challenges ............................................................ 24

Section IV: The Panel’s Review and Findings ........................................... 32

Section V: Recommendations ................................................................... 46

Section VI: Views of Individual Panelists .................................................. 56

Appendices

A. Law Creating the Commercial Activities Panel ................................ 80

B. High-Performing Organizations ....................................................... 82

C. Standing to Challenge Public-Private

Cost Comparisons ............................................................................. 86

D. Recent GAO Bid Protest Decisions

Concerning A-76 Studies ................................................................. 90

E. Public-Private Competitions for Department of Defense

Depot-Level Maintenance .............................................................. 100

F. Sourcing Practices and Demonstration Projects............................. 102

G. Sourcing Decisions Outside

the Federal Government ................................................................. 108

H. Related GAO Products ................................................................... 110

I. Summary of Public Hearings ......................................................... 112

J. Biographies of Panel Members ....................................................... 118

K. Acknowledgments........................................................................... 130
4

Executive Summary

Section I

Introduction

The federal government is one of the

world’s largest users of services. Because

of the large dollar value and the number

of private and public sector jobs involved, deciding 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. These

sourcing decisions are frequently controversial, both when the government

decides to outsource work to the private

sector directly, and when it makes a

sourcing decision by comparing the

costs of public- versus private-sector

performance of the work.

In particular, the execution of publicprivate cost comparison studies conducted under rules set out in the Office

of Management and Budget (OMB)

Circular A-76 and its Supplemental

Handbook has been under fire from all

sides. Federal managers and others have

been concerned about the organizational

turbulence that typically follows the

announcement of A-76 studies. Government workers have been concerned

about the impact of competition on

their jobs, the opportunity for input

into the process, and the lack of parity

with industry offerors to protest A-76

decisions. Industry representatives have

complained about unfairness in the

process and the lack of a level playing field

between the government and the private

sector in accounting for costs. Concerns

also have been raised about the adequacy

of oversight of subsequent performance,

whether by the public or private sector.

The government’s goal is and always

should be to obtain high-quality services

at a reasonable cost. Stated differently, the

government should strive to achieve

outcomes that represent the best deal for

the taxpayer. Achieving this goal is a

significant challenge. But there can be

little doubt that identifying the right

processes that will lead to results consistent with this goal is critical.

Today, the federal government faces a

number of significant and evolving challenges, some of which are directly related

to its ability to achieve this goal. The

public rightfully expects that the government will obtain and deliver high-quality

services. Many federal agencies face serious

management and personnel challenges,

especially as the workforce ages and heads

towards retirement. For example, in the

acquisition area, the workforce has been

downsized significantly in recent years,

and some of those who remain have not

been trained sufficiently to perform their

functions in an increasingly complex

environment. Similarly, the government

faces continued and significant management, human resource, and professional

development challenges, which affect the

government’s ability to manage the cost,

schedule, and performance of in-house

and contracted activities.

In order to address the many and complex

challenges it faces, the federal government

must be able to attract and rely on employees and contractors that are highly

skilled, high-performing, and competitive.

But in many cases, the processes designed

In order to address the many and complex

challenges it faces, the federal government

must be able to attract and rely on employees and contractors that are highly skilled,

high-performing, and competitive.
5

Commercial Activities Panel

Executive Summary

Section I

to help identify the best sources to deliver

services have proved difficult for agencies

to implement. The government continues

to be saddled with systems, budgeting

practices, and processes that do not

adequately account for total costs and

inhibit the government’s ability to

manage its activities in the most effective

manner possible. For many agencies,

choosing the most effective source for

services in support of their missions has

become increasingly problematic.

The Commercial Activities Panel

Against this backdrop, and in response to

a requirement in the National Defense

Authorization Act for Fiscal Year 2001,

the Comptroller General of the United

States convened a panel of experts to

study the current process used by the

government to make sourcing decisions.

The Commercial Activities Panel (the

Panel) consisted of representatives from

agencies, federal labor unions, and private

industry, as well as other individuals with

expertise in this area. Early in its review,

the Panel adopted the following mission

statement:

The Panel decided that all of its findings

and recommendations would require the

agreement of at least a two-thirds

supermajority of the Panel in order to be

adopted. The Panel also decided that

each Panel member would have the

option of having a brief statement

included in the report explaining the

member’s position on the matters

considered by the Panel.

During its year-long study, the Panel

heard from a variety of sources. The Panel

held three public hearings to hear firsthand both about the current process,

primarily the cost comparison process

conducted under OMB Circular A-76,

as well as alternatives to that process. The

Panel also reviewed existing literature on

sourcing issues faced by governments as

well as by commercial firms. In the

private sector, outsourcing has grown

dramatically and been used primarily for

what are seen as non-core services, such

as information technology, and is typically integrated with a firm’s strategic

vision. For the federal government,

however, determining the appropriate

sourcing strategy has been a challenge.

The Panel heard repeatedly about the

importance of competition and its central

role in fostering economy, efficiency, high

performance, and continuous performance improvement. The means by

which the government utilizes competition for sourcing its commercial functions was at the center of the Panel’s

discussions and work. The Panel strongly

supports continued emphasis on competition, and believes that whenever the

government is considering converting

work from one sector to another, publicprivate competitions should be the norm.

Direct conversions (a decision to convert

one or more positions from performance

in one sector to the other without a

public-private competition, although

private-private competition may well

exist) generally should occur only where

Mission of the

Commercial Activities Panel

The mission of the Commercial Activities

Panel is to improve the current sourcing

framework and processes so that they reflect

a balance among taxpayer interests, government needs, employee rights, and

contractor concerns.
6

Commercial Activities Panel

Executive Summary

Section I

the number of affected positions is so

small that the costs of conducting a

public-private competition clearly would

outweigh any expected savings (i.e., a de

minimis number, no more than 10

positions). There should be adequate

safeguards to ensure that activities,

entities, or functions are not improperly

unbundled as a means to come under the

ceiling to avoid competition. Any

exception to the de minimis rule, based

on clear, transparent, and consistently

applied criteria, would need to be

approved by the head of the agency. If

that approval is obtained, any subsequent private-private competition should

include as an evaluation criterion the

favorable treatment of incumbent

employees, in terms of retention, wages,

and benefits.

The Panel also heard about several

successful undertakings involving publicprivate partnerships, as well as about the

importance of labor-management

cooperation in accomplishing agency

missions. A consistent theme at the

hearings was the need for a strategic

approach to sourcing decisions, rather

than an approach that relies on the use of

arbitrary quotas or that is unduly

constrained by personnel ceilings.

Critical to adopting a strategic approach

is having an enterprisewide perspective

on service contract expenditures, yet the

federal government lacks timely and

reliable information about exactly how,

where, and for what purposes, in the

aggregate, taxpayer dollars are spent for

both in-house and contracted services.

The Panel was consistently reminded

about, and fully agrees with, the importance of ensuring accountability

throughout the sourcing process, providing adequate training and technical

support to the workforce in developing

proposals for improving performance,

and assisting those workers who may be

adversely affected by sourcing decisions.

Sourcing policy is inextricably linked to

human resource and human capital

policies. This linkage has many levels, each

of which is important. It is particularly

important that sourcing strategies support, not inhibit, the government’s efforts

to recruit and retain a high-performing inhouse workforce, as well as support its

efforts to access and collaborate with highperformance, private-sector providers.

Properly addressed, these policies should

be complementary, not conflicting.

Sourcing Principles

Based on public input, review of previous

studies and other relevant literature, and

many hours of deliberation, the Panel

developed and unanimously adopted a set

of principles that it believes should guide

sourcing policy for the federal government. While each principle is important,

no single principle stands alone. As such,

the Panel adopted the principles as a

package. The Panel believes that federal

sourcing policy should:

1. Support agency missions, goals,

and objectives.

Commentary: This principle highlights the need for a link between the

missions, goals, and objectives of

The Panel fully agrees with the

importance of ensuring accountability throughout the sourcing process,

and of providing adequate training

and technical support to the

workforce.
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Commercial Activities Panel

Executive Summary

Section I

federal agencies and related sourcing

policies.

2. Be consistent with human capital

practices designed to attract, motivate, retain, and reward a highperforming federal workforce.

Commentary: This principle underscores the importance of considering

human capital concerns in connection with the sourcing process.

While it does not mean that agencies

should refrain from outsourcing due

to its impact on the affected employees, it does mean that the federal

government’s sourcing policies and

practices should consider the potential impact on the government’s

ability to attract, motivate, retain,

and reward a high-performing

workforce both now and in the

future. Regardless of the result of

specific sourcing decisions, it is

important for the workforce to know

and believe that they will be viewed

and treated as valuable assets. It is

also important that the workforce

receive adequate training to be

effective in their current jobs and to

be a valuable resource in the future.

3. Recognize that inherently governmental and certain other functions

should be performed by federal

workers.

Commentary: Recognizing the

difficulty of precisely defining

“inherently governmental” and

“certain other functions,” there is

widespread consensus that federal

employees should perform certain

types of work. OMB Directive 92-1

provides a framework for defining

work that is clearly “inherently

governmental,” and the Federal

Activities Inventory Reform (FAIR)

Act has helped to identify commercial work currently being performed

by the government. It is clear that

government workers need to perform certain warfighting, judicial,

enforcement, regulatory, and

policymaking functions, and the

government may need to retain an

in-house capability even in functions that are largely outsourced.

Certain other capabilities, such as

adequate acquisition skills to

manage costs, quality, and performance and to be smart buyers of

products and services, or other

competencies such as those directly

linked to national security, also

must be retained in-house to help

ensure effective mission execution.

4. Create incentives and processes to

foster high-performing, efficient,

and effective organizations throughout the federal government.

Commentary: This principle

recognizes that historically it has

primarily been when a government

entity goes through a public-private

competition that the government

creates a “most efficient organization” (MEO). Since such efforts can

lead to significant savings and

improved performance, they should

not be limited to public-private

competitions. Instead, the federal

government needs to provide

incentives for its employees, its

managers, and its contractors to

constantly seek to improve the

economy, efficiency, and effectiveness of the delivery of government

services through a variety of means,

including competition, publicprivate partnerships, and enhanced

worker-management cooperation.
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Commercial Activities Panel

Executive Summary

Section I

5. Be based on a clear, transparent,

 and consistently applied process.

Commentary: The use of a clear,

transparent, and consistently

applied process is key to ensuring

the integrity of the process as well

as to creating trust in the process on

the part of those it most affects:

federal managers, users of the

services, federal employees, the

private sector, and the taxpayers.

6. Avoid arbitrary full-time equivalent

(FTE) or other arbitrary numerical

goals.

Commentary: This principle reflects

an overall concern about arbitrary

numbers driving sourcing policy or

specific sourcing decisions. The

success of government programs

should be measured by the results

achieved in terms of providing value

to the taxpayer, not the size of the

in-house or contractor workforce.

Any FTE or other numerical goals

should be based on considered

research and analysis. The use of

arbitrary percentage or numerical

targets can be counterproductive.

7. Establish a process that, for activities that may be performed by

either the public or the private

sector, would permit public and

private sources to participate in

competitions for work currently

performed in-house, work currently

contracted to the private sector, and

new work, consistent with these

guiding principles.

Commentary: Competitions, including public-private competitions, have

been shown to produce significant

cost savings for the government,

regardless of whether a public or a

private entity is selected. Competition also may encourage innovation

and is key to improving the quality of

service delivery. While the government should not be required to

conduct a competition open to both

sectors merely because a service could

be performed by either public or

private sources, federal sourcing

policies should reflect the potential

benefits of competition, including

competition between and within

sectors. Criteria would need to be

developed, consistent with these

principles, to determine when

sources in either sector will participate in competitions.

8. Ensure that, when competitions are

held, they are conducted as fairly,

effectively, and efficiently as possible.

Commentary: This principle addresses key criteria for conducting

competitions. Ineffective or inefficient competitions can undermine

trust in the process. The result may

be, for private firms (especially

smaller businesses), an unwillingness

to participate in expensive, drawnout competitions; for federal workers,

harm to morale from overly long

competitions; for federal managers,

reluctance to compete functions

under their control; and for the users

of services, lower performance levels

and higher costs than necessary.

The success of government programs should

be measured by the results achieved in terms

of providing value to the taxpayer, not the

size of the in-house or contractor workforce.
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Commercial Activities Panel

Executive Summary

Section I

Fairness is critical to protecting the

integrity of the process and to

creating and maintaining the trust of

those most affected. Fairness requires

that competing parties, both public

and private, or their representatives,

receive comparable treatment

throughout the competition regarding, for example, access to relevant

information and legal standing to

challenge the way a competition has

been conducted at all appropriate

forums, including the General

Accounting Office (GAO) and the

United States Court of Federal

Claims.

9. Ensure that competitions involve a

process that considers both quality

and cost factors.

Commentary: In making source

selection decisions in public-private

competitions: (a) cost must always

be considered; (b) selection should

be based on cost if offers are equivalent in terms of non-cost factors (for

example, if they offer the same level

of performance and quality); but (c)

the government should not buy

whatever services are least expensive,

regardless of quality. Instead, publicprivate competitions should be

structured to take into account the

government’s need for high-quality,

reliable, and sustained performance,

as well as cost efficiencies.

10. Provide for accountability in

connection with all sourcing

decisions.

Commentary: Accountability serves

to assure federal workers, the private

sector, and the taxpayers that the

sourcing process is efficient and

effective. Accountability also protects the government’s interest by

ensuring that agencies receive what

they are promised, in terms of both

quality and cost, whether the work

is performed by federal employees

or by contractors. Accountability

requires defined objectives, processes

and controls for achieving those

objectives, methods to track success

or deviation from objectives, feedback to affected parties, and enforcement mechanisms to align desired

objectives with actual performance.

For example, accountability requires

that all service providers, irrespective

of whether the functions are performed by federal workers or by

contractors, adhere to procedures

designed to track and control costs,

including, where applicable, the

Cost Accounting Standards. Accountability also would require

strict enforcement of the Service

Contract Act, including timely

updates to wage determinations.

The Panel used these principles to assess

the government’s existing sourcing

system and concluded that there are

some advantages to the current system.

First, A-76 cost comparisons are conducted under an established set of rules,

the purpose of which is to ensure that

sourcing decisions are based on uniform,

transparent, and consistently applied

criteria. Second, the A-76 process has

enabled federal managers to make cost

comparisons between sectors that have

Public-private competitions should

be structured to take into account the

government’s need for high-quality,

reliable, and sustained performance,

as well as cost efficiencies.
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Commercial Activities Panel

Executive Summary

Section I

vastly different approaches to cost accounting. Third, the current A-76 process

has been used to achieve significant

savings and efficiencies for the government. Regardless of whether the public or

the private-sector wins the cost comparison, Department of Defense (DOD)

officials have noted that savings of 20

percent or more are not uncommon. This

is because competitive pressures promote

efficiency and improve the performance of

the activity studied.

But despite these advantages, the Panel

heard frequent criticism of the A-76

process as being slow, too complicated,

unfair to either or both sectors, and

causing needless distress to federal

workers. In the Panel’s view, however, the

most serious shortcoming of the A-76

process is that it has been stretched

beyond its original purpose, which was to

determine the low-cost provider of a

defined set of services. Circular A-76 has

not worked well as the basis for competitions that seek to identify the best

provider in terms of quality, innovation,

flexibility, and reliability. This is particularly true in an era

where solutions are

increasingly driven

by technology —

even for what have

traditionally been

considered “lowtech” requirements, particularly

those that require

investment.

Furthermore, since

A-76 is designed

to compare direct functional costs, it

ignores overall long-term benefits to the

enterprise, in addition to cost savings. As

the federal procurement system has

moved in the decades since the Circular

was first issued from a low-price approach

toward consideration of non-price factors

in making source selections, the A-76

process may no longer be an effective tool

for conducting competitions to identify

the most efficient and effective service

provider. In the federal procurement

system today, there is a common recognition that a cost-only focus does not

necessarily deliver the best quality or

performance for the government. Thus,

while cost is always a factor, and often the

most important factor, it is not the only

factor. In this sense, the competitive

process under the Circular

is now an anomaly in the federal procurement process in that it effectively inhibits

consideration of important non-cost

factors. The Panel concludes that the

current sourcing system, including the

A-76 process, is not consistent with its

recommended principles.

The government has an established

mechanism that has been shown to work

as a means to identify high-value service

providers: the negotiated procurement

process of the Federal Acquisition Regulation (FAR). The Panel believes that in

order to promote a

more level playing

field on which to

conduct publicprivate competitions,

the government needs

to shift, as rapidly as

possible, to a FARtype process under

which all parties

compete under the

same set of rules.

Appropriate modifications would be needed to accommodate a

public-sector competitor, and the competition approach would need to be consistent

with the ten principles noted above. The

Panel recognizes that implementing such a

shift may take some time, and therefore

The Panel believes that in order to

promote a more level playing field on

which to conduct public-private competitions, the government needs to

shift, as rapidly as possible, to a FARtype process under which all parties

compete under the same set of rules.
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Commercial Activities Panel

Executive Summary

Section I

has developed a set of recommendations

to improve A-76 for competitions conducted in the interim. The Panel also has

developed a proposed implementation

strategy.

Summary of Recommendations:

(Details in Section V)

A. Adoption of Sourcing Principles.

The Panel unanimously recommends

that all sourcing decisions be guided

by the sourcing principles and

commentary listed above.

A supermajority of the Panel adopts the

following package of three additional

recommendations:

B. Integrated Competition Process.

The Panel believes that all parties –

taxpayers, agencies, employees, and

contractors – would be better served

by conducting public-private

competitions under the framework

of the FAR, while using appropriate

elements of the current A-76 process. In essence, a public-sector

proposal (which could provide for

process improvements, as with

MEOs under A-76) could be

submitted in response to a broad

range of agency solicitations, including in appropriate cases, work

currently contracted out and new

work, and have the proposal evaluated under the same rules that apply

to proposals from private-sector

offerors. Although some changes in

the process will be necessary to

accommodate the public-sector

proposal, the same basic rights and

responsibilities would apply to both

the private and the public sectors,

including accountability for performance and the right to protest. This

and perhaps other aspects of the

integrated competition process

would require changes to current

law or regulation, and the Panel

urges the Congress and the administration to begin work immediately

toward that end.

C. Limited Changes to Circular A-76.

Development of an integrated FARtype process will require some time

to be implemented. In the meantime, the Panel expects current A-76

activities to continue, and therefore

believes some modifications to the

existing process can and should be

made. Accordingly, the Panel

recommends a number of limited

changes to OMB Circular A-76.

These changes would, among other

things, strengthen conflict of

interest rules, improve auditing and

cost accounting, and provide for

binding performance agreements.

D. High-Performing Organizations.

The Panel recommends that the

government take steps to encourage

high-performing organizations

(HPOs) and continuous improvement throughout the federal

government, independent of the use

of public-private competitions. In

particular, the Panel recommends

that the Administration develop a

process to be used to select a limited

number of functions currently

performed by federal employees to

become HPOs, and then evaluate

their performance. As to those

functions, authorized HPOs would

be exempt from competitive sourcing studies for a designated period

of time. Overall, however, the HPO
12

Commercial Activities Panel

Executive Summary

Section I

process is intended to be used in

conjunction with, not in lieu of,

public-private competitions.

Successful implementation of the

HPO concept will require a high

degree of cooperation between labor

and management, as well as a firm

commitment by agencies to provide

sufficient resources for training and

technical assistance. In addition, a

portion of any savings realized by

the HPO should be available to

reinvest in continuing reengineering

efforts and for the HPO to use for

further training and/or for incentive

purposes. There are a variety of

approaches for implementing the

HPO concept. While the Panel is

not recommending the use of any

particular approach, Appendix B

outlines one possibility.

Implementation Strategy

Many of the Panel’s recommendations

can be accomplished administratively

under existing law, and the Panel recommends that they be implemented as soon

as it is practical to do so. The Panel

recognizes,

however, that

some of its

recommendations would

require changes

in statutes or

regulations,

and that

making the

necessary changes could take some time.

Moreover, although the Panel views the

use of a FAR-type process for conducting

public-private competitions as the end

state, the Panel also recognizes that some

elements of its recommendations represent a shift in current procedures for the

federal government, and therefore need to

be demonstrated and then refined based

upon experience. For these reasons, the

Panel recommends a phased implementation strategy as follows.

A-76 studies currently underway or

initiated during the near term should

continue under the current framework.

Subsequent studies should be conducted

in accordance with the improvements

listed in Section V, Recommendations.

OMB should develop and oversee the

implementation of a FAR-type, integrated

competition process. In order to permit

this to move forward expeditiously, it may

be advisable to limit the new process

initially to agencies where, except for

allowing protests by federal employees, its

use would not require legislation, that is,

civilian agencies. Statutory provisions

applying only to defense agencies may

require repeal or amendment before the

new process could be used effectively at

DOD, and the Panel recommends that

any legislation needed to accommodate

the integrated process in DOD be enacted

as soon as possible. As part of a phased

implementation and evaluation process,

the Panel recommends that the integrated

competition process be used in a variety of

agencies and in meaningful numbers

across a broad range of activities, including

those currently performed by federal

employees, work currently performed by

contractors, and new work.

The Panel recommends that the integrated competition process

be used in a variety of agencies and in meaningful numbers

across a broad range of activities, including those currently

performed by federal employees, work currently performed by

contractors, and new work.
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Commercial Activities Panel

Executive Summary

Section I

Within 1 year of initial implementation of

the new process, and again 1 year later, the

Director of OMB should submit a detailed

report to the Congress identifying the

costs of implementing the new process,

any savings expected to be achieved,

Based on the results generated during

the demonstration period, and on

the reports submitted by OMB and

GAO, Congress will then be in a

position to determine the need for

any additional legislation.

expected gains in efficiency or effectiveness of agency programs, the impact on

affected federal employees, and any

lessons learned as a result of the use of

this process, together with any recommendations for appropriate legislation.

The GAO would review each of these

OMB reports and provide its independent assessment to the Congress. The

Panel anticipates that OMB would use

the results of its reviews to make any

needed “mid-course corrections.” Based

on the results generated during the

demonstration period, and on the reports

submitted by OMB and GAO, Congress

will then be in a position to determine

the need for any additional legislation.
14

The Current Sourcing System

Section II

Introduction

Since 1955, it has been Executive Branch

policy that the government should not

compete with its citizens, and therefore

that federal agencies generally should

obtain commercially available services

from the private sector. The policy has

recognized, however, that circumstances

may exist when commercial services

should be obtained in-house using

government employees. This section

describes the current process used by

federal agencies for determining whether

commercial activities should be performed by government employees or by

the private sector.

Identifying Commercial Activities

The process for identifying an agency’s

commercial activities begins with the

Federal Activities Inventory Reform Act

(FAIR) of 1998.1

 The FAIR Act requires

agencies to develop and submit to OMB

annual inventories of their positions that

are “not inherently governmental,”2

 that

is, commercial. Upon submission of an

agency’s FAIR Act inventory of commercial activities, the Director of OMB

reviews it and then consults with the

head of the agency regarding its content.

After this review and consultation, the

agency must submit the inventory to

Congress and make it available to the

public. Once the inventory has been

made public, the FAIR Act allows for a

limited appeals process for interested

parties to challenge either the omission

or the inclusion of a particular activity.

Inclusion of positions on the FAIR Act

inventories does not mean that the

positions will be outsourced, or even that

the positions necessarily will be involved

in an A-76 competition.

To date, the FAIR Act process has gone

through three cycles. Table 1 shows the

number of commercial FTEs (full-time

equivalents) reported over the past 3 years

by the 11 federal agencies with the largest

number of commercial activities. (After

the Department of Energy, the number of

commercial FTEs for any one agency

drops precipitously.) Figure 1 illustrates

the distribution of the most recent fiscal

year (FY) 2001 inventory results.

Guidelines implementing the FAIR Act

outline a variety of reasons permitting

agencies to exclude certain commercial

activities from being considered eligible

for competition; they may include such

reasons as legislative exemptions, national

security considerations, etc. Accordingly,

the number of positions deemed eligible

for competition may be much smaller

than the overall inventory of commercial

activities. For example, DOD reported

that only 241,332 positions from its fiscal

year 2001 inventory were considered

eligible for competition.

With the first implementation of the FAIR

Act in 1999, several issues were raised.

These issues included the lack of a uniform

list format (making comparisons across

agencies difficult), vague function and

reasons codes by which each position was

categorized, insufficient time for the

appeals process, and concern that an

unreasonably high number of activities were

being exempted from competition or that

inherently governmental activities were

being included on the inventories.

1

 Pub. L. No. 105-270, 112 Stat. 2382 (1998).

2

 Section 5 of Pub. L. No. 105-270, codified at 31 U.S.C. 501

note (1998), defines an inherently governmental function as a

“function that is so intimately related to the public interest as

to require performance by Federal Government employees.”
15

Commercial Activities Panel

The Current

Sourcing System

Section II

In response to complaints following the

June 1999 inventory, OMB provided

agencies with additional guidance for

implementing the FAIR Act. It established

additional function codes and a standard

format for inventories, and it requested

that agencies post their commercial

activities inventories on their websites.

Furthermore, it lengthened the challenge

and appeals process timeline and issued a

FAIR Act Inventory User’s Guide that

describes the scope and format of FAIR

Act inventories, explains the challenge

and appeals process, and reviews the

information included in an agency’s

annual management report. In April 2001,

OMB issued Memorandum M-01-16 to

mandate that agencies submit an inventory of their inherently governmental

activities as well by June 30 of each year.

This inventory uses the same format as

that for commercial activities.

The A-76 Cost Comparison

Process: Overview

The overall purpose of A-76 is to provide

uniform policy for how federal agencies

manage functions that provide commercial services. Circular A-76 outlines

conditions under which agencies are

Source: OMB.

Federal 1999 2000 2001 

Agency Positions Positions Positions

Defense 504,417 452,807 412,756

Veterans Affairs 187,077 185,203 189,399

Agriculture 48,000 46,516 42,691

Health and Human Services 31,849 31,379 32,843

Interior 17,979 20,069 23,186

Treasury 27,312 26,663 29,395

Social Security Administration 10,805 11,619 11,953

Transportation 11,421 11,008 11,526

State 1,397 2,036 10,492

Justice 3,507 1,264 10,260

Energy 11,765 9,941 9,889

The 11 Federal Agencies with the Greatest 

Number of Commercial Positions in 2001

Table 1
16

Commercial Activities Panel

The Current

Sourcing System

Section II

permitted to perform a commercial

activity with government employees or

by contract. It provides policy for

standardizing how and when an agency

competes a commercial activity with the

private sector.

In general, the A-76 cost comparison

process consists of six key steps:

1. Developing a performance work

statement (PWS);

2. Developing a Government Management Plan to determine the

government’s “most efficient

organization” (MEO);

3. Developing an in-house government

cost estimate for the in-house plan;

4. Issuing a solicitation for privatesector offers (under the FAR provisions that apply to federal procurements in general);

5. Selecting the best private-sector offer

and comparing it with the in-house

estimate, then selecting the lower

cost alternative; 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.3

3

 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 (ISSA), or by the private sector. OMB updated this

handbook in August 1983 and March 1996.

Source: GAO analysis of OMB data.

2001 FAIR Act Inventories for all Federal Government Agencies 

52%

21%

15%

6%

6%

Agriculture, HHS, VA

Treasury, and 

Interior 

SSA, Transportation,

State, DOJ, and Energy All other agencies 

combined

DOD

Figure 1
17

Commercial Activities Panel

The Current

Sourcing System

Section II

Figure 2 shows an overview of the process.

The solid lines indicate the process used

when the government issues a solicitation

that does not anticipate a cost/technical

tradeoff among private-sector offers (that

tradeoff process is often referred to as a

“best value” source selection). The dotted

lines indicate the additional steps that

take place when the solicitation provides

for a best value source selection.

The Circular generally calls for a cost

comparison to be used whenever an

agency is contemplating shifting work

between sectors, that is, from in-house

performance to contract or vice versa.

There are situations, however, in which

work can be directly converted between

sectors (that is, shifted from the public to

the private sector, or vice versa) without a

cost comparison, including, for example,

functions with 10 or fewer FTEs. In

Source: GAO analysis.

Overview of the A-76 Cost Comparison Process

Public

Develop

PWS and

issue

solicitation

Private

Receive and

evaluate privatesector offers

Select one

private-sector

offer

Compare level

of performance

and quality of

private-sector

offer and MEO

If needed, 

have MEO

management

plan and cost

estimate 

adjusted

Compare

costs and

make a

tentative

decision

Process for other than 

“best value” solicitations

Additional steps required for 

“best value” solicitations

Develop MEO

management

plan and cost

estimate

Final 

Decision

Resolve

appeals and

protests, if

any

 Obtain MEO certification

from Independent Review

Officer & Certifying

Official

Figure 2
18

Commercial Activities Panel

The Current

Sourcing System

Section II

addition, if an agency has a new requirement for services, it may obtain the

services by contract without a cost

comparison. A cost comparison also is

not required if a service is currently being

obtained through a competitively

awarded contract, the quality of service is

acceptable, and the price is fair and

reasonable. The Circular provides for

waivers of the requirement for cost

comparisons under certain conditions,

and specifies the level of officials authorized to sign a waiver.

The A-76 Cost Comparison

Process: How it Works

One of the earliest steps in the A-76 cost

comparison process is the development of

a performance work statement (PWS).

The PWS defines, for both the in-house

team and the private-sector competitors,

what is being requested, the performance

standards and measures, and timeframes

required.

The competition among private-sector

offerors is conducted much as any federal

procurement competed under the FAR.

The agency incorporates the PWS into a

solicitation inviting the submission of

proposals. The competition may be

conducted on the basis of a comparative

technical or past performance evaluation

that is, an evaluation contemplating a

tradeoff between proposals based on cost

and technical factors or past performance. Where that is the case, the

agency’s source selection authority selects

which private-sector offer represents the

“best value” to the government. Alternatively, an agency’s source selection

strategy may call for selection of the lowpriced, technically acceptable proposal.

Whichever basis for award is to be used

(cost/technical tradeoff, low-priced/

technically acceptable, or other), the

agency must advise offerors of that basis in

the solicitation. In any case, the same

evaluation criteria will apply to all privatesector proposals, and, typically, the same

team in the agency (often referred to as a

source selection evaluation board) will

evaluate all proposals.

The 1996 Revised Supplemental Handbook to A-76 requires the in-house team

to prepare a cost estimate consistent with

guidance in the Handbook, as well as a

management plan responsive to the PWS

(which also governs the private-sector

competition through the solicitation). The

management plan identifies, among other

things, the organizational structures and

staffing planned by the in-house team.

Department of Defense activities often

receive contractor assistance in preparing

their management plans and in-house cost

estimates. Because the in-house plan will

ultimately be in a cost-only comparison

with the selected private-sector proposal,

the in-house plans naturally aim to meet,

but not exceed, the requirements of the

PWS.

A “certifying official” must certify that the

management plan reflects the in-house

“most efficient organization.” The certifying official must be organizationally

independent of the function under study

or at least two levels above the most senior

official included in the in-house cost

estimate. The certifying official must be

able to commit to the provision of the

necessary resources to perform the activity.

An independent review officer (IRO)

reviews the in-house plan and cost estimate to ensure that they establish the

government’s ability to perform the PWS

requirements within the resources provided by the MEO management plan and
19

Commercial Activities Panel

The Current

Sourcing System

Section II

that the costs identified are fully justified.

The IRO has typically not seen any of the

private-sector proposals.

The public-private cost comparison

follows detailed instructions in the

Revised Supplemental Handbook and the

Cost Comparison Handbook. Among the

main in-house costs are personnel (calculated based on number of FTEs and grade

levels), materials and supplies, and

overhead. As part of the cost comparison,

certain costs will be adjusted, primarily

through additions to the proposed price

of the selected private-sector proposal.

Among the key adjustments are contract

administration costs (estimates of the cost

for personnel to administer a contract

with a private firm) and “one time

conversion costs” (costs that will be

incurred because of the conversion from

public to private sector, such as the cost

of relocating or separating federal employees displaced as a result of a decision to

contract out). Once the adjusted costs of

the two sectors have been calculated, the

work will remain where it is (that is, it

will not be shifted between sectors) unless

the difference between the two adjusted

costs exceeds the minimum conversion

differential. That differential is 10 percent

of the in-house personnel costs or $10

million, whichever is less.

When the private-sector selection involves

a cost/technical tradeoff (often referred to

as a “best value” solicitation), the contracting officer submits the in-house

management plan to the source selection

authority, who evaluates the in-house

plan to assess whether it will achieve the

same level of performance and quality as

the selected private-sector offer. If not, all

changes necessary to make the level of the

in-house plan comparable to that of the

private-sector proposal must be made.

This leveling process has been a source of

significant criticism. After completion of

the leveling process, there is a cost

comparison between the private-sector

offer and the in-house plan, leading to a

tentative cost comparison decision.

Under Circular A-76, either a tentative

cost comparison decision or a tentative

waiver of the cost comparison process

may be appealed to an administrative

appeal authority, typically an agency

appeal board. An appeal may be filed by

any federal employee (or employee

representative) or affected private-sector

firm (for example, a firm that submitted

an offer). DOD statistics show 101

appeals filed in FY 1997-2001, with 6 of

them resulting in reversal of a tentative

cost comparison decision.

If the result of an appeal is that work is

to be performed in-house, a privatesector offeror may protest, either to GAO

or to the Court of Federal Claims. Federal

employees and their representatives are

not permitted to protest to either forum,

because both have held that federal

employees and their representatives lack

standing to protest, that is, they are not

“interested parties” allowed to protest

under the Competition in Contracting

Act of 1984. (See Appendix C.)

Of the 22 decisions that GAO has issued

in protests involving A-76 cost comparisons since January 1999, GAO sustained

11 and denied 11. “Sustaining” a protest

means that GAO found that the agency

had violated procurement statutes or

regulations in a way that prejudiced the

Of the 22 decisions that GAO has issued

in protests involving A-76 cost comparisons since January 1999, GAO sustained 11 and denied 11.
20

Commercial Activities Panel

The Current

Sourcing System

Section II

protester. Protests involving A-76

represent a very small percentage of the

many hundreds of bid protest decisions

that GAO issued in the past 3 years.

They do, however, indicate an unusually

high percentage of sustained protests. In

protests decisions covering all procurements, GAO has sustained about onefifth of the protests, while in A-76

protests, GAO has sustained half. The

issues that caused GAO to sustain

protests in A-76 procurements can be

summarized as follows: (1) individuals

had a conflict of interest because they

had a stake in the MEO winning the

cost comparison while they also played a

role requiring neutrality in the cost

comparison; (2) the PWS was not

applied comparably to the MEO and the

private-sector proposals; (3) the calculation of the in-house cost estimate or the

adjustments to the private-sector

proposal’s price were not reasonable; and

(4) the agency did not reasonably carry

out the “leveling” process taking into

account ways in which the selected

private offer exceeded the PWS requirements. (Further detail about GAO’s bid

protest decisions in A-76 cost comparisons is provided in Appendix D.)

Once a final decision is made, either to

contract work out or to perform it inhouse, the current system imposes

certain accountability rules. If a contract

is awarded, the contractor is required to

perform under the terms agreed to in the

contract. If the contractor fails to perform as required, the government may

take steps to enforce the terms of the

contract, ultimately leading, if necessary,

to termination of the contract for default

under Part 49 of the FAR. In such cases,

the contractor could be required to pay

any extra costs that the government

incurs in reprocuring its requirements. If

the MEO is selected in an A-76 cost

comparison, the Handbook calls for a

formal review, after the first year of performance, of at least 20 percent of the

functions performed in-house as a result of

a cost comparison. The purpose of the

review is to ensure that the staffing

proposed in the MEO has been implemented, that the PWS requirements are

being met, and that costs are within the

in-house cost estimate. There is concern,

however, that too few reviews are being

performed.

Use of Circular A-76 Competitions

Notwithstanding the Circular’s long

history, A-76 cost comparisons have not

been widely used, except for a period in

the 1980s and again in the past 5 years.

Administrative and legislative constraints

from the late 1980s through 1995 resulted in a temporary suspension in the

conduct of A-76 cost comparisons. DOD

has been the leader among federal agencies

in recent years in its use of OMB Circular

A-76. The box below shows the types of

positions that typically are the subject of

A-76 actions at DOD.

Commercial functions typically subject to the

A-76 process at the Department of Defense

(in descending order of the number of positions

involved):

 Installation Services

 Aircraft Equipment Maintenance

 Real Property Maintenance Services

 Logistics Services

 Information and Communications

 Acquisition and Supply Operations

 Transportation Services

 Computer/ADP Services

 RDT&E Support

 Education and Training Services

 Commissary Operations

Source: DOD
21

Commercial Activities Panel

The Current

Sourcing System

Section II

Table 2 highlights use by the Department of Defense of A-76 competitions

between fiscal year 1997 and fiscal year

2001.

Few civilian agencies have utilized the

process; in fact, in FY 1997, not one

civilian agency reported conducting an

OMB Circular A-76 cost comparison

study, and recent use by civilian agencies

of the A-76 cost comparison process has

been almost non-existent.

In 2001, however, OMB signaled its

intention to direct greater use of the

Circular on a government-wide basis. In a

March 9, 2001, memorandum to the

heads and acting heads of departments

and agencies, the OMB Deputy Director

required agencies to take action in fiscal

year 2002 to directly convert or complete

public-private cost comparisons for not

less than 5 percent of the FTE positions

listed in their FAIR Act inventories.

Subsequent guidance established a similar

requirement for an additional 10 percent

in 2003. The Administration’s stated

ultimate aggregate goal is to conduct

public-private competitions for or

directly convert 50 percent of the FAIR

Act inventories.

Public-private competition through the

use of OMB Circular A-76 represents a

very small percentage of total service

contracting. For example, DOD reported

to Congress that only 2 percent of the

service contracting dollars it awarded in

FY 1999 resulted from its use of A-76.4

4

 U.S. Department of Defense, Report to the Senate on

Completed DOD A-76 Competitions (Washington, D.C.:

Dec. 22, 2000). The remaining 98% of the work is generally

believed to be work that has typically been in the private

sector and not performed by government employees, but

which is re-competed regularly. Examples include research and

development, modification of equipment, technical services,

operation and maintenance of government facilities, medical

services, utilities (i.e. water, sewage, power, local telephone

exchange), transportation services, lease or rental of buildings,

and construction or maintenance of real property.

 

Type of Number of Civilian Military Total 

Process Decisions Positions Positions Positions

Cost 

Comparisons 314 30,423 6,564 36,987

Streamlined 

Cost Comparisons 50 1,014 5 1,019

Direct 

Conversions 418* 2,767 5,356 8,123

Total Sourcing

Decisions 782* 34,204 11,925 46,129

*Five direct conversions to ISSA performance (total of 30 positions).

Department of Defense 

Summary of Sourcing Decisions Completed Between FY 1997 and FY 2001

(By Type of Process Permitted Under OMB Circular A-76)

Table 2

Source: DOD.
22

Commercial Activities Panel

The Current

Sourcing System

Section II

The Department of Defense anticipates

initiating competitions for an additional

45,000 positions by the end of fiscal year

2003. This number may change depending on the results of an internal DOD

assessment of core and non-core functions. This assessment will determine the

most appropriate methods and approaches to employ to best meet the

needs of the Department, including

A-76 competitions. Other tools under

consideration include reengineering,

divestiture, privatization, and publicprivate partnering. The Department’s

preferred approach, as discussed in the

Quadrennial Defense Review, involves

emphasizing divestitures of non-core

missions, regardless of who is performing

them — whether military, civilian employees or contractors. Resulting savings

would be available to invest in higher

priority programs within the Department.

Plans for announcing an additional

45,000 positions to be studied are based

on FY 2003 preliminary budget submissions.

With regard to outcomes, table 3 shows

the results of the various A-76 actions

during the past 5 fiscal years at DOD.

One complaint frequently heard about the

A-76 process is that it takes an extraordinarily long time to complete. Table 4

shows the average amount of time to

complete various types of A-76 actions.

 

Type of In-house Decisions Contract Decisions

Process Decisions Positions Decisions Positions

*Five direct conversions to ISSA performance (total of 30 positions). Figures for in-house direct conversions 

represent determinations that it was not cost effective to convert to the private sector.

314

Cost 

Comparisons

(36,987 positions)

50

Streamlined

Cost Comparisons

(1,029 positions)

418*

Direct Conversions

(8,123 positions)

782*

Total Sourcing 

Decisions

60%

(187 decisions)

98%

(49 decisions)

12%

(51 decisions)

37%

(287 decisions)

51%

(18,946 positions)

95%

(966 positions)

2%

(171 positions)

44%

(20,083 positions)

40%

(127 decisions)

2%

(1 decision)

87%

(362 decisions)

63%

(490 decisions)

49%

(18,041 positions)

5%

(53 positions)

98%

(7,922 positions)

56%

(26,016 positions)

Results of Department of Defense 

Sourcing Decisions Completed Between FY 1997 and FY 2001

(By Type of Process Permitted Under OMB Circular A-76)

Table 3
23

Commercial Activities Panel

The Current

Sourcing System

Section II

Source: DOD.

Average Months 

to Perform Large* Medium** Small***

Size of Function:

* Large: More than 100 positions ** Medium: 11-100 positions *** Small: 10 or fewer positions

Single and Multi-functions Combined to Represent an Average Based on Size of Function

(1) Cost 

 Comparison Process

 Total Average Months

 Break-out of 

 Average Months

 Start Date Until 

 Solicitation Issued Date 

 Solicitation 

 Issued Date 

 Until Tentative 

 Decision Date

(2) Direct 

 Conversion Process

 Total Average Months 

(3) Streamlined Cost 

 Comparison Process = 20 Months Regardless of Size

29 months

20 months

9 months

18 months

27 months

20 months

8 months

9 months

36 months

31 months

5 months

11 months

Department of Defense 

Sourcing Decisions Completed Between FY 1997 and FY 2001

Completion Times By Size of Function

Table 4

Various statutes and regulations are

relevant with regard to the Department

of Defense (DOD). Particularly important is 10 U.S.C. § 2462(a), which

provides that DOD shall generally

procure supplies and services from the

private sector if that sector can provide

the supplies or services at a cost lower

than the cost of in-house performance.

Public-private competitions must be

based on cost only. Pemco Aeroplex, Inc.;

Aero Corp., B-275587.9 et al., June 29,

1998, 98-2 CPD ¶ 17. The provision

does not apply where another statute

authorizes a different basis (such as the

depot competitions; see Appendix E).
24

Trends and Challenges

Section III

As federal agencies decide how best to

obtain the services they need to perform

their missions, they face a number of

evolving challenges. There are rising

public expectations for the delivery of

government services, and fewer discretionary dollars are available with which

to satisfy those expectations. Contracting

for services has grown at the same time

that the acquisition workforce has been

greatly reduced. This section highlights

several trends and challenges the Commercial Activities Panel considered in

addressing the government’s policies and

procedures for making sourcing decisions.

Changes in Federal Spending

The current pressures on the federal

budget inevitably impact the

government’s sourcing decisions. These

pressures include a rapid escalation of

federal spending for entitlement programs, such as Social Security, Medicare,

and Medicaid, as well as increased

spending to respond to new security

challenges. The events of September 11,

2001, brought about new priorities and

commitments for the nation. These

commitments will continue to compete

with other priorities in the federal

budget. There are some things that we

may be able to afford to do today, but

will not be able to sustain in the future.1

A fundamental review of existing programs and activities is necessary to

increase fiscal flexibility and improve

how government works in the modern

world. This drives the need to evaluate

and revise the current approach to

acquiring commercial services to ensure it

achieves the maximum benefit for all

affected parties.

The shift from discretionary to mandatory

spending over the past four decades

demonstrates the loss of flexibility in the

budget. In 1962, over two-thirds of the

federal budget was discretionary and 50

percent of the federal budget was dedicated to defense. In fiscal year 2000,

about a third of the federal budget was

discretionary and only 16 percent of the

budget was dedicated to defense. The

proportionate decline in defense spending

is partially the result of the end of the

Cold War and partially an increase in

mandatory spending for entitlement

programs. As figure 3 shows, entitlement

programs represent approximately 49

percent of the federal budget, up from 31

percent in 1962. The reductions in

defense spending during the past 39 years

primarily went to health care, Social

Security, and interest on the federal debt.

Both GAO and the Congressional Budget

Office expect this trend to continue

because of known demographic trends and

rising health care costs.

Federal agencies spend billions of tax

dollars each year to acquire goods and

services—ranging from maintenance

services to multibillion-dollar weapon

systems to hazardous waste cleanup.

According to the General Services Administration (GSA), the federal government

procures an average of $1.9 million in

goods and services every minute of every

business day. The federal government

remains the largest customer in the world

for many supplies and services.

The Department of Defense is clearly the

dominant federal buyer, accounting for

about two-thirds of the $235 billion spent

on federal acquisition last year. After

DOD, the next four largest contracting

1

 U.S. General Accounting Office, Budget Issues: Long Term Fiscal

Challenges, GAO-02-467T (Washington, D.C.: Feb. 27, 2002).
25

Commercial Activities Panel

Trends and Challenges

Section III

agencies were the Department of Energy,

GSA, NASA, and the Department of

Veterans Affairs. Overall federal contracting has declined in the past 15 years

(mainly due to the decline in defense

contracting) from about $291 billion in

fiscal year 1986 to about $235 billion in

fiscal year 2001.2 Civilian agencies

increased contract spending by $19

billion during the same time period.

However, in the last 3 years defense

spending has been on the rise, increasing

$17 billion dollars from 1999-2001,

while civilian contracting has increased

$11 billion during the same period.

Figure 4 shows trends in federal contract

spending from 1986 to 2001.

As figure 5 shows, contracting for services,

including research and development, has

increased from $121 billion to $136

billion between 1986 and 2001.3 In

1986, supplies and equipment accounted

for the bulk of contracting dollars – about

$145 billion, or 55 percent of total

spending. By fiscal year 2001, however,

the largest acquisition category was

services at $109 billion,4

 or 51 percent of

total spending. Again, DOD is the

largest user of service contracts, accounting for about one-half ($55 billion) of

the $109 billion spent on federal service

contracts last year.

The increase in spending for services

has occurred at both civilian and defense

2

 All dollar figures used in this section have been converted

to constant 2001 dollars. These figures represent total

contracting actions—including those under $25,000.

3

Key areas for service contracts include the following: (1)

maintenance, overhaul, repair, servicing, rehabilitation,

salvage, modernization, or modification of supplies, systems,

or equipment; (2) routine recurring maintenance of real

property; (3) housekeeping and base services; (4) advisory and

assistance services; (5) operation of Government-owned

equipment facilities and systems; (6) communications

services; (7) architect-engineering; (8) transportation and

related services; (9) research and development; and (10)

information technology.

4

 This figure excludes R&D, which represents $27 billion

(12 percent) of 2001 spending.

1962 1980 2000

Defense Social 

Security

Net interest Other Medicare 

and Medicaid

Composition of Federal Spending 

18%

8%

31%

12%

23%

23% 16%

20%

9%

40%

31%

50%

13%

6%

Figure 3

Source: GAO Analysis.
26

Commercial Activities Panel

Trends and Challenges

Section III

agencies, but the percentage increase

at civilian agencies has been greater.

For example, using fiscal year 2001

constant dollars:

 spending on service contracts at

civilian agencies has increased from

$45.6 billion in fiscal year 1991

to $53.9 billion in fiscal year 2001,

which is an 18 percent increase.

 spending on service contracts at

DOD has increased from $51.5

billion in fiscal year 1991 to $55.3

billion in fiscal year 2001, which is

a 7 percent increase.

This shift from supplies to services is

primarily driven by acquisitions of information technology and management

services. For example:

 professional, administrative, and

management support services rose

from $12.9 billion in fiscal year

1991 to $20.3 billion in fiscal year

2001, a 58 percent increase.

 information technology services

increased from $4.5 billion in fiscal

year 1991 to about $15.8 billion in

fiscal year 2001, a 251 percent

increase.

Trends in Defense and Civilian Agency Contracting Dollars

0

50

100

150

200

250

300

1986 1991 1996 2001

Total

Defense

Civilian

Billions of constant

2001 dollars

Fiscal year

Source: All actions reported to the Federal Procurement Data Center.

Figure 4
27

Commercial Activities Panel

Trends and Challenges

Section III

At the same time the need for services was

growing at federal agencies, recent

changes made it easier for federal agencies

to buy services. Agencies can now purchase professional services using contracts

awarded and managed by other agencies.

For example, GSA offers information

technology services under its Federal

Supply Schedule program,5

 as well as

other services ranging from professional

engineering to temporary clerical and

support services. Traditionally used for

common goods, such as office supplies

and furniture, the schedule program has

seen a significant increase in its use to

acquire services over the past several years.

Changes in the Federal Workforce

Changes in the federal workforce will

continue to affect how the government

meets its needs and objectives. The

federal government workforce has

downsized from about 2.3 million

employees in 1986 to 1.8 million

employees in 2001. Reductions in the

workforce are primarily the result of the

changes in national security requirements

after the dissolution of the Soviet Union

and the end of the Cold War. Among

civilian agencies, some agencies have seen

an increase in employment while others

have seen significant decreases. On

balance, however, civilian agency employ5

 Under the schedule program, GSA negotiates contracts with

vendors for a wide variety of mostly commercial-type

products and services, and permits agencies to place orders

under these contracts directly with the vendors. According to

GSA, it takes 268 days to award a contract using traditional

methods, but it takes only 15 days, on average, to place an

order under the schedule program.

Contracting Activity Has Shifted

$84 B 

(31%)

$37 B 

(14%)

$145 B 

(55%)

 $80 B 

(37%)

$27 B 

(12%)

1986: $266 Billion 2001: $216 Billion

$109 B 

(51%)

Supplies R&D

and equipment

Other services

Figure 5

Source: All actions reported to the Federal Procurement Data Center.
28

Commercial Activities Panel

Trends and Challenges

Section III

ment has remained relatively stable,

except for temporary increases due to

census activities. Figure 6 compares

civilian employment trends in defense

and non-defense agencies. (Hiring by the

new Transportation Security Agency is

not included.)

As a general matter, downsizing was not

guided by strategic planning, nor has

adequate consideration been given to

implementation challenges, such as the

impact of the government’s reduction-inforce rules. Overall, the government’s

human resources policies and practices

have not reflected, nor been aligned

with, current workforce dynamics and

challenges, including demographics,

professional development, mobility, and

other issues.

In addition to an overall decline in the size

of the federal workforce, the mix of job

categories has changed. In particular, there

has been a large reduction in federal

civilian employment in blue-collar and

clerical occupations. In 1986, employees

in blue-collar occupations totaled about

400,000; by 2001, employment in such

jobs had fallen to roughly half that level.

Over the same period, employment in

clerical jobs dropped from about 363,600

400

600

800

1000

1200

1400

1600

1986198719881989199019911992199319941995199619971998199920002001

DOD

Non-DOD

Thousands of Employees

Fiscal year

Defense and Non-Defense Federal Civilian Employment, 1986-2001

Figure 6

Source: Congressional Budget Office using data from the Office of Personnel Management.

Note: Totals are averages of monthly employment counts. Data cover all branches of government, but not the U.S. Postal

Service.
29

Commercial Activities Panel

Trends and Challenges

Section III

Occupational Group Percentage of the Federal Workforce

 1986 2001

White-Collar Workers

 

Professional 18 23

Administrative 23 33

Technical 17 20

Clerical 19 8

Other 2 3

Subtotal 80 87

 

Blue Collar Workers 20 13

 

All Occupations 100 100

Occupational Distribution of Federal Workers, 1986 and 2001

to approximately 137,500. While some of

this reduction may reflect outsourcing,

some of it appears to reflect changes in

the government’s needs (for example, the

decline in the use of secretarial services).

In contrast, employment in other whitecollar positions, such as professional,

administrative, and technical, generally

rose from 1986 to 2001. Table 5 shows

the changes in the occupational distribution of the federal workforce.

After a decade of downsizing and curtailed investment, it is becoming increasingly clear that some agencies are at risk

of not having enough of the right people

with the right skills to manage government missions properly. Past downsizing

efforts coupled with a continuing loss of

government’s more experienced workers

have resulted in a huge knowledge drain.

A significant part of the workforce is

eligible to retire in the next few years,

while the demand for skilled workers to

Source: Office of Personnel Management.

Note: Data covers employees in the Executive Branch with full-time work schedules.

Table 5

manage and perform critical projects is

growing.

The acquisition workforce is symptomatic

of the broader human capital issues facing

the federal government. Overall, the total

number of acquisition personnel decreased 22 percent in the last decade.

DOD bore the full brunt of this

downsizing, going from 96,000 staff in

1991 to about 68,000 today. Figure 7

shows how the federal government’s

acquisition workforce has declined.

Addressing human capital issues is not

just a matter of the size of the workforce.

It is also a capacity issue. Today, it is

critically important that federal agencies

put a greater focus on human capital

strategies to adequately meet the current

and emerging needs of government and

its citizens in the most effective, efficient,

and economical manner possible. This

will require increased emphasis on
30

Commercial Activities Panel

Trends and Challenges

Section III

training and development, particularly in

the area of technology.

Developing and maintaining a skilled

acquisition workforce is the critical first

step in managing the more complex

current procurement environment.

Numerous inspector general and GAO

reports have highlighted the need for

federal agencies to improve their management of service contracts. Their capacity to

conduct this critical function is at risk

because of past inattention to broader

strategic human capital management.

GAO and others are concerned that

federal agencies’ human capital problems

are eroding the ability of many agencies—

and threaten the ability of others—to

perform their missions economically,

efficiently, and effectively.

The Shrinking Acquisition Workforce

Governmentwide

DOD (non-military)

Civilian agencies

0

25,000

50,000

75,000

100,000

125,000

150,000

1991 1993 1995 1997 1999 2001

Number of employees

Fiscal year

Source: GAO analysis of data extracted from OPM’s Central Personnel Data File using the following 14 occupation

codes: 246, 346, 511, 1101, 1102, 1103, 1104, 1105, 1106, 1150, 1152, 1910, 2003, and 2010.

Note: Excludes USPS, Tennessee Valley Authority, and intelligence agencies.

Figure 7
31

Commercial Activities Panel

Trends and Challenges

Section III
32

The Panel’s Review

and Findings

Section IV

Introduction

Section 832 of the National Defense

Authorization Act for Fiscal Year 2001,

Pub. L. 106-398, required the Comptroller General of the United States to

convene a panel of experts to study the

policies and procedures governing the

transfer of commercial activities for the

federal government from performance by

federal employees to performance by

contractors. In particular, the

Panel was to consider procedures

for determining whether functions should continue to be

performed by government

personnel, and for comparing

the cost of performance of

functions by government

personnel with the cost of the

functions by contractors. The Panel also

was directed to study the implementation by the Department of Defense of

the FAIR Act and DOD procedures for

public-private cost comparisons under

OMB Circular A-76. The Panel was to

consist of representatives from the Office

of Management and Budget, the Department of Defense, federal labor organizations, and private industry. On April 22,

2001, Comptroller General David M.

Walker announced the formation of the

12-member Commercial Activities Panel.

See inside cover text box for composition

of the Panel, Appendix J for Panelists’

biographies, and Appendix A for the law

requiring formation of the panel.

At its organizational meeting, the

Commercial Activities Panel adopted a

mission statement that stressed the need

to balance the diverse and frequently

divergent interests of the various constituencies represented. The mission of

the Panel was to devise a set of recommendations that would improve the

current sourcing framework and processes so that they reflect a balance among

taxpayer interests, government needs,

employee rights, and contractor concerns.

The Panel committed itself to recommending significant improvements over

the status quo. To ensure a high level of

support, the Panel decided that all findings and recommendations would require

a two-thirds supermajority. All references

in this report to the Panel’s findings,

conclusions, and recommendations reflect

the views of at least the required twothirds supermajority of the Panel. The

Panel also decided that each Panel member

would have the option of having a brief

statement included in the report explaining the member’s position on matters

considered by the Panel.

Public Participation

The Panel used a variety of means to

ensure maximum public participation in

its work. Through an announcement in

the Federal Register, the public was invited

to suggest issues the Panel might wish to

consider or to identify existing relevant

reports. The Panel welcomed written

comments from any source, and maintained an e-mail account for that purpose.

The Panel is grateful for the many

thoughtful and helpful comments it

received, far too many to acknowledge

individually.

The most visible effort by the Panel to

seek public input and expand its knowlThe Commercial Activities Panel adopted a

mission statement that stressed the need to balance the diverse and frequently divergent interests

of the various constituencies represented.
33

Commercial Activities Panel

The Panel’s Review

and Findings

Section IV

edge base consisted of three public

hearings conducted during the summer of

2001. The Panel approached each hearing

with a specific objective. See Appendix I

for a brief summary of each of the hearings. Full transcripts are available at the

“Commercial Activities Panel” link at

www.gao.gov.

At the first public hearing, held in

Washington, D.C., on June 11, the Panel

sought to focus on the underlying principles that should govern any sourcing

decision. The Panel heard repeatedly

about the need for transparency, fairness,

and accountability in this area. The Panel

also heard about the importance of

addressing sourcing decisions within the

context of an organization’s core mission,

rather than view the decision simply as a

way to reduce costs. Cost is important,

the Panel was told, but it is not everything. For information on outsourcing

decisions outside the federal government

discussed at this hearing, see Appendix G.

In Indianapolis, Indiana, on August 8,

the Panel heard from representatives from

several organizations that had taken

different approaches to the sourcing issue.

Among them were the Naval Air Warfare

Center in Indianapolis, which used

competitive privatization and reengineered

its business processes to gain workshare

and remain profitable, and the city of

Indianapolis, which effectively used

competition to greatly improve the

delivery of essential services. The Panel

heard considerable testimony in Indianapolis about the importance of labor/

management cooperation to the success of

sourcing decisions.

The Panel held its final public hearing on

August 15, at Lackland Air Force Base in

San Antonio, Texas. Lackland was in the

midst of a cost comparison under Office

of Management and Budget (OMB)

Circular A-76, a study that had been

underway for several years. Numerous

witnesses from Lackland and other

installations in the area expressed concerns about the process, including the

time and effort required to complete the

study, the difficulty of accurately accounting for costs, and alleged conflicts

of interest. For more information on the

Lackland study, see Appendix F.

Sourcing Principles

Based on the presentations at the public

hearings, additional materials submitted

by other interested parties, and extensive

Panel discussions, the Panel developed a

set of principles that it believes should

guide sourcing policy. While each

principle is important, no single principle stands alone. As such, the Panel

adopted the principles as a package. It is

the view of the Panel that federal sourcing and related policies should:

1. Support agency missions, goals,

and objectives.

Commentary: This principle

highlights the need for a link

between the missions, goals, and

objectives of federal agencies and

related sourcing policies.

2. Be consistent with human capital

practices designed to attract,

motivate, retain, and reward a highperforming federal workforce.

Commentary: This principle

underscores the importance of

considering human capital concerns

Cost is important, the Panel was

told, but it is not everything.
34

Commercial Activities Panel

The Panel’s Review

and Findings

Section IV

in connection with the sourcing

process. While it does not mean

that agencies should refrain from

outsourcing due to its impact on

the affected employees, it does

mean that the federal government’s

sourcing policies and practices

should consider the potential

impact on the government’s ability

to attract, motivate, retain, and

reward a high-performing workforce

both now and in the future. Regardless of the result of specific

sourcing decisions, it is important

for the workforce to know and

believe that they will be viewed and

treated as valuable assets. It is also

important that the workforce receive

adequate training to be effective in

their current jobs and to be a

valuable resource in the future.

3. Recognize that inherently governmental and certain other functions

should be performed by federal

workers.

Commentary: Recognizing the

difficulty of precisely defining

“inherently governmental” and

“certain other functions,” there is

widespread consensus that federal

employees should perform certain

types of work. OMB Directive 92-1

provides a framework for defining

work that is clearly “inherently

governmental” and the FAIR Act

has helped to identify commercial

work currently being performed by

the government. It is clear that

government workers need to

perform certain warfighting,

judicial, enforcement, regulatory,

and policymaking functions, and

the government may need to retain

an in-house capability even in

functions that are largely outsourced.

Certain other capabilities, such as

adequate acquisition skills to manage

costs, quality, and performance and

to be smart buyers of products and

services, or other competencies such

as those directly linked to national

security, also must be retained inhouse to help ensure effective mission

execution.

4. Create incentives and processes to

foster high-performing, efficient and

effective organizations throughout

the federal government.

Commentary: This principle recognizes that historically it has primarily

been when a government entity goes

through a public-private competition

that the government creates a “most

efficient organization.” Since such

efforts can lead to significant savings

and improved performance, they

should not be limited to publicprivate competitions. Instead, the

federal government needs to provide

incentives for its employees, its

managers, and its contractors to seek

constantly to improve the economy,

efficiency, and effectiveness of the

delivery of government services

through a variety of means, including

competition, public-private partnerships, and enhanced worker-management cooperation.

5. Be based on a clear, transparent,

and consistently applied process.

Commentary: The use of a clear,

transparent, and consistently applied

process is key to ensuring the integrity of the process as well as to

creating trust in the process on the

part of those it most affects: federal
35

Commercial Activities Panel

The Panel’s Review

and Findings

Section IV

managers, users of the services,

federal employees, the private sector,

and the taxpayers.

6. Avoid arbitrary full-time equivalent

(FTE) or other arbitrary numerical

goals.

Commentary: This principle reflects

an overall concern about arbitrary

numbers driving sourcing policy or

specific sourcing decisions. The

success of government programs

should be measured by the results

achieved in terms of providing value

to the taxpayer, not the size of the

in-house or contractor workforce.

Any FTE or other numerical goals

should be based on considered

research and analysis. The use of

arbitrary percentage or numerical

targets can be counterproductive.

7. Establish a process that, for activities

that may be performed by either the

public or the private sector, would

permit public and private sources to

participate in competitions for work

currently performed in-house, work

currently contracted to the private

sector, and new work, consistent

with these guiding principles.

Commentary: Competitions, including public-private competitions,

have been shown to produce significant cost savings for the government,

regardless of whether a public or a

private entity is selected. Competition also may encourage innovation

and is key to continuously improving the quality of service delivery.

While the government should not be

required to conduct a competition

open to both sectors merely because

a service could be performed by

either public or private sources,

federal sourcing policies should

reflect the potential benefits of

competition, including competition

between and within sectors. Criteria

would need to be developed,

consistent with these principles, to

determine when sources in either

sector will participate in competitions.

8. Ensure that, when competitions are

held, they are conducted as fairly,

effectively, and efficiently as

possible.

Commentary: This principle

addresses key criteria for conducting

competitions. Ineffective or inefficient competitions can undermine

trust in the process. The result may

be, for private firms, especially

smaller businesses, an unwillingness

to participate in expensive, drawnout competitions; for federal workers, harm to morale from overly long

competitions; for federal managers,

reluctance to compete functions

under their control; and for the

users of services, lower performance

levels and higher costs than necessary. Fairness is critical to protecting

the integrity of the process and to

creating and maintaining the trust

of those most affected. Fairness

requires that competing parties,

both public and private, or their

representatives, receive comparable

treatment throughout the competition regarding, for example, access

to relevant information and legal

standing to challenge the way a

competition has been conducted at

all appropriate forums, including

the General Accounting Office and

the United States Court of Federal

Claims.
36

Commercial Activities Panel

The Panel’s Review

and Findings

Section IV

9. Ensure that competitions involve a

process that considers both quality

and cost factors.

Commentary: In making source

selection decisions in public-private

competitions: (a) cost must always

be considered; (b) selection should

be based on cost if offers are equivalent in terms of non-cost factors (for

example, if they offer the same level

of performance and quality); but (c)

the government should not buy

whatever services are least expensive,

regardless of quality. Instead,

public-private competitions should

be structured to take into account

the government’s need for highquality, reliable, and sustained

performance, as well as cost efficiencies.

10. Provide for accountability in

connection with all sourcing

decisions.

Commentary: Accountability serves

to assure federal workers, the private

sector, and the taxpayers that the

sourcing process is efficient and

effective. Accountability also

protects the government’s interest

by ensuring that agencies receive

what they are promised, in terms of

both quality and cost, whether the

work is performed by federal

employees or by contractors.

Accountability requires defined

objectives, processes and controls for

achieving those objectives, methods

to track success or deviation from

objectives, feedback to affected

parties, and enforcement mechanisms to align desired objectives

with actual performance. For

example, accountability requires

that all service providers irrespective

of whether the functions are performed by federal workers or by

contractors, adhere to procedures

designed to track and control costs,

including, where applicable, the Cost

Accounting Standards. Accountability also would require strict enforcement of the Service Contract Act,

including timely updates to wage

determinations.

Application of the Principles

to Assess the Current System

Positive Elements of Circular A-76

Despite the widespread criticism that the

Panel heard about the conduct of cost

comparisons under Circular A-76, there

are certain areas in which the A-76 process

fares reasonably well in terms of the

Panel’s principles. The Panel concluded

that these elements need to be carefully

considered and, where appropriate,

retained in any changes to the commercial

activity sourcing process. The A-76

process encourages federal activities to

develop “most efficient organizations”

designed to achieve efficiencies and

promote higher levels of performance. The

historic use of the Circular, its Supplemental Handbook, and the various

Department of Defense reference tools has

resulted in lessons learned that can be

applied in future public-private competitions.

In terms of accountability, as is the case

with all federal contracts, the A-76 process

requires ensuring that, whichever side

wins the cost comparison, steps are taken

to ensure that the government actually

receives what is promised; if accountability

is not being ensured in practice (and the

Panel heard widespread complaints that it

is not), this may be due more to implementation deficiencies than to defects in

the A-76 process.
37

Commercial Activities Panel

The Panel’s Review

and Findings

Section IV

Particularly for federal employees, the

rules for public-private cost comparisons

set out in Circular A-76 provide valuable

protective elements. Federal employees’

trust in the integrated source selection

process recommended by the Panel will

be measured, in part, based on whether

the process provides the federal workforce

appropriate rights and protections.

Specifically:

 Circular A-76 ensures federal

employees that their plan for a “most

efficient organization” will be in the

“final round.” That is, the final

decision in an A-76 cost comparison

is always between an in-house plan

and a private-sector proposal, which

reassures federal employees that they

will be given full and fair consideration.

 Circular A-76 provides a way to

calculate the cost of performance by

the public sector. While the Panel

recognizes the criticism leveled at

the costing process under Circular

A-76, to a significant extent that

criticism reflects the difficulties in

agencies’ accounting systems in

general, and those difficulties are

unlikely to be resolved through

changes to the A-76 process. Pending long-term improvements in

government cost accounting, greater

emphasis in the interim on improved accounting practices through

such means as activity-based costing

could provide needed improvements

in accounting for in-house operating

costs. In the meantime, though, the

A-76 Cost Comparison Handbook

provides a way to calculate the cost

of in-house performance and to

compare that cost to the potential

cost of performance by a contractor.

 Because the sourcing decision under

Circular A-76 is based on a cost

comparison, some view it as objective and therefore less open to an

abuse of discretion by management.

In the context of the distrust that

often permeates the sourcing

process, participants (particularly

federal employees) often prefer a

cost-only basis for a decision, rather

than one that permits the exercise of

discretion based on subjective

factors.

Revisions to the Supplemental

Handbook issued in March 1996

represent an effort to enable agencies to realize the perceived benefits,

in the A-76 process, of the “best

value” tradeoff techniques widely

used in FAR Part 15 procurements.

It reflects an effect to bring both

quality and cost factors into consideration in sourcing decisions under

Circular A-76, while ensuring that

the final decision ultimately is based

on cost.

 Under Circular A-76, federal

employees currently performing

work under study benefit from a

conversion differential: unless

contractor performance would save

the government $10 million, or 10

percent of in-house personnelFederal employees’ trust in the integrated source selection process recommended by the Panel will be measured, in part, based on whether the

process provides the federal workforce

appropriate rights and protections.
38

Commercial Activities Panel

The Panel’s Review

and Findings

Section IV

related costs (whichever is less),

work will be retained in-house.

(The same conversion differential

applies to the private sector when

there is work the government might

wish to bring back in-house.)

 Circular A-76 provides a measure of

accountability by allowing either

the affected federal employees (or

their representatives) or privatesector firms to appeal tentative cost

decisions, or determinations to

waive the cost comparison process.

The Panel notes that agency appeal

boards considering those challenges

have demonstrated an effort to give

the appeals fair consideration, and

some appeals have been sustained.

 Where federal employees lose their

jobs as a result of an A-76 decision

to contract out their work, the

employees receive certain protections, such as the right-of-firstrefusal in terms of employment by

the contractor.

On a more global level, the Panel is

aware that, notwithstanding its flaws,

Circular A-76 is a known process, at least

within the Department of Defense. Any

alternative competition process will need

to overcome concern, particularly from

federal employees, about its fairness, and

will have to win a greater measure of

trust from all concerned.

Criticisms of the A-76 Cost

Comparison Process

From both the public and the private

sides, there have been complaints that

the A-76 cost comparison process is

fundamentally flawed. Below are some of

the key criticisms.

1. Complicated Process

Both federal employees and private

firms complain that the A-76 competition process does not meet the

principles’ standard of a clear, transparent, and consistently applied

process. The fact that GAO has

sustained half of the bid protests that

it has decided involving cost comparisons under Circular A-76 is

telling. It contrasts with a “sustain”

rate of about 21 percent for GAO

protests overall. (It should be kept in

mind, though, that most A-76

decisions are not protested, just as

most contract award decisions are not

protested, and GAO has only decided about 20 A-76 protests in the

past 3 years). [Appendix D summarizes recent GAO bid protest decisions involving Circular A-76.]

These sustained protests generally

reflect only the errors made in favor

of the government MEO since only

the private-sector offeror has the right

to protest to GAO. See Appendix C.

While any public-private competition is by its nature challenging and

open to some of the concerns that

have been raised regarding the A-76

process, the high rate of successful

A-76 protests suggests that agencies

have a more difficult time applying

the A-76 rules than they do applying

the normal (i.e., FAR) acquisition

Both federal employees and private

firms complain that the A-76 competition process does not meet the principles’ standard of a clear, transparent,

and consistently applied process.
39

Commercial Activities Panel

The Panel’s Review

and Findings

Section IV

rules. At least in part this may be

because the FAR rules are so much

better known. While training could

help overcome this lack of familiarity

(and many agencies, particularly in

the Department of Defense, have

been working on A-76 training), the

Panel notes that the FAR acquisition

and source selection processes are

already better known and better

understood; they are in a sense a

“common language” for procurements and source selections. The

Panel recognizes, however, that any

application of the FAR to competitions that include a public-sector

offeror would require use of certain

elements of the A-76 process and

other adjustments, and thus to this

extent would involve deviation from

the ordinary FAR process.

2. Inconsistent Application

Inconsistency in application has

been a particular concern with the

A-76 process. There has been

concern about application of the

Circular and the rules under the

Supplemental Handbook being

inconsistently applied between the

services or even between bases within

one of the services. The Panel notes

that the Office of the Secretary of

Defense has made considerable

progress providing consistent

guidance across DOD to supplement the Circular.

3. Unequal and Unfair

Both federal employees and private

firms criticize the A-76 competition

process as unequal and therefore

unfair. In the Panel’s view, wherever

possible the sectors should be

treated the same and compete under

the same rules. That said, there are

some areas where the public and

private sectors might well be treated

differently out of necessity, but still

be treated fairly. In particular, the

special rules used to calculate the

cost of in-house performance, while

substantially different from the cost

and pricing rules that apply to

private-sector competitors, are not

unfair. Instead, they reflect a

reasoned, if only partially successful,

effort to calculate (in the context of

inadequate systems) the direct and

indirect costs of performing the

work in house. In addition, while

the conversion differential (10

percent of the incumbent’s personnel costs, or $10 million, whichever

is less) favors the incumbent (regardless of whether it is the public

or the private sector) the Panel views

that differential as a reasonable way,

consistent with the principles, to

take into account the disruption

and risk entailed in converting

between the public and private

sectors.

Other instances of unequal treatment between the public and

private sides in A-76 cost comparisons are harder to justify. Specifically, under Circular A-76, a team

of government evaluators conducts a

comparative assessment of privatesector proposals measured against

The FAR acquisition and source selection processes are already better known

and better understood; they are in a

sense a “common language.”
40

Commercial Activities Panel

The Panel’s Review

and Findings

Section IV

evaluation criteria set out in the

solicitation, while the in-house plan

(the MEO and the management

plan) are assessed, typically by

people who do not participate in

the evaluation of the private-sector

proposals, on a pass/fail basis to

determine whether it satisfies the

PWS. Having different people

evaluate the two sides in a cost

comparison against different criteria

creates at least the risk that the

same standards will not be applied

equally to the two sides. The Panel

notes that GAO has sustained

protests where, in fact, it appears

that the public and private sides

were not held to the same standards.

4. Inadequate Support for Employees

The Panel heard concerns that

federal employees risk being at an

unfair disadvantage in a competition with the private sector. In

particular, concern was raised that

federal employees’ efforts to put

together a truly “most efficient

organization” have sometimes been

hamstrung by lack of cooperation or

unwillingness to commit resources

on the part of management. This

alleged lack of cooperation included

a failure to keep employees informed about the process, a lack of

support for innovative suggestions

from employees, an unwillingness

to make the capital investments

necessary to allow the in-house plan

to win the cost comparison, and a

failure to give the employees the

tools (whether in terms of training

or access to expertise) to conduct a

thorough reengineering analysis of

their work and to propose (and

draft) a competitive plan. On the

other hand, the Panel learned of

agencies that provide support,

including contracted support, to inhouse teams preparing for A-76 cost

comparisons. The Panel views it as

critical to the perceived fairness of

any competition involving federal

employees that those employees be

provided assistance so that the

employees are not at an unfair

competitive advantage vis-à-vis the

private sector.

On a related point, federal employees

preparing an MEO under the current

A-76 rules are able to propose an

arrangement that includes privatesector contractors as part of the

MEO, which can be helpful to the

federal employees. Under the current

A-76 rules, however, the in-house

team cannot team with a privatesector firm to propose an integrated

public-private partnership. The Panel

believes that public-private partnerships should be not only permitted,

but encouraged, especially in situations requiring significant capital

investment.

5. Conflicts of Interest

The Panel heard many complaints

about conflicts of interest as the A-76

cost comparison process is applied.

Federal employees expressed concern

that federal managers, instead of

being neutral in the public-private

cost comparison, sometimes favor

outsourcing and thus undermine the

federal employees’ efforts to retain

The Panel heard many complaints

about conflicts of interest as the A-76

cost comparison process is applied.
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The Panel’s Review

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Section IV

their jobs. Concern was raised in this

regard about “revolving doors,”

where federal managers involved in

the A-76 process move on to positions in private-sector firms that

participate in those competitions.

The private sector has raised numerous complaints, including in bid

protests to GAO, alleging that

individuals with a stake in the

outcome of public-private competitions are being allowed to play a key

role in those competitions. In the

bid protest of DZS/Baker, GAO

found that among the 16 Air Force

employees who were evaluating

private-sector proposals in an A-76

cost comparison at Wright-Patterson

Air Force Base, 14 held positions in

the function under study. (See

Appendix D for a summary of this

and other GAO bid protest decisions.) Perceptions of conflicts of

interest risk undermining the sense

of trust in the process, and it is

important that they be addressed.

The Panel notes that the Department of Defense and the Office of

Management and Budget have taken

steps, since the DZS/Baker decision

was issued in 1999, to prevent

similar conflicts of interest from

arising. Despite this, concerns about

conflicts of interest remain throughout the A-76 cost comparison

process.

6. Cost/Technical Tradeoffs

The Panel heard many complaints,

particularly from the private sector,

that the March 1996 revisions to the

A-76 Supplemental Handbook have

created a process that is not working

well. As noted above, in Section II,

The Current Sourcing System, the

March 1996 changes allowed the

use of a “best value” tradeoff selection process among private-sector

proposals. Under this approach, the

“winning” proposal chosen for the

public-private cost comparison

might not be the least expensive

private-sector proposal since a

superior technical, but more expensive, approach could have been

selected over a less expensive alternative. Yet the final evaluation between the government and the

private sector is based exclusively on

cost. There are numerous problems

associated with this dual evaluation

track that lie at the heart of many of

the complaints, from private-sector

offerors and from government

managers, about the weaknesses of

the A-76 process. For private

offerors, many believe it denies

them the benefits of their investment and commitment to innovation and technology.

Because of the importance of the

tradeoff issue to the Panel’s work,

the Panel spent considerable time

discussing and debating the advantages and disadvantages of tradeoffs,

and addresses the issue in some

detail here. Tradeoffs are routinely

permitted in negotiated procurements, those acquisitions in which

offers are evaluated against criteria

in addition to cost or price. Since

World War II, federal agencies have

been allowed to use negotiated

procurements, and thus tradeoffs

between cost and non-cost factors,

in certain acquisitions. At least since

the late 1970s, negotiated procurements have been more common

than sealed-bid acquisitions, in

which price is the only criterion for

selection among responsive offers.

Under the Competition in Con-
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and Findings

Section IV

tracting Act of 1984 (CICA) and

the FAR, agencies are free to choose

between negotiated procurements

and sealed bid acquisitions. In the

FAR, negotiated procurements are

set out in Part 15. Not all negotiated procurements, however, allow

tradeoffs. The solicitation in a Part

15 procurement will tell the offerors

what the criteria for evaluation and

award will be; they could be

technical acceptability and low cost,

or they could be a mix of comparatively evaluated factors, thus

permitting a tradeoff. To summarize

this brief description, federal

agencies have for decades routinely

used tradeoffs in negotiated procurements (often using the term

“best value” to describe them), with

the non-cost factors required to be

identified in the solicitation.

Among the most common non-cost

factors are technical approach, past

performance, and management

plan.

Tradeoffs are routinely used in

federal procurements conducted

under the FAR, and they also reflect

widespread practice by other

governments (state, local, and

foreign) as well as by the private

sector. The tradeoff process entrusts

federal employees acting as source

selection officials with the authority

to use their judgment in selecting

among proposals offered. Tradeoffs

are widely credited with getting the

federal government past the “low

bid” mentality of the past, and with

increasing consideration of factors

such as quality and past performance. While concern has sometimes been expressed that the

tradeoff process allows federal

employees awarding contracts very

broad discretion, that discretion has

boundaries: Award decisions must

comply with pre-established evaluation criteria, and are subject to

challenge if it appears they did not.

In this regard, GAO considers bid

protests challenging the way tradeoffs

are conducted, and sustains protests

where the process was unfair or

unreasonable.

The process created in the March

1996 revisions to the A-76 Supplemental Handbook endeavors to

capture the benefits of the tradeoff

process, while maintaining the

perceived objectivity of a cost-only

selection. The March 1996 A-76

process requires the agency to measure the selected private-sector

proposal against the MEO and to

have the MEO adjusted if the two do

not offer the same level of performance and quality; once the adjustment is made, a cost-only comparison is made to select the winner.

That “leveling” process, which is not

used in FAR procurements or in any

other procurement system of which

the Panel is aware, has not been easy

for agencies to implement, and GAO

has sustained protests where it was

alleged that an agency failed to

implement it fairly (or at all). The

Panel notes that the Office of the

The process created in the March

1996 revisions to the A-76 Supplemental Handbook endeavors to capture the benefits of the tradeoff process,

while maintaining the perceived

objectivity of a cost-only selection.
43

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Section IV

Secretary of Defense has worked

hard to provide clear guidance to the

Department of Defense in this

regard. Significant concerns also

were raised about the unfairness that

stems from leveling the public sector

proposal with that of the private

sector, including the risk of disclosure of intellectual property.

7. Protest Rights

The Panel heard frequent complaints

from federal employees and their

representatives about the inequality

of protest rights. While both the

public and the private sectors have

the right to file appeals to agency

appeal boards (and both sectors do),

only the private sector has the right,

if dissatisfied with the rulings of the

agency appeal board, to go on to file

a bid protest at GAO or in court. As

explained in detail in Appendix C,

both GAO and the Court of Appeals

for the Federal Circuit have held

that, under CICA, federal employees

and their unions are not “interested

parties” with standing to challenge

the results of A-76 cost comparisons

or the findings of agency appeal

boards. The Panel views the protest

process as one form of ensuring

accountability to assure federal

workers, the private sector, and the

taxpayers that the competition

process is working properly. While

the Panel recognizes that there is

equal access to the agency appeal

process, the principle of fair treatment means that ultimately all

parties to a competition should have

rights as nearly equal as possible to

challenge the way the competition

was conducted. Granting protest

rights, however, should be part of an

effort to address the full range of

issues related to competing for and

performing government contracts.

8. Time and Money

The Panel also heard criticism that

the A-76 cost comparison process

takes too much time to complete.

According to DOD, over the last 5

years, the average time to complete

A-76 cost comparisons was 25

months. Most of this time (18

months) involved effort leading up

to the issuance of the solicitation;

from issuance of the solicitation to a

tentative decision took an average of

7 months. The 25-month average

does not account for any appeals or

protests, which can lengthen the

process considerably. Whether and

to what extent FAR-based publicprivate competitions would be faster

than A-76 cost comparisons is

unknown. In terms of cost, however,

the Panel heard testimony that some

companies estimate the costs of

participating in an A-76 cost

comparison to be 50 to 75 percent

higher than participating in a

traditional FAR-based procurement.

The Panel also heard that the

additional cost in an A-76 cost

comparison has a disproportional

effect on small businesses.

Other Concerns

Beyond the specific criticisms of A-76

cost comparisons, one concern raised by

several witnesses before the Panel, as well

as by a number of Panelists, was that an

agency always should strive to be the

most efficient organization possible, and

not wait until an A-76 cost comparison
44

Commercial Activities Panel

The Panel’s Review

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Section IV

to begin those efforts. The Panel is

convinced that the government needs

incentives and processes that encourage

both management and employees to

develop high-performing and efficient

organizations. These incentives and

processes must be based on human

capital strategies designed to attract,

motivate, reward, and retain a highperforming workforce.

In the current environment and the

foreseeable future, stability cannot be

guaranteed by any institution, nor is it

expected by most young people entering

The government needs incentives and

processes that encourage both management

and employees to develop high-performing

and efficient organizations.

the job market today. The key to success is

to adopt human resource practices that

demonstrate clearly the employer’s commitment to its workforce, even as competition for those resources is brought to bear.

As such, government personnel policies

and practices must be flexible to permit

agencies to adapt to the kinds of innovative initiatives that are common today in

the commercial sector, where stability is

rare, the pressures of the marketplace are

constant, and the competition for talent is

fierce. Such practices include making

significant investments in workforce

professional and career development,

rewarding performance, and, when

alternative sourcing strategies are contemplated, ensuring that the workforce is

provided adequate support to develop

competitive proposals and is treated as an

asset in the process (e.g., making the

question of the workforce’s future a source

selection factor).
45

Commercial Activities Panel

The Panel’s Review

and Findings

Section IV
46

Recommendations

Section V

The Panel adopts the following recommendations:

A. Adoption of Sourcing Principles.

The Panel unanimously recommends

that all sourcing decisions be guided by

the following principles and commentary. While each of the principles is

important, no single principle stands

alone. As such, the Panel adopted the

principles as a package. The Panel

believes that federal sourcing policies

and practices should:

1. Support agency missions, goals,

and objectives.

Commentary: This principle

highlights the need for a link

between the missions, goals, and

objectives of federal agencies and

related sourcing policies.

2. Be consistent with human capital

practices designed to attract,

motivate, retain, and reward a

high-performing federal workforce.

Commentary: This principle

underscores the importance of

considering human capital concerns

in connection with the sourcing

process. While it does not mean

that agencies should refrain from

outsourcing due to its impact on

the affected employees, it does

mean that the federal government’s

sourcing policies and practices

should consider the potential

impact on the government’s ability

to attract, motivate, retain, and

reward a high-performing workforce

both now and in the future.

Regardless of the result of specific

sourcing decisions, it is important for

the workforce to know and believe

that they will be viewed and treated

as valuable assets. It is also important that the workforce receive

adequate training to be effective in

their current jobs and to be a valuable resource in the future.

3. Recognize that inherently governmental and certain other functions

should be performed by federal

workers.

Commentary: Recognizing the

difficulty of precisely defining

“inherently governmental” and

“certain other functions,” there is

widespread consensus that federal

employees should perform certain

types of work. OMB Directive 92-1

provides a framework for defining

work that is clearly “inherently

governmental” and the FAIR Act has

helped to identify commercial work

currently being performed by the

government. It is clear that government workers need to perform certain

warfighting, judicial, enforcement,

regulatory, and policymaking functions, and the government may need

to retain an in-house capability even

in functions that are largely

outsourced. Certain other capabilities, such as adequate acquisition

skills to manage costs, quality, and

performance and to be smart buyers

of products and services, or other

competencies such as those directly

linked to national security, also must

be retained in-house to help ensure

effective mission execution.
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Commercial Activities Panel

Recommendations

Section V

4. Create incentives and processes to

foster high-performing, efficient and

effective organizations throughout

the federal government.

Commentary: This principle

recognizes that historically it has

primarily been when a government

entity goes through a public-private

competition that the government

creates a “most efficient organization.” Since such efforts can lead to

significant savings and improved

performance, they should not be

limited to public-private competitions. Instead, the federal government needs to provide incentives for

its employees, its managers, and its

contractors to seek constantly to

improve the economy, efficiency, and

effectiveness of the delivery of

government services through a

variety of means, including competition, public-private partnerships,

and enhanced worker-management

cooperation.

5. Be based on a clear, transparent, and

consistently applied process.

Commentary: The use of a clear,

transparent, and consistently applied

process is key to ensuring the

integrity of the process as well as to

creating trust in the process on the

part of those it most affects: federal

managers, users of the services,

federal employees, the private sector,

and the taxpayers.

6. Avoid arbitrary full-time equivalent

(FTE) or other arbitrary numerical

goals.

Commentary: This principle reflects

an overall concern about arbitrary

numbers driving sourcing policy or

specific sourcing decisions. The

success of government programs

should be measured by the results

achieved in terms of providing value

to the taxpayer, not the size of the

in-house or contractor workforce.

Any FTE or other numerical goals

should be based on considered

research and analysis. The use of

arbitrary percentage or numerical

targets can be counterproductive.

7. Establish a process that, for activities that may be performed by

either the public or the private

sector, would permit public and

private sources to participate in

competitions for work currently

performed in-house, work currently

contracted to the private sector, and

new work, consistent with these

guiding principles.

Commentary: Competitions,

including public-private competitions, have been shown to produce

significant cost savings for the

government, regardless of whether a

public or a private entity is selected.

Competition also may encourage

innovation and is key to improving

the quality of service delivery.

While the government should not

be required to conduct a competition open to both sectors merely

because a service could be performed by either public or private

sources, federal sourcing policies

should reflect the potential benefits

of competition, including competition between and within sectors.

Criteria would need to be developed, consistent with these principles, to determine when sources in

either sector will participate in

competitions.
48

Commercial Activities Panel

Recommendations

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8. Ensure that, when competitions are

held, they are conducted as fairly,

effectively, and efficiently as

possible.

Commentary: This principle

addresses key criteria for conducting

competitions. Ineffective or inefficient competitions can undermine

trust in the process. The result may

be, for private firms, especially

smaller businesses, an unwillingness

to participate in expensive, drawnout competitions; for federal workers, harm to morale from overly long

competitions; for federal managers,

reluctance to compete functions

under their control; and for the

users of services, lower performance

levels and higher costs than necessary. Fairness is critical to protecting

the integrity of the process and to

creating and maintaining the trust

of those most affected. Fairness

requires that competing parties,

both public and private, or their

representatives, receive comparable

treatment throughout the competition regarding, for example, access

to relevant information and legal

standing to challenge the way a

competition has been conducted at

all appropriate forums, including

the General Accounting Office and

the United States Court of Federal

Claims.

9. Ensure that competitions involve a

process that considers both quality

and cost factors.

Commentary: In making source

selection decisions in public-private

competitions: (a) cost must always

be considered; (b) selection should

be based on cost if offers are equivalent in terms of non-cost factors (for

example, if they offer the same level

of performance and quality); but (c)

the government should not buy

whatever services are least expensive,

regardless of quality. Instead, publicprivate competitions should be

structured to take into account the

government’s need for high-quality

reliable, and sustained performance,

as well as cost efficiencies.

10. Provide for accountability in connection with all sourcing decisions.

Commentary: Accountability serves

to assure federal workers, the private

sector, and the taxpayers that the

sourcing process is efficient and

effective. Accountability also protects

the government’s interest by ensuring

that agencies receive what they are

promised, in terms of both quality

and cost, whether the work is performed by federal employees or by

contractors. Accountability requires

defined objectives, processes and

controls for achieving those objectives, methods to track success or

deviation from objectives, feedback to

affected parties, and enforcement

mechanisms to align desired objectives with actual performance. For

example, accountability requires that

all service providers, irrespective of

whether the functions are performed

by federal workers or by contractors,

adhere to procedures designed to

track and control costs, including,

where applicable, the Cost Accounting Standards. Accountability also

would require strict enforcement of

the Service Contract Act, including

timely updates to wage determinations.
49

Commercial Activities Panel

Recommendations

Section V

A supermajority of the Panel adopts the

following package of three additional

recommendations:

B. Integrated Competition Process

The Panel concludes that the current

sourcing system, including the A-76

process, is not consistent with its recommended principles. The Panel believes

that all parties – taxpayers, agencies,

employees, and contractors – would be

better served by conducting publicprivate competitions under the framework

of the Federal Acquisition Regulation.

The Panel recommends, therefore, that

the government take immediate steps to

develop and demonstrate a process that

uses the Federal Acquisition Regulation as

the framework for conducting publicprivate competitions. The process should

incorporate appropriate elements of the

current A-76 system.

In essence, a public-sector proposal

(which could provide for process improvements, as with MEOs under A-76) could

be submitted in response to a broad range

of agency solicitations, including in

appropriate cases work currently contracted out and new work, and have the

proposal evaluated under the same rules

that apply to proposals from privatesector offerors. Although some changes in

the process will be necessary to accommodate the public-sector proposal, the same

basic rights and responsibilities would

apply to both the private and the public

sectors, including accountability for

performance and the right to protest.

This and perhaps other aspects of the

integrated competition process would

require changes to current law or regulation, and the Panel urges the Congress

and the administration to begin work

immediately toward that end. Although

it is not clear whether and to what extent

the integrated process will be faster than

the A-76 cost comparison process, the

Panel believes that the integrated process

will be more consistent with its recommended principles. Because shifting to a

FAR-type system will require a phased

implementation approach, the Panel has

crafted a suggested implementation

strategy.

The end state should be integration of

the needed elements of Circular A-76

and the “common language” of the FAR,

so that there would be one integrated

system, familiar to all participants, with

rules that are well known, a process that

is fair and transparent, and which

provides for accountability.

The following key elements from the

FAR, taken as a whole as part of an

integrated process, would provide

competition rules that are well known

inside and outside government and are

widely viewed as fair:

 Clear conflict of interest rules that

apply to all offerors

 Statement of work (SOW) must be

fair to all competitors and apply to

all competitors equally

 Potential offerors can protest any

SOW they believe unreasonably

limits their ability to compete

 Proposal preparation rules apply to

all competitors equally

 Evaluation criteria apply to all

competitors equally

 Agency establishes and publicizes

award criteria in advance
50

Commercial Activities Panel

Recommendations

Section V

 Award criteria are to be selected to

meet the agency’s needs, and may

be low-price/technically acceptable

or cost/technical tradeoff

 Same evaluation team generally

evaluates all competing proposals

 Proposals with no reasonable chance

of being selected for award may be

eliminated from consideration

 Discussions (if conducted) are held

with all offerors whose proposals are

believed to have a reasonable chance

of being selected for award

 Unsuccessful offerors are entitled to

a full debriefing

 Unsuccessful offerors have the right

to file a protest at the contracting

agency, GAO, or the Court of

Federal Claims

The following elements from Circular

A-76 cost comparison provisions would

be used as part of the FAR-based

process:

 The A-76 framework for calculating

the in-house cost estimate until a

new system is developed

 The right of employees to base their

proposal on a more efficient organization, rather than the status quo

 The A-76 framework for calculating

an “evaluated” price for privatesector proposals to take into account

items such as contract administration costs

 The A-76 conversion differential

factor (10 percent of in-house

personnel costs or $10 million,

whichever is less) would apply to

whichever sector is currently performing the work, and would not be

applied between offerors from the

same sector (so that it would not

apply between two private-sector

proposals), and would not apply in

cases of an offer by an entity other

than the incumbent government

entity (i.e., the government offer

comes not from the incumbent

organization, but from a different

government entity seeking to take on

the work).

In addition, the Panel recommends certain

special provisions be adopted:

 Where there is a federal workforce

currently performing, there should

be a guarantee that the in-house

proposal will not be eliminated from

consideration (that is, eliminated

from the competitive range) without

at least one round of discussions.

The Panel believes that fairness

dictates an incumbent workforce be

given an opportunity to correct

deficiencies in its initial offer. To

ensure that all offerors are treated

equitably, the Panel recommends that

at least one round of discussions be

conducted with all offerors if the

initial in-house offer does not lie

within the competitive range. Those

discussions would be conducted

under FAR Part 15 rules, so that

conducting discussions with the inhouse team would require parallel

discussions raising any concerns

regarding other proposals.

 Selection of an in-house offer should

lead to the execution of a binding

performance agreement. While that

agreement will not be identical to a
51

Commercial Activities Panel

Recommendations

Section V

contract, care should be taken to

ensure that it is as similar as practicable to one. In particular, the

consequences of failure to perform in

accordance with the in-house offer

should lead to consequences comparable to those that can follow from a

private firm’s default on a contract,

including recompetition of the work.

 The Panel recommends that arrangements be encouraged under which

in-house employees can enjoy the

equivalent of “award fees” in situations comparable to those (such as

where performance exceeds certain

measures) where private contractors

could receive such fees.

 The Panel recommends that the

protection that Circular A-76 affords

to federal employees displaced as a

result of an A-76 cost comparison be

strengthened for FAR-based competitions. One way to provide that

protection would be to use the

benefits offered to incumbent federal

employees, such as a “right of first

refusal” or separation packages, as an

evaluation criterion for private-sector

proposals. Protection for displaced

federal employees is particularly

important for Civil Service Retirement System (CSRS) employees,

who may face pension benefit

portability issues.

 There should be explicit permission

given for public-private partnerships

as potential offerors.

In addition, it is important to ensure the

following:

 As with “most efficient organizations” under A-76, federal employees

should be able to propose process

improvements and efficiencies and

be supported in that effort. Federal

employees involved in submission of

an in-house offer also should receive

assistance in planning for a competition, preparing a proposal, conducting discussions, attending a debriefing, and filing a protest.

 In-house teams receive reasonable

consideration and support from

management in their efforts to

participate in competitions:

 Where there is an in-house

workforce currently performing, it would be expected

that management generally

will authorize in-house

submission of a proposal,

which includes commitment

of resources for a proposal

with a reasonable prospect of

award (which may include

increasing staff or making

capital investments).

 Where there is no in-house

workforce currently performing the work, management

would need to apply transparent criteria (such as

whether excess capacity

exists) in deciding whether

to authorize submission of an

in-house offer.

C. Limited Changes to OMB Circular

A-76

To address a number of inequities, the

Panel recommends several limited

improvements in the current A-76

process that can be implemented expeditiously and would not require legislation.
52

Commercial Activities Panel

Recommendations

Section V

These changes are intended to provide

for more accurate cost comparisons, to

enhance accountability, and to ensure

greater fairness for all parties concerned.

 Ensure high-level commitment and

leadership from top management in

agencies to ensure that the process

receives adequate, sustained attention and resources.

 Encourage use of government-wide

“lessons learned” and knowledgesharing mechanisms comparable to

the tools that the Department of

Defense has developed.

 Encourage more communication to

federal employees and to private

industry throughout the A-76

process.

 Ensure that all competitors have

access to all relevant information,

including workload data, in order to

promote credible proposals.

 Encourage greater labor/management cooperation throughout the

A-76 process.

 Make available, as appropriate,

technical and other assistance in

structuring the most efficient

organization, as well as centralized

teams of trained personnel to

conduct the cost comparisons.

 Strengthen conflict of interest rules

to increase trust in the process on

the part of both federal employees

and private firms.

 Ensure that, within the teams

assessing compliance with the

performance work statement

requirements on the part of the

MEO and private-sector proposals,

there is at least one individual (and

preferably a single evaluation team)

who will have reviewed both the

MEO and private-sector proposals.

 Require that in-house cost estimates

be audited by independent agencies,

as Department of Defense components are now doing.

 Consider application of Department

of Defense A-76 Costing Model

government-wide.

 Establish binding performance

agreements for successful MEOs.

 In calculating the cost of contract

administrators to be added to a

private-sector proposal’s cost, consider adopting government-wide the

Department of Defense’s method for

estimating the number and grade

level of contract administrators.

 Encourage the development and use

of activity-based costing or other

financial accounting system that will

provide for the identification and

accumulation of government costs.

 Improve accountability by enforcing

the existing requirement that agencies conduct performance reviews on

at least 20 percent of the MEOs and

ensuring that all contracts are properly administered.

D. High-Performing Organizations

The federal government should promote

high-performing organizations as a standard business practice, independent of any

sourcing decision. In this regard, the

Panel recommends that the government

take steps to encourage high-performing
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Commercial Activities Panel

Recommendations

Section V

organizations (HPOs) and continuous

improvement throughout the federal

government. In particular, the Panel

recommends that the Administration

develop a process to be used to select a

limited number of functions currently

performed by federal employees to

become HPOs, and then evaluate their

performance. As to those functions,

authorized HPOs would be exempt from

competitive sourcing studies for a designated period of time. Overall, however,

the HPO process is intended to be used

in addition to and/or in conjunction

with, not in lieu of, public-private

competitions.

Successful implementation of the HPO

concept will require a

high degree of cooperation between labor

and management, as

well as a firm commitment by agencies to

provide sufficient

resources for training and technical

assistance. In addition, a portion of any

savings realized by the HPO should be

available to reinvest in continuing

reengineering efforts and for the HPO to

use for further training and/or for incentive purposes. There are a variety of

approaches for implementing the HPO

concept. While the Panel is not recommending the use of any particular approach, Appendix B outlines one possibility.

Implementation Strategy

Many of the Panel’s recommendations can

be accomplished administratively under

existing law, and the Panel recommends

that they be implemented as soon as it is

practical to do so. The Panel recognizes,

however, that some of its recommendations would require changes in statutes or

regulations, and that making the necessary changes could take some time.

Moreover, although the Panel views the

use of a FAR-type process for conducting

public-private competitions as the desired

end state, the Panel also recognizes that

some elements of its recommendations

are new for the federal government and

therefore need to be demonstrated and

then refined based on experience. For

these reasons, the Panel recommends a

phased implementation strategy as

follows.

A-76 studies currently underway or

initiated during the near term should

continue under the current framework.

Subsequent studies should

be conducted in accordance

with the improvements to

the A-76 process recommended by the Panel.

OMB should develop and

oversee the implementation

of a FAR-type, integrated

competition process. In order to permit

this to move forward expeditiously, it

may be advisable to limit the new process

initially to agencies where, except for

allowing protests by federal employess, its

use would not require legislation, that is,

civilian agencies. Statutory provisions

applying only to defense agencies may

require repeal or amendment before the

new process could be used effectively at

the Department of Defense, and the

Panel recommends that any legislation

needed to accommodate the integrated

process in DOD be enacted as soon as

possible.

As part of a phased implementation and

evaluation process, the Panel recommends

that the integrated competition process

be used in a variety of agencies and in

meaningful numbers across a broad range

OMB should develop and

oversee the implementation

of a FAR-type, integrated

competition process.
54

Commercial Activities Panel

Recommendations

Section V

of activities, including those currently

performed by federal employees, work

currently performed by contractors, and

new work. Within 1 year of initial

implementation of the new process, and

again 1 year later, the Director of OMB

should submit a detailed report to the

Congress identifying the costs of implementing the new process, any savings

expected to be achieved, expected gains

in efficiency or effectiveness of agency

programs, the impact on affected federal

employees, and any lessons learned as a

result of the use of this process, together

with any recommendations for appropriate

legislation. The GAO would review each

of these OMB reports and provide its

independent assessment to the Congress.

The Panel anticipates that OMB would

use the results of its reviews to make any

needed “mid-course corrections.”

Based on the results generated during the

evaluation period, and on the reports

submitted by OMB and GAO, Congress

will be in a position to determine the need

for any additional legislation.
55

Commercial Activities Panel

Recommendations

Section V
56

Views of Individual

Panelists

Section VI

Section VI contains the individual statements

of Panel members in the following order:

David M. Walker, Chairman

E. C. “Pete” Aldridge, Jr.

Frank A. Camm, Jr.

Mark C. Filteau

Stephen Goldsmith

Bobby L. Harnage, Sr.

Kay Coles James

Colleen M. Kelly

Senator David Pryor

Stan Z. Soloway

Angela B. Styles

Robert M. Tobias
57
58
59

,
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79

Commercial Activities Panel

Law Creating the

Commercial Activities Panel

Appendix A

Appendix A
80

Law Creating the

Commercial Activities Panel

Appendix A

Appendix A

the panel and shall ensure that the

following entities receive fair representation on the panel:

(A) The Department of Defense.

(B) Persons in private industry.

(C) Federal labor organizations.

(D) The Office of Management

and Budget.

(2) For the purposes of the requirement for fair representation under

paragraph (1), persons serving on the

panel under subparagraph (C) of that

paragraph shall not be counted as

persons serving on the panel under

subparagraph (A), (B), or (D) of that

paragraph.

(c) Chairman

The Comptroller General, or an

individual within the General Accounting Office designated by the Comptroller General, shall be the chairman

of the panel.

(d) Participation by Other

Interested Parties

The chairman shall ensure that all

interested parties, including individuals

who are not represented on the panel

who are officers or employees of the

United States, persons in private

industry, or representatives of Federal

labor organizations, have the opportunity to submit information and views

on the matters being studied by the

panel.

Floyd D. Spence National Defense

Authorization Act for Fiscal Year

2001, Pub. L. No. 106-398

Sec. 832. Study of Policies

and Procedures for Transfer

of Commercial Activities.

(a) GAO-Convened Panel

The Comptroller General shall

convene a panel of experts to study

the policies and procedures governing the transfer of commercial

activities for the Federal Government from Government personnel

to a Federal contractor, including—

1. procedures for determining whether

functions should continue to be

performed by Government personnel;

2. procedures for comparing the costs

of performance of functions by

Government personnel and the

costs of performance of such

functions by Federal contractors;

3. implementation by the Department of Defense of the Federal

Activities Inventory Reform Act of

1998 (Public Law 105-270; 31

U.S.C. 501 note); and

4. procedures of the Department of

Defense for public-private competitions pursuant to the Office of

Management and Budget Circular

A-76.

(b) Composition of Panel

(1) The Comptroller General shall

appoint highly qualified and

knowledgeable persons to serve on
81

Commercial Activities Panel

Law Creating the

Commercial Activities Panel

Appendix A

(e) Information from Agencies

Appendix A

The panel may request directly from

any department or agency of the

United States any information that

the panel considers necessary to

carry out a meaningful study of the

policies and procedures described in

subsection (a), including the Office

of Management and Budget Circular

A-76 process. To the extent consistent with applicable laws and

regulations, the head of such department or agency shall furnish the

requested information to the panel.

(f) Report

Not later than May 1, 2002, the

Comptroller General shall submit

the report of the panel on the results

of the study to Congress, including

recommended changes with respect

to implementation of policies and

enactment of legislation.

(g) Definition

In this section, the term ‘Federal

labor organization’ has the meaning

given the term ‘labor organization’

in section 7103(a)(4) of title 5,

United States Code.
82

Appendix B

High-Performing Organizations

Appendix B

Proposal

Take steps to encourage high-performing

organizations (HPO) and continuous

improvement throughout the federal

government.

Details

Management and employees would

identify selected existing business areas

or functions as possible candidates to

become HPOs. While this concept has

the potential to be applied broadly

throughout the federal government, the

initial focus could be on areas and/or

functions where potential commercial

options exist. Either management or

employees could nominate a function as

an HPO, but both sides would have to

agree in order to proceed. Authorized

HPOs would be exempt from competitive sourcing studies for a designated

period of time. The exemption could be

extended if the HPO continues to meet

performance goals, revised periodically, as

appropriate. Overall, the HPO process

should be used in conjunction with, not

in lieu of, public-private competition.

The agency would make available a

portion of any savings realized by the

HPO for reinvestment in continuing

reengineering efforts and for the HPO to

use for training or incentive purposes.

Incentives are necessary to encourage

both employees and management to seek

and promote the creation of an HPO,

and to ensure that neither side unreasonably declines to cooperate in this endeavor. For example, if employees pass up

an opportunity to become an HPO, the

organization might be subject to an

immediate competition that could lead

to outsourcing. For management, an

agency or other appropriate entity (e.g.,

OMB) could make the establishment of

HPOs a specific performance goal, and

would hold managers accountable for

meeting the goal as a component of their

performance measurement and reward

package. In addition, an independent

person or entity could serve as an appeal

authority if one side felt the other side

was not acting in good faith.

Becoming an HPO

The program would begin with a window

of opportunity (or open season) for

organizations or functions to volunteer to

become HPOs. Depending on available

resources and other considerations, some

agencies might decide to open the window

of opportunity for one or more functions

within the agency. Agencies would be

permitted to sponsor HPO candidates

comprising a limited number of functions.

The size and scope of any particular HPO

would vary by the number of its functions, activities, and locations. The primary focus could be on functions and

activities that are commercial in nature. In

selecting HPO candidates, a high degree

of cooperation between labor and management would increase the potential for

success.

Organizations or functions identified as

HPO candidates would get a reasonable

period of time, perhaps 6 months to

1 year, to develop an HPO plan. HPO

candidates would have access to a range

of financial and consulting resources for

developing their plans. Funding would be

an agency responsibility. The aggregate

cost of funding these consulting services

would be repaid over time by retaining a

portion of the savings realized by successful HPOs. The concept assumes that a

successful HPO would be able to measure

financial performance.
83

Commercial Activities Panel

High-Performing

Organizations

Appendix B

Appendix B

After the organization develops an HPO

plan it would submit the plan to an ad

hoc interagency group for review. This

group might consist of representatives

from OMB, OPM, and perhaps other

agencies with expertise in evaluating

high-performing organizations, both in

the federal government and elsewhere.

The purpose of the review would be to

assess the adequacy of the HPO, provide

advice and guidance, and ensure some

degree of consistency across the government.

HPO Performance

Once approved by the interagency group,

the HPO would enter into a binding

performance agreement. The agreement

would prescribe specific objectives to be

achieved by the HPO over the specified

performance period. For example, the

agreement might provide that by the end

of the first year, the HPO would take the

steps necessary to realize a savings of 20%

over the average cost of performing the

function during the previous 3 years,

while achieving stated quality standards

and non-financial performance goals.

Management and employees would have

to agree on the costing methodology to

establish the baseline. The agency would

have to account for realized savings, after

adjustment for inflation, over the life of

the agreement. The agreement also could

establish a target of attracting a specified

amount of outside capital, through

public-private partnerships or otherwise.

The agreement might also identify certain

process improvements that the organization must achieve (e.g., decreasing the

average time to respond to a citizen

inquiry).

There would be periodic reviews, at least

annually, of the performance of the HPO

against the performance targets. An HPO

that meets the goals would be exempt

from competition for a period of time,

perhaps 3 to 5 years. At the end of this

period, and assuming the HPO is

meeting its goals, the HPO could be

eligible for an extension. Any additional

performance period would require the

HPO to meet additional savings and/or

performance targets, consistent with the

agency’s current mission. On the other

hand, failure to meet the targets, or

perhaps an overwhelming percentage of

the targets, would result in a cure notice

giving the HPO a short period (perhaps

6 months) to meet the targets or risk

termination of the agreement. Disputes

concerning whether the targets have been

met could be referred to an independent

authority for review. If the agreement is

terminated, or once the agreement has

expired in accordance with its terms, the

function(s) would immediately become

subject to competition.

Special Considerations

Implementation of the HPO concept

would require a number of accommodations. First, there is a need for additional

flexibility in some of the government’s

personnel rules. For example, employees

who help to create savings for the agency

should be allowed to participate in a

bonus pay pool funded through a

portion of the savings. Employees of

HPOs or HPO candidate entities who

are adversely affected by a reorganization,

and possibly a FAR-based competition,

should receive preferential job reassignment and preferential job training within

the agency or elsewhere in the government, and possibly other assistance (e.g.,

extended insurance coverage periods).

Second, federal agencies whose approval

might be required to implement the
84

Commercial Activities Panel

High-Performing

Organizations

Appendix B

Appendix B

HPO should agree to expedite the

approval process. Third, the business case

model should consider total expected

costs over a reasonable period of time

based on a present value cash-flow

analysis. Agencies could use approved

HPOs as pilots in connection with any

alternative way of handling capital investments.
85

Commercial Activities Panel

High-Performing

Organizations

Appendix B

Appendix B
86

Appendix C

Standing to Challenge PublicPrivate Cost Comparisons

Appendix C

The Commercial Activities Panel frequently heard concerns expressed about

the ability to challenge the results of

public-private cost comparisons conducted under Office of Management

and Budget (OMB) Circular A-76. In

particular, several witnesses appearing in

hearings before the Panel raised the issue

of standing—that is, who is allowed to

file a complaint—to challenge the

results of those cost comparisons. This

appendix provides a brief overview of the

standing issue.

Circular A-76 provides a way for federal

employees and their unions as well as

private-sector participants to challenge

the results and waivers of public-private

A-76 cost comparisons. The Circular

provides that affected federal employees

and their representatives, as well as

private firms that have submitted offers

in an A-76 procurement, are entitled to

file appeals challenging waivers or the

results of A-76 cost comparisons to an

agency appeal authority. This appendix,

therefore, concerns only standing to file

challenges after exhaustion of that

agency appeal process.

General Accounting Office

The General Accounting Office (GAO)

hears bid protests by private-sector firms

that have participated in A-76 cost

comparisons. These challenges are heard

pursuant to GAO’s bid protest authority, set out in the Competition in

Contracting Act of 1984 (CICA), 31

U.S.C. §§ 3551-56 (2000).

CICA codified GAO’s previous regulatory rule that only an “interested party”

may file a protest. GAO’s interested

party requirement is the functional

equivalent of the standing requirement

that courts use. Specifically, CICA defines

“interested party” as “an actual or prospective bidder or offeror whose direct economic interest would be affected by the

award of the contract or the failure to award

the contract.”1

 Because a private firm that

participated in an A-76 cost comparison is

an actual “offeror whose direct economic

interest would be affected by the award of

the contract or the failure to award the

contract,” that firm clearly meets the

“interested party” definition, and is

therefore allowed to initiate a bid protest

at GAO. In fact, firms have filed more

than 30 bid protests at GAO over the past

3 years to challenge the conduct of A-76

procurements. GAO will only hear a

protest if a solicitation actually has been

issued. GAO will not consider a privatesector protest alleging that an agency

should issue a solicitation and conduct an

A-76 cost comparison. The protests GAO

has considered have challenged various

aspects of A-76 procurements, including

allegedly restrictive terms of a solicitation,

the results of a private-private competition, alleged conflicts of interests on the

part of government evaluators, and the

conduct of a public-private cost comparison. Where the private-sector firm is

protesting the outcome of the publicprivate cost comparison, GAO generally

requires that the firm first go through the

agency appeal process before GAO will

consider the case.

GAO has consistently found that federal

employees and unions cannot protest

agencies’ conduct of A-76 procurements,

whether to challenge the results of the

public-private cost comparison or any

other aspect of the procurement. GAO has

found that federal employees and unions

do not meet CICA’s definition of an

“interested party,” so that GAO does not

1 31 U.S.C. §§ 3551(2), 3552.
87

Commercial Activities Panel

Standing to Challenge Public/

Private Cost Comparisons

Appendix C

Appendix C

have authority to consider their protests.

In American Fed’n of Gov’t Employees,

AFL-CIO; American Fed’n of Gov’t

Employees, AFL-CIO, Local 987; Laverne

J. Rucker; Gary Fowler; Donald E.

Thompson; Larry Baines (AFGE), GAO

provided a detailed explanation of the

analysis that led it to conclude that the

protesters (unions and federal employees

challenging an agency’s decision to

contract with a private-sector offeror as

the result of an A-76 cost comparison)

were not “interested parties” eligible to

protest.2

Specifically, in AFGE, GAO noted that

Federal Acquisition Regulation (FAR)

§ 2.101 defines “offer” as “a response to

a solicitation that, if accepted, would

bind the offeror to perform the resultant

contract.” The term “contract” is in turn

defined as “a mutually binding legal

relationship obligating the seller to

furnish supplies or services (including

construction) and the buyer to pay for

them.” GAO explained that, accordingly,

in order to be considered an offeror, the

government’s submission to perform the

services in-house on behalf of the most

efficient organization (MEO) would have

to constitute an “offer,” that is, be in

response to a solicitation and constitute

something that if accepted by the agency,

would result in a contract binding the

MEO to perform the services required.

The AFGE decision noted that if a cost

comparison conducted under Circular

A-76 results in the determination that

the activities should be performed inhouse using government facilities and

personnel, the solicitation issued to the

private-sector offerors is canceled, and the

agency implements the MEO. No contract

is awarded (under the solicitation or

otherwise) for the performance of the

required activities. As such, nothing

submitted on behalf of the MEO, such

as the government’s in-house plan, can

properly be considered an “offer.”3

 GAO

thus concluded that no individual or

entity associated with the proposed

performance of the required services inhouse could be considered an “offeror,” so

that they cannot be considered interested

parties eligible to protest under CICA.

Courts

Private firms have filed complaints in

the Court of Federal Claims challenging

the conduct of A-76 cost comparisons,

and (although apparently fewer than five

suits have been filed in the past 3 years)

there appears to be no doubt that the

private firms have standing to sue.

Similarly, while few, if any, complaints

have been filed in any other courts

challenging A-76 cost comparisons,

lack of standing does not appear to

be the reason.

With respect to the right of federal

employees and/or their unions to challenge A-76 cost comparisons, courts,

with one exception of limited signifi2 B-282904.2, June 7, 2000, 2000 CPD ¶87.

3 GAO also noted that because the government’s in-house

management plan is prepared in response to the agency’s

performance work statement, rather than in response to a

solicitation, the management plan does not fall within the

definition of “offer” as set forth in FAR § 2.101 (an offer is a

“response to a solicitation”).
88

Commercial Activities Panel

Standing to Challenge Public/

Private Cost Comparisons

Appendix C

Appendix C

cance, have not allowed such challenges

to proceed.4

 The most recent—and the

controlling—decision in this area is Am.

Fed’n of Gov’t Employees, AFL-CIO v.

United States, 258 F.3d 1294 (Fed. Cir.

2001).5 That decision by the United

States Court of Appeals for the Federal

Circuit affirmed, on different grounds,

the decision of the United States Court

of Federal Claims that unions and federal

employees are not interested parties

eligible to protest a decision under

Circular A-76 to contract out. See Am.

Fed’n of Gov’t Employees, AFL-CIO v.

United States, 46 Fed. Cl. 586 (2000).

In that case, two federal employees and

their union (the plaintiffs) filed an action

in the Court of Federal Claims challenging the propriety of an agency’s cost

comparison that led to the determination

that it would be more economical to

contract with a private firm to perform

the work. Specifically, the plaintiffs

argued that the agency’s decision violated

certain provisions of Circular A-76, the

Federal Activities Inventory Reform Act

of 1998 (31 U.S.C. § 501 note (2000)),

and 10 U.S.C. § 2462(b) (2000).

The Court of Federal Claims found that

the plaintiffs were not “interested

parties” under the Tucker Act, as

amended by the Administrative Dispute

Resolution Act of 1996 (ADRA), 28

U.S.C. § 1491(b)(1) (2000).6

 The Court

of Appeals for the Federal Circuit affirmed

the Court of Federal Claims’ decision

that the federal employees and their

union lacked standing, but on different

grounds. In this regard, the Federal

Circuit found that “interested party”

should be defined under ADRA in the

same manner as in CICA—that is, the

Federal Circuit ruled that the same

statutory definition that governs interested party status at GAO also governs

4 For an example of another court finding that federal employees

and their unions lack standing to challenge A-76 decisions, see

Nat’l Fed’n of Fed. Employees v. Cheney, 883 F.2d 1038 (D.C.

Cir. 1989). The exception noted in the text: One United States

District Court found, in a memorandum opinion and order,

that the federal employee plaintiffs had standing to challenge

the conduct of a public-private cost comparison. Diebold v.

United States, Civ. C90-0001-L(A) (W.D. Ky. Apr. 2, 1993).

This 9-year old, unpublished decision from a district court has

limited significance, particularly because, since January 1,

2001, the sole federal court with jurisdiction to hear bid

protests is the Court of Federal Claims. Pub. L. No. 104-320,

§ 12(d) (1996), see 28 U.S.C. § 1491(b).

In a recent memorandum opinion, the District Court for the

District of Columbia found that the federal employee plaintiffs

and their union had standing to challenge the “direct conversion” of work from the public to the private sector, where the

conversion was accomplished under Section 8014(3) of the

Department of Defense Appropriations Act, 2000, Pub. L. No.

106-79, 113 Stat. 1212, 1234 (2000). Am. Fed’n of Gov’t

Employees, AFL-CIO v. United States, No. 00-0936 (RMU)

(D.D.C. Mar. 29, 2002). Section 8014(3) of the Act provides

that the restrictions on “direct conversions” set forth at 10

U.S.C. § 2461 (2000) do not apply where, as in the case before

the court, a contract for the work is to be awarded to “a

qualified firm under 51 percent Native American ownership.”

5

The Federal Circuit decision is controlling both because that

court is the appellate forum for the Court of Federal Claims

and because, as noted above, no other federal court any longer

has jurisdiction over bid protests.

6 The court noted that the term “interested party” is not defined

by the Tucker Act, which, as amended by the ADRA, gives the

court jurisdiction over bid protest cases. The court found that

standing before it was not limited to parties who were

“interested parties” as that term is defined in CICA, but rather

also included parties who would have standing to challenge the

award of a procurement decision in federal district court under

the Administrative Procedures Act (APA), 5 U.S.C. § 702

(2000). (It is on this point that the Federal Circuit disagreed

with the Court of Federal Claims.) The Court of Federal

Claims nevertheless ultimately dismissed the action, finding

that the plaintiffs were not interested parties under the ADRA,

and lacked standing to challenge the alleged violations of the

Circular and the statutes because they were not within the

“zone of interests to be protected or regulated by the statute...

in question.” Am. Fed’n of Gov’t Employees, AFL-CIO v.

United States, 46 Fed. Cl. at 600; see Nat’l Credit Union

Admin. v. First Nat’l Bank & Trust Co., 522 U.S. 479, 488

(1998).
89

Commercial Activities Panel

Standing to Challenge Public/

Private Cost Comparisons

Appendix C

Appendix C

standing at the Court of Federal Claims.

Effectively agreeing with GAO’s interpretation of CICA, the Federal Circuit

concluded that, because the federal

employees and their union were not

actual or prospective bidders or offerors,

they did not have standing to challenge

the agency’s determination to contract for

services rather than retain performance of

the services in-house.7

Conclusions

With the issuance of the Federal Circuit’s

recent Am. Fed’n of Gov’t Employees,

AFL-CIO v. United States decision, the

Court of Federal Claims was directed

to look to the same definition (the CICA

definition) that governs GAO in deciding

who is entitled to file court challenges to

A-76 cost comparisons. Because of how

the term “interested party” is defined in

CICA, neither GAO nor the Court of

Federal Claims has the statutory authority

to consider protests filed by federal

employees or their unions challenging an

agency’s determination, based upon the

results of an A-76 cost comparison, to

contract for services rather than perform

the services in-house. Of course, federal

employees and their unions continue to

be authorized to challenge A-76 decisions

through the agency appeal process.

If a decision were made to permit publicsector bid protests and court challenges

in the context of the integrated competition process, the question of who would

have representational capacity to file such

a protest would have to be carefully

considered.

In addition to the standing issue, there

is the question of attorney representation

and the expense of litigation. In both the

courts and GAO, those challenging A-76

decisions have been represented by

counsel. Retaining counsel is generally

critical to the ability to meaningfully

litigate these cases. The record in A-76

procurements (as in most procurements)

typically contains a large amount of

nonpublic information, which GAO and

the court will allow counsel, but not the

clients, to see. Further, in order for

counsel to gain access to the nonpublic

parts of the record, they must submit an

application and sign a nondisclosure

agreement, in which the attorneys

provide assurance that they are not

involved in competitive decision-making

for their clients. Retaining counsel

obviously entails considerable expense.

At GAO (but not the courts), protest

costs, including attorney fees, are generally reimbursed to successful protesters.

If federal employees and/or their unions

are permitted to file protests at GAO

and complaints in the Court of Federal

Claims, they will presumably need to

hire counsel, so the question of who will

cover the expense of litigation, including

attorney fees, could have considerable

practical importance.

Finally, changing the standing rules alone

may not permit federal employees to

challenge cost comparisons in federal

court because the employees’ suit also

would have to meet the constitutional

requirement for a “case or controversy”

between two adverse parties. While the

Panel did not explore this issue and

expresses no view as to it, some have

questioned whether the “case or controversy” requirement would be met.

7

 The Supreme Court denied the union/federal employees’

request that it review the Court of Appeals for the Federal

Circuit’s decision. 122 S. Ct. 920 (2002).
90

Appendix D

Recent GAO Bid Protest

Decisions Concerning A-76 Studies

Appendix D

Under the Competition in Contracting

Act of 1984, GAO provides an objective,

independent, and impartial forum for

the resolution of disputes concerning

the awards of federal contracts. In

deciding bid protests, GAO considers

whether federal agencies have complied

with statutes and regulations controlling

government procurements. GAO has

issued a number of bid protest decisions

concerning cost comparisons conducted

pursuant to Office of Management and

Budget (OMB) Circular A-76. Generally, those decisions have identified five

areas of concern:

(1) whether the performance work

statement (PWS) clearly states

the agency’s actual needs;

(2) whether the in-house plan to

perform the work satisfies the

PWS requirements;

(3) where the private-sector offeror is

selected on the basis of best value,

whether the in-house plan will

meet the level of performance and

quality of the private-sector offer;

(4) whether there is a conflict of

interest, or the appearance of a

conflict of interest, that provides

the in-house commercial activity

team with an unfair competitive

advantage or that calls into the

question the objectivity of government evaluators or reviewers; and

(5) whether the agency fairly and

realistically accounted for the

costs that are the basis of the cost

comparison between the in-house

cost estimate and the private-sector

offer.

This narrative describes generally each

of these areas of concern. Following

the narrative is a list of the recent GAO

protest decisions concerning A-76 studies.

Identifying the PWS Requirements

The PWS defines the scope of the work to

be performed.1

 To preserve the integrity of

the cost comparison, private-sector offerors

and the government must compete on the

same scope of work.2

 Because the PWS

states the minimum requirements that

private-sector offers and the in-house plan

must satisfy, it is critical that the PWS

unambiguously state the agency’s actual

needs. Nevertheless, GAO has found in a

number of cases that the PWS did not

reflect the agency’s actual needs. For

example, in BAE Systems,

3

 GAO found,

among other things, that the in-house

plan to operate one office to provide

personal property shipment services did

not satisfy a PWS requirement that two

offices be operated at different locations to

provide those services. In the course of the

protest, though, it became clear that the

agency might not need to staff two offices.

Accordingly, GAO recommended that the

agency consider whether the PWS reflected its actual needs in this regard.

Similarly, in Aberdeen Technical Services,

although the PWS required a full-time,

dedicated program manager, the agency

contended that it did not need a full-time,

dedicated program manager. GAO recommended that the agency amend the PWS,

if this requirement did not reflect the

agency’s actual needs.

1

 OMB Circular No. A-76 Revised Supplemental Handbook

(RSH), append. I, Definition of Terms, at 36.

2

 RSH, part I, ch. 3, ¶ H.3.e.

3

 This decision, along with others mentioned in this discussion, is included in the list of cases following the narrative.
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Satisfying the PWS Requirements

As noted above, private-sector offerors

and the government must propose a way

to satisfy the PWS requirements. Nevertheless, in a number of cases, GAO found

that the in-house plan for government

performance did not satisfy the minimum

PWS requirements. In Trajen, Inc., the

record did not support the agency’s

determination that the in-house plan

provided for satisfying a PWS requirement for spot painting. In Rice Services,

Ltd., GAO found that the agency’s

undocumented “assumptions” were

insufficient to demonstrate that the inhouse plan for government performance

would satisfy the PWS requirements.

In BAE Systems, GAO found that the

PWS was materially amended after the

government’s in-house plan for performance

was sealed, and the agency did not ensure

that the in-house plan satisfied the revised

PWS requirements.

Leveling the Playing Field

Where a solicitation invites private-sector

offerors to exceed the PWS requirements

and provides for the selection of the

successful private-sector offer on the basis

of a cost/technical tradeoff, the agency is

required to ensure that the in-house plan

will offer a comparable level of performance and performance quality.4

 Under

these circumstances, the agency must

account for strengths in the selected

private-sector offer (that is, areas where

the offer exceeds the PWS requirements)

and make changes in the in-house plan

necessary to raise its performance and

performance quality to the level offered

by the selected private-sector offer. In

The Jones/Hill Joint Venture—Costs, GAO

found that this obligation was not

satisfied by accepting without adequate

analysis claims of the in-house study team

that in-house government performance

would achieve a comparable level of

performance and performance quality

and by failing to consider strengths

identified in the private-sector proposal

during the best value competition.

Similarly, in DynCorp Technical Services

LLC, the requirement for a “level playing

field” was not satisfied, GAO found,

where the agency accepted an accelerated

schedule submitted by the successful

private-sector offer (which was encouraged by the solicitation) but allowed the

in-house plan to satisfy the slower PWS

schedule requirements. In that case,

GAO found that the agency’s generalized

comparison of quality did not satisfy the

requirement to ensure that the in-house

plan would offer a level of performance

comparable to that of the selected private

sector proposal.

Conflict of Interest

Under the Federal Acquisition Regulation, the government, in conducting its

business, is directed to act in a manner

above reproach and, except as authorized

by statute or regulation, with complete

impartiality and with preferential treatment for none. Thus, the general rule is

to avoid strictly any conflict of interest

or even the appearance of a conflict of

interest in government-contractor

relationships.5

 This rule is consistent

with the guidance provided by OMB

to provide a level playing field between

public and private offerors to an A-76

cost comparison.

A conflict of interest or the appearance

of a conflict of interest exists in an A-76

commercial activities study where a

4

 RSH, part I, ch. 3, ¶¶ H, J.

5

 Federal Acquisition Regulation § 3.101-1.
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government evaluator holds a position

that is within the scope of the study and

is subject to being contracted out.

In DZS/Baker LLC; Morrison Knudsen

Corporation, GAO found that a substantial conflict of interest arose where 14

of 16 agency evaluators held positions

under study and subject to being

contracted out. GAO recommended

that the agency appoint a new evaluation

panel to evaluate private sector proposals.

In IT Facility Services—Joint Venture,

GAO found that an evaluator, whose

spouse held a position under study that

could be contracted out, had a conflict

of interest. In the same case, GAO found

that, even though 4 of 7 evaluation

board members were employed in the

areas under study, there was no conflict

of interest where those evaluators’

positions were not subject to being

contracted out. The appearance of a

conflict of interest has also been found

in an A-76 commercial activities study

where actions by agency employees and

contractors working on the study arguably provide the in-house study team

with unequal access to information that

may provide the in-house team an unfair

competitive advantage. Where the inhouse team has in some sense set the

ground rules for the competition, there

may be an apparent conflict of interest

suggesting that the in-house team,

intentionally or not, may have skewed

the competition in favor of the in-house

team. Thus, in The Jones/Hill Joint

Venture, GAO found a conflict of interest

where an agency employee and a privatesector consultant employed by the

agency wrote and edited both the PWS

and the management plan for in-house

performance. GAO’s concern was that

these actions arguably could have

provided the in-house commercial

activities team with unfair access to

information and created the possibility

of a competition based upon biased ground

rules. On the other hand, in IT Facility

Services—Joint Venture, GAO found that a

contractor consultant employed by the

agency did not have a conflict of interest,

where the consultant prepared both the inhouse management plan and the independent government estimate, because the

consultantemployed discrete sets of employees, separated by a “firewall,” to perform

these tasks.

Cost Issues

To ensure that cost comparisons are fair

and reasonable, the A-76 Revised Supplemental Handbook (RSH) provides guidance for the development of the costs of inhouse performance and of contract performance.6

 GAO has found, however,

in a number of cases that an agency did not

fairly and realistically account in the cost

comparison for the costs of in-house and

contract performance. For example, although the RSH provides that costs that

are common to both in-house and contract

performance should not be computed in

the cost comparison, GAO found in

DynCorp Technical Services LLC that the

agency failed to treat the private-sector

offer and in-house plan equally with

respect to the costs of government-furnished material that would be provided

to either the private-sector offeror or the

MEO. In that case, the in-house cost

estimate deducted the value of the government-furnished material from its estimated

material costs, while the private-sector offer

did not.

The RSH also permits the addition or

subtraction of certain costs from the

proposed price of the private-sector offer

to calculate the likely cost of contract

performance. For example, the RSH

6

 RSH, part II, chs. 1-4.
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provides for the deduction of the estimated federal income tax a contractor

would pay for income received from

performing the work subject to the cost

comparison.7

 In Trajen, Inc., GAO found

that an agency used an incorrect industry

code, which resulted in the application of

an unrealistically low federal income tax

rate. On the other hand, the RSH allows

the government to add its costs for

administration of the contract and the

costs incurred as a result of converting

from in-house to contract performance to

the proposed price of contract performance.8

 Examples of costs incurred by

converting from in-house to contract

performance include relocation or retraining costs. In Del-Jen, Inc., GAO found

that the agency may have overstated the

grade levels of government personnel that

would be required to administer a contract

with the private-sector offeror and that

this resulted in contract administration

costs being overstated.

List of Recent GAO Cases Concerning A-76 Studies (in reverse chronological order)

Rice Services, Ltd., B-284997.5,

Mar. 12, 2002, 2002 CPD ¶ ___:

GAO denied the protest of the

Department of the Navy’s decision

to cancel the solicitation that the

agency issued to determine whether

to contract out or retain in-house

performance of food services at the

U.S. Naval Academy. GAO found

that cancellation of the solicitation

was reasonable where the Navy

determined that the solicitation did

not clearly provide for the evaluation

of corporate experience, which the

agency considered to be a critical

element in identifying the entity

that could best meet the agency’s

needs, and also that the solicitation

contained a number of other flaws

and inconsistencies.

Del-Jen, Inc., B-287273.2,

Jan. 23, 2002, 2002 CPD ¶ 27: GAO

sustained the protest of the Department of the Air Force’s decision to

retain for in-house performance the

civil engineering function at

Hanscom Air Force Base, Massachusetts. The Air Force determined that

the $72 million in-house cost

estimate was lower than the cost of

performance by the private-sector

offeror. GAO found that the agency

may have understated the contract

administration costs necessary for

in-house performance and overstated the contract administration

costs that were added to the privatesector offer to reflect the government’s

administration of that contract.

NVT Technologies, Inc.,

B-289087, Jan. 3, 2002, 2002

CPD ¶ 1: GAO denied the protest

of the Department of the Navy’s

decision to continue in-house

performance of base operations and

support services at the Marine

Corps Recruit Depot in San Diego,

California. The in-house cost

estimate of $40 million to perform

the services was lower than the

evaluated cost of performance by the

protester. GAO found that the

“most efficient organization” for inhouse performance identified and

stated costs for all positions necessary

to perform the PWS requirements.

7 RSH, part II, ch. 3, ¶ G.

8

 RSH, part II, ch. 3, ¶¶ C, E.
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The Jones/Hill Joint Venture,

B-286194.4 et al., Dec. 5, 2001,

2001 CPD ¶ 194:9

 GAO sustained

the protest of the decision by the

Department of the Navy that the

in-house cost estimate of $138

million to perform base operations

and base support services in-house

at the Naval Air Station, Lemoore,

California was more economical

than awarding a contract to the

protester to perform these services.

GAO found that a conflict of

interest existed where an agency

employee and a consultant retained

by the agency wrote and edited the

PWS and the management plan for inhouse performance. In addition,

GAO found that the Navy

misevaluated the in-house management plan, which was based on the

use of personnel not included in the

“most efficient organization,” and

also found that the Navy had not

accounted for potential benefits to

the government in the protester’s

proposal.

Lackland 21st Century Services

Consolidated, B-285938.7,

B-285938.8, Dec. 4, 2001, 2001

CPD ¶ 197: GAO denied the

protest of the cancellation of a

solicitation issued by the Department of the Air Force to determine

whether to contract out or retain inhouse performance of base operations support at Lackland Air Force

Base, Texas. GAO found that

cancellation of the solicitation was

reasonable where the agency

reasonably concluded, from a

limited review by in-house auditors,

that problems with the solicitation

may have resulted in a flawed

private-sector competition.

Johnson Controls World Services,

Inc., B-288636, B-288636.2,

Nov. 23, 2001, 2001 CPD ¶ 191:

GAO denied the protest of the

Department of the Army’s decision

to retain in-house logistics and

public works functions at Fort

Jackson, South Carolina. The Army

found the in-house cost estimate of

$63 million was more economical

than the protester’s evaluated costs.

GAO found that the Army was not

required to have a detailed “positionby-position” analysis tracking positions from its historical staffing to the

in-house plan. GAO found that it

had no basis to question the Army’s

determination that the in-house plan

met the PWS requirements.

TDF Corporation, B-288392,

B-288392.2, Oct. 23, 2001, 2001

CPD ¶ 178: GAO found that the

Department of the Army, in conducting the private-sector competition under an A-76 commercial

activities study, properly eliminated

TDF’s proposal from the competition. GAO found that the agency

reasonably determined that TDF’s

proposal to perform informationtechnology-based operation support

services for Rock Island Arsenal did

not satisfy the PWS staffing requirements. GAO also denied the protest

allegation that 2 of 9 evaluation

board members held positions in the

function under study and thus had a

conflict of interest. GAO found from

its review of the record that there was

no meaningful flaw or inaccuracy in

the evaluation and the protester was

not prejudiced.

9 The Navy’s request for reconsideration of this decision is

currently pending.
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COBRO Corporation, B-287578.2,

Oct. 15, 2001, 2001 CPD ¶ 181:

GAO sustained the protest of the

Department of the Army’s determination that the in-house cost estimate

of $8.9 million to perform aircraft

engine material management functions at Redstone Arsenal was more

economical than awarding a contract

to the protester to perform these

services. GAO found that the agency

improperly prohibited private-sector

offerors from using existing government facilities, while the in-house

cost estimate assumed use of those

facilities, and thus the in-house plan

apparently had a significant cost

advantage.

IT Corporation, B-288507,

Sept. 7, 2001, 2001 CPD ¶ 150: GAO

dismissed as premature the protest

of the private-sector offeror challenging the decision of the Department

of the Navy’s administrative appeal

authority that it would be less costly

to retain in-house performance of

public works services at the Naval

Air Weapons Station, China Lake,

California. The appeal authority

upheld the protester’s appeal but

remanded the matter to the agency

to take corrective action, and the

Navy had not yet decided what action

to take.

DynCorp Technical Services LLC,

B-284833.3, B-284833.4,

July 17, 2001 CPD ¶ 112: GAO

found that the Department of the

Air Force improperly determined

that the in-house cost estimate of

$188 million was more economical

than awarding a contract to

DynCorp to perform base operation

services at Maxwell Air Force Base

and Gunter Annex in Alabama. In

conducting the A-76 cost comparison, the agency did not consider the

cost of government-furnished

material as a common cost item

equally applicable to both the inhouse cost estimate and the privatesector offer. The agency also failed to

ensure that the in-house cost

estimate and the selected private

sector offer were based upon the

same scope of work and performance

standards. The protester offered an

accelerated performance schedule

and the in-house plan did not.

Because the record established that

performance by DynCorp would be

less costly than in-house performance, GAO recommended that

award be made to DynCorp.

Lackland 21st Century Services

Consolidated—Protest and Costs,

B-285938.6, July 13, 2001, 2001

CPD ¶ 124: GAO found that it was

not unreasonable for the Department of the Air Force to delay award

for 5 months (an action promised as

part of earlier corrective action) to

the private-sector offeror to perform

base operations support at Lackland

Air Force Base, Texas, while awaiting

completion of a review by the

agency’s Inspector General.

BAE Systems, B-287189,

B-287189.2, May 14, 2001, 2001

CPD ¶ 86: GAO sustained the

protest of the Department of the

Army’s determination that the inhouse cost estimate of $59 million

was lower than the cost of contracting out performance of logistics

support and services for the U.S.

Army Garrison in Hawaii. GAO

found that the agency did not

reasonably determine that the in-
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house management plan satisfied

the PWS key personnel requirements, failed to reasonably determine how much staffing was

required to perform the functions of

personal property shipping offices

in-house, and failed to consider the

protester’s offer to exceed a PWS

requirement.

Day Zimmermann Hawthorne

Corporation, B-287121,

Mar. 30, 2001, 2001 CPD ¶ 60:

GAO denied the protest of the

terms of a solicitation issued by the

Department of the Navy to determine

whether to contract out or retain inhouse ordnance handling support and

base operations services for the Naval

Weapons Station, Seal Beach,

California. GAO found that the

absence in the solicitation of the

clause for indemnification under

Public Law 85-804 and of a requirement for private-sector offerors

to obtain specific insurance coverage

for explosives and/or environmental

incidents did not impose inordinate

risk that unduly restricted the competition. Private-sector offerors were

free to exercise business judgment

in deciding whether to include such

coverage in their offers.

The Jones/Hill Joint Venture—

Costs, B-286194.3, Mar. 27, 2001,

2001 CPD ¶ 62: GAO found

clearly meritorious a protest challenging the Department of the

Navy’s decision to retain in-house

performance of base operations and

base support services at the Naval

Air Station, Lemoore, California.

GAO found that the Navy unreasonably determined that the inhouse management plan offered the

same level of performance and

performance quality as the selected

private-sector proposal without

considering strengths identified in

the private-sector proposal during the

best value competition. The Navy

improperly accepted without adequate analysis unsupported claims

made by the in-house team regarding

its ability to achieve the same level of

performance and performance quality

as the best value private-sector

proposal. The in-house plan also

provided for the performance of a

certain task by individuals who were

not costed in the in-house plan.

Johnson Controls World Services,

Inc., B-286714.2, Feb. 13, 2001,

2001 CPD ¶ 20: GAO sustained the

protest of the selection of the privatesector offeror to compete against the

Department of the Army’s “most

efficient organization” to perform

installation support services at Fort

Benning, Georgia. GAO found that

the private-sector awardee had a

conflict of interest because the

awardee’s subcontractor had unequal

access to information through its

work under another government

contract. GAO also found that the

awardee’s subcontractor had potentially impaired objectivity where,

under the terms of the other government contract, the subcontractor

would be making recommendations

that could benefit the awardee.

LBM, Inc., B-286271,

Dec. 1, 2000, 2000 CPD ¶ 194:

GAO denied the protest of the terms

of the solicitation the Department of

the Navy issued to determine

whether to contract out or retain inhouse performance of transportation

services at the Naval Aviation Depot

in Cherry Point, North Carolina.
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Agency needs could reasonably

include the contractor’s ISO-900010

registration for quality assurance

standards, given the nature of the

anticipated contract performance,

and the fact that the agency did not

exclude private-sector offers solely on

the basis that an offeror had not, at

the time of proposal submission,

obtained ISO-9000 registration.

IT Facility Services-Joint Venture,

B-285841, Oct. 17, 2000, 2000

CPD ¶ 177: GAO found that the

Department of the Army properly

eliminated the protester’s proposal

from the competition. GAO found

that the agency reasonably determined that the protester proposed

insufficient staffing to perform

public works and logistics services at

Fort Lee, Virginia. GAO also found

that, although 4 of 7 evaluation

board members were employed in

the areas under study, there was no

conflict of interest because those

evaluators’ positions were not subject

to being contracted out. GAO also

found that, although one evaluator

had a conflict of interest because her

spouse held a position that was

subject to being contracted out, the

record established that the protester

was not prejudiced.

Rice Services, Ltd., B-284997,

June 29, 2000, 2000 CPD ¶ 113:

GAO sustained the protest of the

Department of the Navy’s determination to retain in-house performance of food services activities at

the U.S. Naval Academy. GAO

found that the Navy did not reasonably compare the level and quality of

performance of the in-house plan to

that offered by the protester. The

protester’s proposal won the privatesector competition on the basis of its

technical superiority.

American Federation of Government Employees, AFL-CIO et al.,

B-282904.2, June 7, 2000, 2000

CPD ¶ 87: Federal employees and

the unions representing them may

not protest to GAO an adverse

agency decision under a commercial

activities study because they are not

actual or prospective offerors and

thus are not “interested parties”

eligible to maintain a protest under

GAO’s statutory protest jurisdiction.

Trajen, Inc., B-284310,

B284310.2, Mar. 28, 2000, 2000

CPD ¶ 61: GAO found unreasonable an appeal authority decision

reversing the initial cost comparison

conclusion that the private-sector

offer of $12.7 million was more

economical than operating in-house

the Defense Fuel Support Point,

Pearl Harbor, Hawaii. Key issues

were whether the in-house plan

satisfied all the PWS requirements and

whether one-time conversion costs

(specifically, relocation costs) were

reasonably calculated.

Aberdeen Technical Services,

B-283727.2, Feb. 22, 2000, 2000

CPD ¶ 46: GAO sustained the

protest of the Department of the

Army’s decision that the in-house

cost estimate of $129 million was

lower than the cost of the protester’s

proposed performance of base

industrial operations at the Aberdeen Proving Ground, Maryland.

10ISO-9000 standards are a series of internationally recognized

quality assurance standards established by the International

Standards Organization (ISO). To become registered, a

company’s procedures are reviewed for compliance with the

standards by an independently accredited registrar.
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GAO found that the in-house plan

did not satisfy PWS requirements

for a full-time, dedicated program

manager, as well as for other key

personnel positions, that the Army

improperly disallowed the protester’s

offered fixed-price reduction in its

final proposal revision, and that the

agency did not reasonably determine

whether the in-house plan offered the

same level and quality of performance

as the protester, whose offer was

selected on a best value basis.

RTS Travel Service, B-283055,

Sept. 23, 1999, 99-2 CPD ¶ 55: GAO

found reasonable the determination

by the Department of the Air Force,

under the A-76 procedures for

estimating costs for a direct conversion, that the in-house cost estimate

of $910,348 to perform traffic

management office services at the Los

Angeles Air Force Base, California,

was lower than the cost of contracting

out those services. Specifically, GAO

denied the protest of the agency’s

decision to add to the private-sector

offer’s cost the cost of a .5 full-time

equivalent, at a GS-7 grade level,

government employee to perform

contract administration, finding that

the agency’s decision was reasonable

and in accord with the A-76 Revised

Supplemental Handbook.

BMAR & Associates, Inc., B-281664,

Mar. 18, 1999, 99-1 CPD ¶ 62:

GAO sustained the protest of the

Department of the Air Force’s solicitation to determine whether to contract

out or retain in-house performance of

civil engineering services at Eglin Air

Force Base, Florida. GAO agreed with

the protester that the solicitation’s

lump sum pricing scheme, which

provided no limitation on the

amount of work that could be

ordered, placed inordinate risk on the

contractor and unduly restricted

competition.

Symvionics, Inc., B-281199.2,

Mar. 4, 1999, 99-1 CPD ¶ 48: GAO

denied the protest challenging the

decision of the Department of the Air

Force to retain in-house the management of military family housing at

Patrick Air Force Base, Florida.

Although the Air Force failed to seal

the in-house study team’s management plan prior to receipt of proposals as required in an A-76 cost

comparison, GAO found that the

agency approved and kept secure the

management plan, such that the

record established that there was not

prejudice to the protester. GAO also

found that the agency properly

corrected the study team’s proposed

use of volunteers by adding sufficient

staffing to the in-house cost estimate

to perform the PWS requirements.

Gemini Industries, Inc., B-281323,

Jan. 25, 1999, 99-1 CPD ¶ 22:

GAO found that the Defense Commissary Agency reasonably rejected

the protester’s proposal during the

private-sector competition under an

A-76 commercial activities study for

various commissary services at Fort

Drum, New York. The agency found

that the protester had not offered

sufficient staffing to perform the

PWS requirements and that the

protester had not adequately explained its approach for contract

performance.
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DZS/Baker LLC; Morrison Knudsen

Corporation, B-281224 et al.,

Jan. 12, 1999, 99-1 CPD ¶ 19: GAO

sustained the protests challenging

the Department of the Air Force’s

determination to reject the protesters’ proposals as technically unacceptable and to cancel the commercial activity study to determine

whether in-house performance of

civil operations and maintenance

services at Wright-Patterson Air

Force Base, Ohio, was more economical than contracting out. GAO

found that 14 of 16 evaluation

board members held positions that

could have been contracted out, and

that there was a significant conflict

of interest that could not be mitigated.

Omni Corporation, B-281082,

Dec. 22, 1998, 98-2 CPD ¶ 159:

GAO dismissed as premature the

protest of an unsuccessful offeror in

the private-sector competition,

conducted by the U.S. Army Corps

of Engineers. The goal of the competition was to select a private offer for

comparison against the government’s

in-house cost estimate for the

operation and maintenance of five

lock and dam facilities on the Red

River, Louisiana. GAO found that the

protester should file its protest after

the post-award debriefing offered by

the agency.

NWT, Inc.; PharmChem Laboratories, Inc., B-280988, B-280988.2,

Dec. 17. 1998, 98-2 CPD ¶ 158:

GAO denied the protest of

PharmChem challenging the

decision of the Department of the

Army that the in-house plan to

perform drug testing at Tripler

Army Medical Center, Forensic

Toxicology Drug Testing Laboratory

was more economical than performance by PharmChem, the successful private-sector offeror. GAO found

that the agency reasonably concluded

that the in-house plan and

PharmChem’s proposal offered

comparable levels and quality of

performance. GAO also found

reasonable the agency’s determination that the in-house cost estimate

reflected the costs required for inhouse performance.
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Appendix E

Public-Private Competitions for

DOD Depot-Level Maintenance

Appendix E

One of the few areas where the federal

government has experience conducting

public-private competitions without use

of Circular A-76 procedures is for depotlevel maintenance in the Department of

Defense. During the 1990s, the

military services, particularly the Air

Force, conducted dozens of publicprivate depot competitions. Of particular interest, in light of the Panel’s

recommendations, is that the publicprivate competitions for depot-level

maintenance work have been conducted

under a process that incorporates much

of the process set out in the Federal

Acquisition Regulation (FAR) for

negotiated procurements, with the

costing of the public-sector proposal

governed by special rules similar, but

not identical, to the rules used under

Circular A-76. This appendix presents a

brief summary of the legal framework

used in the depot competitions, the way

the competitions were conducted, and

the results of the most recent competitions.

Several statutory provisions currently

govern the use of public-private competitions for the performance of depot

workloads. In particular, 10 U.S.C.

§ 2469 provides for the use of “competitive procedures for competitions among

private and public sector entities”

whenever the Department of Defense

contemplates changing the performance

of public depot workloads of $3 million

or more to contractor performance. By

statute, Circular A-76 does not apply

to depot competitions.

Neither 10 U.S.C. § 2469 nor any

other statute prescribes the specific

elements that constitute the appropriate

“competitive procedures” for depot competitions. The Air Force established procedures which stated that, in public-private

depot competitions, “standard acquisition

policies and procedures will be used to the

maximum extent possible with all offerors

(public and private) subjected to the same

process.” Accordingly, many of the standard FAR procedures were used, including

the requirement that a solicitation state

the government’s needs clearly and

unambiguously; that restrictive provisions

be included in a solicitation only to the

extent needed to satisfy the government’s

needs; that the solicitation announce the

selection (award) criteria; and that the

selection be made in a reasonable manner

and consistent with the solicitation’s criteria.

The special procedures for the depot

competitions provided for “arm’s length”

relationships between the contracting

organization and all competing depots.

Where a public activity decided to compete for a requirement, the head of the

activity was to notify the contracting

officer. Once a decision was made to

compete, the public activity was to submit

a proposal in compliance with the rules set

out in the solicitation, and information

was to be shared equally with private and

public offerors. Also, there were procedures for internal adjudication of any

protests by either public or private offerors.

Section 2469a of title 10 of the United

States Code established specific procedures

and source selection requirements for the

public-private competitions conducted in

1998-1999 for the depot workloads at the

closing San Antonio and Sacramento Air
101

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DOD Depot-Level Maintenance

Appendix E

Appendix E

Logistics Centers. This provision also

directed GAO to report to Congress

on the solicitations and competitions.1

At San Antonio and Sacramento, the

solicitations stated evaluation criteria that

included management, risk, cost, and

other considerations. For each offeror,

including the public offeror, a total

evaluated cost was calculated by making

adjustments required by the solicitation

and the Air Force’s special depot competition cost comparability handbook2

(which, while somewhat similar, differed

in many ways from the A-76 process for

calculating costs), and then further

adjustments to reflect the evaluators’

quantification or “dollarization” of significant strengths, weaknesses, and risks in

the offerors’ technical proposals. The

solicitations set out a somewhat complex

selection process that combined elements

of the low-cost/technically acceptable and

the cost/technical tradeoff approaches.

For the depot maintenance workload

at the closing Sacramento Air Logistics

Center, the Air Force selected Ogden Air

Logistics Center (with Boeing Aerospace

Corporation as its partner) over Lockheed

Martin. For the depot maintenance

workload at the closing San Antonio Air

1 Public-Private Competitions: Review of Sacramento Air Force

Depot Solicitation, GAO/OGC-98-48, (Washington, D.C.:

May 1998); Public-Private Competitions: Review of San Antonio

Depot Solicitation, GAO/OGC-98-49, (Washington, D.C.:

June 1998); Public-Private Competitions: Reasonable Processes

Used for Sacramento Depot Maintenance Award, GAO/NSIAD99-124, (Washington, D.C.: May 1999); Public-Private

Competitions: Reasonable Processes Used for San Antonio Engine

Depot Maintenance Award, GAO/NSIAD-99-155, (Washington, D.C.: May 1999); see also Public-Private Competitions:

Processes Used for C-5 Aircraft Award Appear Reasonable, GAO/

NSIAD-98-72, (Washington, D.C.: Jan. 1998).

2 Air Force Materiel Command, Procedures for Depot Level

Public-Private Competition, supplemented by the Defense

Depot Maintenance Council Cost Comparability Handbook and

the SAF/AQ Public-Private Competition Cost Procedures,

(Feb. 21, 1998).

Logistics Center, the Air Force selected

the Oklahoma City Air Logistics Center

(with Lockheed Martin Kelly Aircraft

Company as its principal partner)

over the private-sector offeror, Pratt &

Whitney. In each case, GAO reviewed

the competition process and concluded

that it complied with applicable statutes

and regulations and was fair and reasonable. In particular, GAO found that the

competition reasonably addressed the

issue of public-sector accountability for

costs. Although it had concern about

the calculation of some cost items, overall

GAO found that the cost evaluations

were reasonable.
102

Appendix F

Sourcing Practices and

Demonstration Projects

Appendix F

1. Business Process Reengineering—

Crane Division, Naval Surface

Warfare Center Case Study

In April of 1998, Crane Naval Surface

Warfare Center began a pilot program

using business process reengineering.

Business process reengineering (BPR) is

one way to redesign the way work is done

to better support an organization’s

mission and reduce costs. Reengineering

identifies, analyzes, and redesigns an

organization’s core business processes

with the goal of achieving dramatic

improvements in critical performance

measures, such as cost, quality, service,

and speed.

Crane is a high-technology acquisition

and support organization serving a broad

customer base in the areas of electronics,

electronic warfare, and ordnance. Crane is

southwestern Indiana’s second largest

employer, with a budget of $800 million

and about 3,900 civilian and military

personnel. Crane’s fiscal system is similar

to that of a private firm, where the labor

rates include the costs of direct salaries,

employee benefits, and overhead to run

the base. More than 98 percent of Crane’s

funding comes from its customers. In

order to compete, Crane must operate

efficiently, keep labor rates low, and

maintain a high level of technical capability.

In 1998, Navy officials initially announced 576 positions for commercial

competition under A-76. These positions

encompassed about a dozen functional

areas at Crane. However, due to the high

level of integration across these functional

areas, Crane officials were concerned that

by outsourcing positions the organization

might gain efficiency at the functional

level but lose efficiency at the organizational level. Crane proposed to conduct

business process reengineering across the

entire organization with the goal of

achieving the same cost savings goals

expected from A-76. The $13.7 million

Crane has spent on BPR has come out of

its own overhead budget as an internal

investment.

Key milestones in the BPR process:

 During the “As-Is High-Level Assessment,” the process is mapped and

data is collected to establish the

baseline. Savings in the end will be

compared against this baseline.

 During the “Develop To-Be Assessment,” the team must evaluate the

potential for outsourcing the business

process totally or in part, given

specified criteria.

 At the “Implementation” phase,

personnel realignment is carried out

in accordance with the procedures

agreed to in a memorandum of

agreement between labor and management.

 A review in the form of a report to

the senior leadership is required 6

months after implementation. After a

year, theinternal Command and

Evaluation Unit conducts an independent assessment.

According to Crane officials, BPR has

enabled Crane to achieve the savings

equivalent to those estimated under

proposed A-76 competitions.

2. Privatization-in-Place—Naval Air

Warfare Center, Aircraft Division,

Indianapolis Case Study

The Navy/Department of Defense included the Naval Air Warfare Center–
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Appendix F

Appendix F

Aircraft Division, Indianapolis (NAWC),

in the 1995 base realignment and closure

round. Rather than contest the closure,

the city of Indianapolis proposed an

alternative to the closure decision:

privatization-in-place. Privatizationin-place is a concept in which a private

sector entity takes over the operations of

a facility that was once operated by the

government. To date, this concept has

been applied primarily by the Department of Defense to transfer industrial

work to the private sector.

The city of Indianapolis and the Navy

created a joint team, called the Joint

Privatization Steering Group, to examine

alternative privatization approaches.

Because the alternative chosen by the

group would affect the city more than

other stakeholders, the city sought to

create a major employment center by

turning the site over to a viable commercial entity.

Based on cooperative negotiations,

the Navy determined it was in the best

interests of both parties for the city to

conduct a competitive selection process

to identify a contractor capable of managing the NAWC Indianapolis site. The

Navy notified Congress that it was in the

public interest to award a contract to the

firm selected by the city. The city was

able to apply commercial practices to

the selection process and complete the

selection faster than a normal DOD

procurement of this magnitude. After

an open competition, the city of Indianapolis selected Hughes Technical Services Company (now Raytheon Technical

Services Company), a subsidiary of

Hughes Electronics Corporation, as the

corporate partner in the NAWC Indianapolis privatization effort.

Analysis found that privatization had

strong potential to reduce infrastructure

and costs, minimize disruption to Navy

programs, and preserve the integrated

capabilities of the existing facilities and

the highly trained workforce. One-time

move costs associated with closure were

drastically reduced. The government

avoided a potential $200 million in

base closing costs. Also, labor costs

have been reduced. In addition to

government savings, 2000 jobs were

preserved in the city of Indianapolis.

3. Public-Private Competition—

City of Indianapolis Case Study

In 1992, the city of Indianapolis opened

up certain functions traditionally performed by the city’s workers to competition with the private sector. Indianapolis

included city employees, through their

union, in the process for competitive

bidding for contracts to deliver city

services. Once a number of activities had

been identified as candidates for competition, city officials developed a threephase approach to implementing a

managed competition process. The three

phases were:

(1) determining the costs of government services using activity-based

costing;

(2) openly and competitively bidding

for functions or services and contracting with either a city agency or

private-sector firm to provide those

functions or services; and

(3) evaluating the level of performance

of functions and services delivered

using a system of citizen and

customer satisfaction surveys and

measures of cost and performance.
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Appendix F

Appendix F

First, after a discussion with the affected

unions, city officials decided whether or

not to open competitive bidding for an

activity. If the decision was to compete,

the city then issued a request for proposals.

The city provided a bid package to the

union at the same time as it did to other

potential bidders.

Second, to ensure that city employees

were equipped to participate in the

process, the city provided managers

and union members with the analytical

training they needed to spot inefficiencies and with the knowledge needed to

analyze and reduce costs. The city also

provided consultants to help city employees prepare their proposals.

Third, a union-management bid team

reviewed the bid document and determined (1) the number of employees and

hours needed to perform the function,

as well as the amount of equipment and

materials needed, and (2) the necessary

financial and performance information,

which was provided by management.

The team then worked to streamline

the work processes and rewrite the work

plan. Often with the help of consultants

provided by the city, the team then

prepared the bid package, which

was submitted along with private bids.

Fourth, at a public forum, all public- and

private-sector bids were opened together,

and the winning bid was announced.

Finally, if the public sector won a

competition and the union-management

team performed the activity at the

desired level of performance for less than

it bid, the team received a share of the

savings at the end of the year. The city,

after it tracked performance over a period

of years, could place a moratorium on

bidding for areas for which city employees

had demonstrated performance excellence

and in which they consistently outbid

private competitors.

City officials claim that introducing

competition increased the value of services

received by the taxpayers and citizens.

They also stated that competition contributed

to the city’s ability to cut property taxes,

balance the budget, cut staff levels, reduce

red tape, put more police officers on the

street, and invest more than $1.3 billion

in an infrastructure improvement program.

4. Information Technology

Outsourcing Program—San Diego

Faced with budgetary constraints and

technology systems lacking even rudimentary communication applications, such

as voicemail and e-mail, the San Diego

County Board of Supervisors decided

to upgrade the county’s information

technology program through an

outsourcing partnership. On a unanimous

vote, the board hired a consortium of

private companies with a contract valued

at $644 million over 7 years, with contract extensions possible through three 1-

year renewals. This is considered the

largest information technology

outsourcing ever carried out by a local

or state government.

The county’s goal was to implement a

world-class technology infrastructure

that would support frontline services for

citizens. The county would make these

services available around the clock via the

Web. There were a number of benefits

to this approach. First and foremost, the

county did not have to raise the cash
105

Commercial Activities Panel

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Demonstration Projects

Appendix F

Appendix F

needed for this massive technological

overhaul; instead, costs were spread out

over the life of the contract. Also, the

county benefited from the combined

experience of notable private-sector

companies. Other benefits included:

 Current county information technology employees were guaranteed two

years employment in San Diego

County with the contractor.

 Personal computers were replaced

within 36 months, and are scheduled to be replaced again within the

next 48 months.

 The county created information

technology performance standards

that any vendor must meet. Also,

the county created incentives for

exceeding those standards and

imposed fee reductions for failing to

meet them.

 The county can terminate a contract

at any time, if the contractor defaults on the contract.

5. Public-Public Partnership—

The City of Monterey

Case Study

Since the mid-1980’s, the city of

Monterey has been providing some

services at local Army and Navy installations. To expand the services offered, the

city of Monterey, along with its neighboring city of Seaside, entered into a publicpublic partnership with the local Army

and Navy bases. The cities of Monterey

and Seaside formed a Joint Powers Agency

to deliver municipal services to Presidio of

Monterey and Ord Military Community.

Services provided to date include

childcare support; maintenance of streets

and buildings; and maintenance of water,

wastewater, and stormwater systems.

These partnerships have provided substantial cost savings and enhanced the

quality and operational effectiveness of

the military missions in Monterey.

Because federal law prohibits certain

partnerships with the military, it has not

always been possible for the military to

contract out services to local agencies or

cities that could provide services at a

lower cost. The National Defense Authorization Act of 1995 established a pilot

program allowing the armed services to

purchase fire, security, police, public

works, and utility services from local

government agencies. This allowed local

entities to move forward with ideas and

concepts that encourage cooperation to

save dollars and advance both military and

civilian interests.

6. The Lackland Air Force Base

A-76 Study

The A-76 competition for base operation

support functions at Lackland Air Force

Base, San Antonio, Texas, has been unusual

in its reversal of awards to the private and

public sectors. A brief recap of the course

of this ongoing process demonstrates

many of the challenges involved in

conducting an A-76 competition.

After the 1995 round of base realignments

and closures, the Air Force needed to

consolidate base operations at Lackland.

To do so, an A-76 cost comparison

competition was initiated in January

1999. The scope of the competition

covered 1,482 full-time equivalent

employees (FTEs) performing 19 operation

support functions for the Air Force’s Air

Education and Training Command (AETC).
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Demonstration Projects

Appendix F

Appendix F

1 31 U.S.C. § 3551.

2 31 U.S.C. § 3553(a); see Appendix C in this report

on standing.

The Air Force established the most

efficient organization (MEO) study team

in May 1999 and issued a solicitation

to the private sector offerors in August

1999. By May 2000, Lackland 21st

Century Services Consolidated (L21),

a consortium of Computer Sciences

Corporation, Del-Jen, Inc., and TECOM,

Inc. was determined to be the best-value

private sector offeror. Shortly thereafter,

the Lackland source selection authority

directed the MEO to increase staffing on

a number of operations and reduce

calculated savings on others. These

changes increased the cost of the MEO

alternative, and the MEO challenged

them in a bid protest filed with the

General Accounting Office (GAO) on

July 27, 2000. Although MEOs are not

considered “interested parties” under

GAO’s bid protest statute,1

 and only an

interested party can pursue a protest,2

the protest was withdrawn by the Air

Force before GAO could dismiss it. The

Air Force’s withdrawal of the protest was

based on its view that the MEO is a

subordinate Air Force entity and did not

have separate authority to pursue a protest.

The cost comparison between the MEO

and L-21 was concluded on August 17,

2000. At that time, the contracting

officer announced the tentative selection

of L-21, rather than in-house performance by the MEO. The MEO appealed

this decision to the Air Force AETC

appeal authority in September 2000.

Unlike GAO’s bid protest forum, the

AETC appeal authority is permitted to

hear appeals from MEOs. Five weeks

later the AETC appeal authority reversed

the tentative award to L-21. The reversal

was based on the consideration of

contract administration costs and the

one-time costs of the conversion to

performance by a private-sector entity.

In November 2000, L-21 filed a GAO bid

protest challenging the methods used by

the Air Force to make its cost comparison.

L-21 claimed that the Air Force improperly calculated contract administration

costs and the contractor’s fee, erroneously

reduced the MEO’s FTEs, and failed to

make adjustments to the MEO’s proposal

to account for the superior performance

levels and increased quality of the L-21

proposal. L-21 also argued that the Air

Force had failed to safeguard its proposal

data, and that the MEO’s technical

solution was unfairly based on L-21’s

proposed approach.

While L-21’s GAO protest was pending,

the AETC appeal authority again reversed

itself, concluding that L-21’s challenges

had merit, and reinstating the selection

of L-21. As a result, L-21’s protest was

considered academic and was dismissed

by GAO.

In December 2000, AFGE, acting on

behalf of the Lackland employees, filed

suit against the Air Force in U.S. District

Court in San Antonio, Texas. The suit

argued that the Air Force had not followed

proper A-76 procedures in selecting L-21.

AFGE’s lawsuit was dismissed on March

7, 2001, as the court concluded that

AFGE and federal employees lack standing

to challenge an A-76 selection decision.

The court explained that the existing laws

governing the A-76 process do not provide

federal employees with the right to sue in

this area.

Also in December 2000, the DOD

Inspector General (IG) initiated an audit

of the Lackland cost comparison process
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Demonstration Projects

Appendix F

Appendix F

after receiving requests from DOD’s

Deputy Secretary, and from several

members of Congress from the state of

Texas. The DOD IG’s report was issued

May 14, 2001, and raised several questions about the procedures used by the

Air Force in conducting the Lackland

public-private competition. Among

the IG report’s findings:

 The contracting officer was often

untimely in responding to information requests from the MEO and did

not prepare clarifying amendments

based on request responses. As a

result of inconsistent information

dissemination, the MEO was

directed to increase its staffing.

 The contracting officer’s response to

a request for information regarding

common costs ultimately confounded the resolution of whether

some costs should be considered

common. This became a point of

contention in the workforce administrative appeal.

 The principal review officers who

reviewed the MEO and certified the

cost comparison had minimal A-76

training.

 The AETC and Lackland review

officers lacked independence from

AETC management and were

subordinate to the source selection

authority, a lieutenant general.

On May 11, 2001, L-21 asked GAO to

reinstate its earlier bid protest, which was

dismissed when the Air Force announced

that it was reinstating the selection of L-21.

According to L-21, the Air Force was

unreasonably delaying the promised

award by waiting for the DOD IG

review. GAO declined to reinstate the

earlier protest, noting that the Air Force

had not renounced the decision that

resulted in dismissal of the earlier protest

but was reasonably awaiting the result of

the IG review.

Upon receipt of the IG report, the Air

Force asked its own auditors to review

the report and the results of the previous

appeals, protests, and disputes, to assess

the agency’s ability to reach a supportable decision. After the Air Force auditors

advised management that award to either

L-21 or the MEO involved risk because

of remaining unresolved issues, the Air

Force announced on August 27, 2001,

that it was canceling the solicitation and

reinitiating the A-76 competition for

these services.

On September 6, 2001, L-21 filed

a third bid protest, arguing that the

decision to cancel the on-going competition and reinitiate the cost comparison

process was unreasonable. On December

4, GAO denied L-21’s protest, concluding that the Air Force had a reasonable

basis for its decision to cancel the procurement and reinitiate the process.

Currently, the Air Force is considering

its next course of action considering the

issues raised by the AETC appeal authority,

the GAO bid protest forum, the DOD

IG report, and the in-house review of

Air Force auditors.
108

Appendix G

Sourcing Decisions Outside

the Federal Government

Appendix G

Outsourcing is increasingly used by

commercial firms, as well as by state and

local governments, and many believe

that the federal government should

study and adopt the best practices in

this area. In the private sector and in

state and local governments, outsourcing

has been used primarily for non-core

services, such as information technology

(IT), payroll processing, and other “back

office” services.

The Panel heard about outsourcing from

private-sector witnesses at its hearing in

Washington, D.C. Witnesses testified,

for example, that General Motors

outsources its $250 billion annual

processing of accounts payable, accounts

receivable, and payroll; Microsoft

outsources its finance and accounting

work, much of its manufacturing and

distribution, and even its customer

support; and PricewaterhouseCoopers

outsources its personnel benefits, real

estate management, and travel systems.1

In the private sector, cost savings are an

important factor in outsourcing decisions. Cost considerations may include,

for example, a desire to reduce capital

investments by shifting ownership of IT

resources to an external service provider.

However, one witness told the Panel that

only about one third of private-sector

outsourcing decisions are made with cost

as the primary consideration.

Outsourcing is also used in the commercial sector to increase the enterprise’s

operational efficiency and effectiveness.

In this regard, the Panel learned that

successful commercial outsourcing

decisions reflect strategic thinking about

the enterprise and its activities. For

example, by transferring responsibility

for “back office” services to an external

provider, outsourcing allows the enterprise

and its management to focus internal

resources on its core business competencies, where the enterprise may possess a

competitive advantage. Outsourcing is also

often seen by the private sector as the

most efficient way for the enterprise to

gain access to skills and personnel outside

the organization, to improve quality, and

to enhance flexibility, innovation and

cutting-edge thinking.

A formal competition between in-house

and outside sources is rarely conducted.

Instead, the sourcing decision (internal vs.

external) is generally made at a strategic

level within the organization. Indeed,

other than the OMB Circular A-76 cost

comparison process and the competitions

conducted by various municipalities (the

Panel heard in some detail about the

positive experiences of Indianapolis),

the Panel is unaware of the use of formal

internal versus external competitions in

outsourcing decisions.

The Panel learned that, in the private

sector, as with the federal government,

making sourcing decisions and then

implementing those decisions successfully

present challenges. In particular, the Panel

learned that the most challenging aspects

of commercial outsourcing arise after a

decision to outsource services has been

made. In particular, drafting performance

requirements and service-level agreements

is critical to establish the appropriate legal

framework to ensure that expectations are

clearly conveyed and that the buyer will
109

Commercial Activities Panel

Sourcing Decisions Outside

the Federal Government

Appendix G

Appendix G

be able to ensure the service provider’s

accountability. Monitoring an external

provider’s performance is also a major

challenge of outsourcing.

1

 The Panel also reviewed studies of outsourcing in the

commercial sector. For example, IT outsourcing in the

commercial sector is analyzed in GAO’s recent report

Information Technology: Leading Commercial Practices for

Outsourcing of Services, GAO-02-214 (Washington, D.C.:

Nov. 2001), which identified three factors as key to the

success of commercial outsourcing decisions: executive

leadership, partner alignment, and management of the

relationship with the service provider.
110

Appendix H

Related GAO Products

Appendix H

(These and other GAO documents

are available via the GAO web

page at: www.gao.gov)

Competitive Sourcing: Challenges

in Expanding A-76 Governmentwide.

GAO-02-498T. Washington, D.C.:

March 6, 2002.

Contract Management: Improving

Services Acquisitions. GAO-02-179T.

Washington, D.C.: November 1, 2001.

Defense Logistics: Actions Needed to

Overcome Capability Gaps in the Public

Depot System. GAO-02-105. Washington,

D.C.: October 12, 2001.

Defense Logistics: Strategic Planning

Weaknesses Leave Economy, Efficiency, and

Effectiveness of Future Support Systems at

Risk. GAO-02-106. Washington, D.C.:

October 11, 2001.

Human Capital: Attracting and Retaining

a High-Quality Information Technology

Workforce. GAO-02-113T. Washington,

D.C.: October 4, 2001.

Securities And Exchange Commission:

Human Capital Challenges Require

Management Attention. GAO-01-947.

Washington, D.C.: September 17, 2001.

Human Capital: Practices That Empowered

and Involved Employees. GAO-01-1070.

Washington, D.C.: September 14, 2001.

Defense Logistics: Air Force Lacks Data

to Assess Contractor Logistics Support

Approaches. GAO-01-618.

Washington, D.C.: September 7, 2001.

Contract Management: Service Contracting

Trends and Challenges. GAO-01-1074R.

Washington, D.C.: August 22, 2001.

Human Capital: Building The Information

Technology Workforce to Achieve Results.

GAO-01-1007T. Washington, D.C.:

July 31, 2001.

Human Capital: Implementing an Effective

Workforce Strategy Would Help EPA to

Achieve Its Strategic Goals. GAO-01-812.

Washington, D.C.: July 31, 2001.

Contract Management: Trends and

Challenges in Acquiring Services.

GAO-01-753T. Washington, D.C.:

May 22, 2001.

DOD Competitive Sourcing: Effects of A-76

Studies on Federal Employees’ Employment,

Pay, and Benefits Vary. GAO-01-388.

Washington, D.C.: March 2001.

High Risk Series: An Update. GAO-01-263.

Washington, D.C.: January 1, 2001.

Performance and Accountability Series.

GAO-251-262. Washington, D.C.:

January 1, 2001.

DOD Competitive Sourcing: Results of A-76

Studies Over the Past 5 Years. GAO-01-20.

Washington, D.C.: December 2000.

VA Health Care: Expanding Food Service

Initiatives Could Save Millions. GAO-01-64.

Washington, D.C.: November 30, 2000.

VA Laundry Service: Consolidations and

Competitive Sourcing Could Save Millions.

GAO-01-61. Washington, D.C.:

November 30, 2000.
111

Commercial Activities Panel

Related GAO Products

Appendix H

Appendix H

DOD Competitive Sourcing: More Consistency Needed in Identifying Commercial

Activities. GAO/NSIAD-00-198.

Washington, D.C.: August 2000.

DOD Competitive Sourcing: Savings Are

Occurring, but Actions Are Needed to

Improve Accuracy of Savings Estimates.

GAO/NSIAD-00-107. Washington,

D.C.: August 2000.

DOD Competitive Sourcing: Some Progress,

but Continuing Challenges Remain in

Meeting Programs Goals. GAO/

NSIAD-00-106. Washington, D.C.:

August 2000.

Competitive Contracting: The Understandability of FAIR Act Inventories Was Limited.

GGD-00-68. Washington, D.C.:

April 2000.

DOD Competitive Sourcing:

Plan Needed to Mitigate Risks in

Army Logistics Modernization Program.

GAO/NSIAD-00-19. Washington, D.C.:

October 1999.

DOD Competitive Sourcing: Lessons

Learned System Could Enhance A-76

Study Process. GAO/NSIAD-99-152.

Washington, D.C.: July 1999U.

Defense Reform Initiative: Organization,

Status, and Challenges. GAO/NSIAD-99-87.

Washington, D.C.: April 21, 1999.

Quadrennial Defense Review: Status of

Efforts to Implement Personnel Reductions

in the Army Materiel Command. GAO/

NSIAD-99-123. Washington, D.C.:

March 31, 1999.

Defense Reform Initiative: Progress,

Opportunities, and Challenges.

GAO/T-NSIAD-99-95. Washington, D.C.:

March 2, 1999.

Force Structure: A-76 Not Applicable to

Air Force 38th Engineering Installation

Wing Plan. GAO/NSIAD-99-73.

Washington, D.C.: February 26, 1999.

Future Years Defense Program:

How Savings From Reform Initiatives

Affect DOD’s 1999-2003 Program.

GAO/NSIAD-99-66. Washington, D.C.:

February 25, 1999.

DOD Competitive Sourcing: Results of

Recent Competitions. GAO/NSIAD-99-44.

Washington, D.C.: February 23, 1999.

DOD Competitive Sourcing: Questions

About Goals, Pace, and Risks of Key

Reform Initiative. GAO/NSIAD-99-123.

Washington, D.C.: March 31, 1999.

OMB Circular A-76: Oversight and

Implementation Issues. GAO/T-GGD-98-

146. Washington, D.C.: June 4, 1998.

Questions State and Local Decisionmakers

Used When Considering Privatization

Options. GAO/GGD-98-87. Washington,

D.C.: April 1998.

Terms Related to Privatization Activities

and Processes. GAO/GGD-97-121.

Washington, D.C.: July 1997.

Privatization: Lessons Learned by State

and Local Governments. GAO/GGD-97-48.

Washington, D.C.: March 14, 1997.
112

Appendix I

Summary of

Public Hearings

Appendix I

Washington, D.C. – June 11, 2001:

“Outsourcing Principles and

Criteria”

Key Points:

 Status quo is not acceptable

to anyone.

 Sourcing decisions require

a strategic approach.

 Federal workers should perform

core government functions.

 Need for most efficient organizations (MEO) throughout the

government.

 Government needs clear,

transparent, and consistently

applied sourcing criteria.

 Avoid arbitrary full-time

equivalent (FTE) goals.

 Objective should be to provide

quality services at reasonable cost.

 Provide for fair and efficient

competition between the public

and private sectors.

 Sourcing decisions require

appropriate accountability.

List of Witnesses

The Honorable Neil Abercrombie

U.S. House of Representatives, Hawaii

John J. Sweeney

National President, AFL–CIO

Research and Educational

Organization Views

Moshe Adler

Fiscal Policy Institute

Catherine Hill

Institute for Women’s Policy Research

Paul Light

Brookings Institution

Max Sawicky

Economic Policy Institute

Private Industry Views

William Birkhofer

Jacobs Engineering Group, Inc.

Michael Corbett

Michael Corbett & Associates, Ltd.

Paul Lawrence

PricewaterhouseCoopers

John Satagaj

Small Business Legislative Council

Government Employee

Association Views

Patricia Armstrong

Federal Managers Association

John Carr

National Air Traffic

Controllers Association

Jayson Spiegel

Reserve Officers Association

Gary Storrs

American Federation of State, County

and Municipal Employees, AFL-CIO

Business Association Views

Ken Beeks

Business Executives for National Security

Carl DeMaio

Reason Public Policy Institute

Gary Engebretson

Contract Services Association of America
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Appendix I

Appendix I

Harris Miller

Information Technology

Association of America

Individual Statements

Clay Ancell

EarthData Holdings

Danielle Brian

Project on Government Oversight

Betty Coll

National Treasury Employees Union

(NTEU) Chapter 207, FDIC

Christopher Donnellan

National Association of

Government Employees

Steve Else

Center for Public-Private Enterprise

Irene Facha

Local 2032 AFGE, AFL–CIO, HUD

Katie Fitzgerald

DC ACORN

James J. Goodyear

NTEU Chapter 280

Daniel Guttman

Johns Hopkins University

James J. Murphy

NTEU Chapter 280

Shirl Nelson

Acquisition Solutions, Inc.

Kenneth Nero

National Labor Relations Board

John Palatiello

MAPPS

James Angelo Ruggieri

National Society of Professional Engineers

Louise Sanchez

National Alliance of HUD Tenants

Chris Saffert

ACORN

Richard Schrader

TALX Corporation

Stephen Sorett

Reed Smith, LLP

Thomas Wray II

National Military Fish

and Wildlife Association

Dennis Wright

Brown & Root Services

Statements for the record

Robert Agresta

Star Mountain, Inc.

Edna Barber

Civil Servant

Chauna Brocht

Economic Policy Institute

Matt Dollan

A-76 Advisor

Kathy Hamor

Healthcare Provider Credentials

Verification Association

Bobby Harnage

American Federation

of Government Employees

Alan Hungate

Financial Executives International

S.M. Lahey

Corrections U.S.A.

Jason Mahler

Computer and Communications

Industry Association and the

Government Electronics and

Information Technology Association

Ann Markusen

University of Minnesota

Tim Nunnally-Olsen

Council of Defense and Space

Industry Associations

Roy Resavage

Helicopter Association International

Stephanie Starkey

U.S. Chamber of Commerce

Richard Wallace

Wallace and Company

Henry Zellman

Civil Servant (retired)
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Summary of

Public Hearings

Appendix I

Appendix I

Indianapolis, Indiana – August 8,

2001: “Alternatives to A-76”

Key Points:

 Crane Naval Surface Warfare

Center’s reengineering process led

to significant efficiencies and reduced

workforce trauma.

 Employees must be involved with

any reform effort. Secrecy is counterproductive.

 Committed leadership, effective

implementation, and well-planned

workforce transition strategies are

key to any reform effort.

 Privatization-in-place was used

effectively at Indianapolis Naval Air

Warfare Center (NAWC) to avert a

transitional Base Realignment and

Closure (BRAC) action.

 The city of Indianapolis provided

certain technical and financial

assistance to help workers successfully compete for the work.

 Certain technology upgrades in

Monterey, California, via a public–

private partnership led to efficiencies and increased effectiveness.

 Measuring performance is critical.

 A-76 is only one of many efficiency

tools available to federal managers.

Other tools include:

 Bid to goal, which helps units

become efficient and thus avoid

A-76.

 Transitional Benefit Corporation,

a concept that promotes the

transfer of government assets to

the private sector and provides

transition strategies for employees.

 ESOP, under which employees

own a piece of the organization

that employs them. ESOPs have

been established in a few federal

organizations.

List of Witnesses

Congressional Views

The Honorable Steve Buyer

U.S. House of Representatives, Indiana

Eric Holcomb

Office of the Honorable

John N. Hostettler, U.S. House

of Representatives, Indiana

Strategic Sourcing/Business Process

Reengineering—Crane Naval Surface

Warfare Center (NSWC) Case Study

Capt. (Sel) Frank Aucremanne

Public Works Directorate

Duane Embree

Crane Division, NSWC, Naval Sea

Systems Command

Bill Mason

American Federation of Government

Employees, Local 1415

Bob Matthews

Business and Process

Reengineering Project
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Summary of

Public Hearings

Appendix I

Appendix I

Privatization-in-Place—Naval Air

Warfare Center, Aircraft Division,

Indianapolis Case Study

Donna Chastain

Raytheon Technical Services Company

Mike Mutek

Raytheon Technical Services Company

Michael Sargent

Arthur Andersen LLP

Jim Wheeler

Arthur Andersen LLP

Public–Private Competition—

City of Indianapolis Case Study

Skip Stitt

Competitive Government

Strategies, LLC (former deputy

mayor of Indianapolis)

Steve Quick

American Federation of State, County

and Municipal Employees, Local 725

Municipalities—County of San

Diego and City of Monterey Case

Studies

Tom Boardman

County of San Diego

Fred Meurer

City of Monterey

Performance Measurement, Bid-toGoal, Transitional Benefit Corporations, and Employee Stock Ownership Plans

John Meason

New Mexico Technical University

Roger Neece

ESOP Advisors, Inc.

John Williams

Competitive Outcome

Management Group

Individual Statements

Dr. Dan DeHayes

Kelley School of Business,

Indiana University

Robert Gordon

MEVATEC Corporation

Mike Locklin

American Federation of Government

Employees, Local 2302

Mariann Meeks

BET, Inc.

Colonel Jeff Parsons

U.S. Air Force

Statements for the record

Dr. Wendall Jones

Outsourcing Advisors International

Wallace Keene

Keene Ideas, Inc.

Harold Lawson

National Association

of Government Employees

Steve Sorett

Reed Smith

John F. Williams

HDR, Inc.
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Public Hearings

Appendix I

Appendix I

San Antonio, Texas – August 15,

2001: “A-76, What’s Working and

What’s Not”

Key Points:

 A-76 process is too long and too

costly.

 Cost of studies can greatly

reduce government savings.

 Cost to industry in both dollars

and uncertainty.

 Demoralized workers quit. But

successful contractors need these

workers.

 Larger A-76 studies can yield

greater savings, but these studies

become much more complex.

 Lack of impetus for savings

without competition.

 One-step bidding process should

be used. MEO and contractors

should:

 Compete together in

one procurement action.

 Be evaluated against the same

solicitation requirements using

the same criteria.

 Be awarded contracts based

on best value.

 Provide more training to MEO

and A-76 officials.

 MEOs should have legal status to

protest and appeal awards and

obtain bid information.

 A-76 rules should be more clear and

applied consistently through a

centralized management structure.

 For bid and monitoring purposes,

government costs should be collected

and allocated consistent with industry

(e.g., activity-based costing).

 Need to eliminate any suggestion

of conflicts of interest.

 Need incentives for agencies and

workers (e.g., share-in-savings).

 Provide soft landings for workers.

 Allow workers to form publicsector organizations for bidding.

List of Witnesses:

Congressional Perspective

The Honorable Ciro D. Rodriguez

U.S. House of Representatives, Texas

Union Views

Wes Cloud

AFGE Local 2427, Naval Air Station,

Fort Worth, Texas

Steve Halloway

AFGE Local 779, Sheppard

Air Force Base, Wichita Falls, Texas

Garold Lawson

NAGE, Fort Leonard Wood, Missouri

Randy Mann

NTEU Chapter 72, Austin, Texas

Eloise Stripling

AFGE Local 1367, Lackland Air Force

Base, San Antonio, Texas

Yolanda Taylor

 AFGE Local 1920, Fort Hood, Texas
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Public Hearings

Appendix I

Appendix I

Bruce Thorne

AFGE Local 2142, Army Depot,

Corpus Christi, Texas

Mario Villarreal

AFGE Local 1749, Laughlin

Air Force Base, Del Rio, Texas

Department of Defense Views

Capt. Thomas Schaefer

Organization Management

Infrastructure, Navy

Frank Sowa

Shore Readiness Division, Navy

Jerry Stark

A-76 program, Marine Corps

Brigadier General Joseph Stein

Manpower and Organization, Air Force

Jim Wakefield

Competitive Sourcing Office, Army

Industry Views

Gary Craft

 CH2M HILL Services

John Delane

DEL–JEN, Inc.

Mike Donnelly

EG&G Technical Services, Inc.

George Finley

CC Distributors

Bryan Hochstein

Quickhire

Paul Lombardi

DynCorp

Territory of Guam’s

Experience with A-76

Senator Felix Camacho

Guam

Manuel Cruz

Guam AFGE

Jerry Parres

Guam Chamber of Commerce

Technology and the A-76 Process

Roland Harris, III

IBM Global Services

Stephen Rohleder

Accenture

Interested Parties Views on A-76

Robert Eckhart

Warden Associates, Inc.

Joan Fiorino, Esq.

Thurman & Phillips, P.C.

Alan Hungate

(accompanied by Mark Rosen)

Financial Executives International

Scott King

UMS Group

Sam Kleinman

The CNA Corporation

Shannon Lahey

California Correctional

Peace Officers Association

Lawrence Martin

Columbia University

Deborah Root

Maxwell AFB, Alabama

Statements for the record

Linda Davis

AFGE Local 1745

Ron Prater

Authur Andersen, LLP

The Honorable Silvestre Reyes

U.S. House of Representatives, Texas

The Honorable Robert Underwood

U.S. House of Representatives,

delegate from Guam

Gene Zaino

Contractors Resources, Inc.
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Appendix J

Biographies of

Panel Members

Appendix J

Welfare Benefit Programs from 1987

to 1989 and in 1985, was Acting

Executive Director of the Pension

Benefit Guaranty Corporation. His

earlier technical, professional, and

business experience was with Price

Waterhouse, Coopers & Lybrand,

and Source Services Corporation,

an international human resources

consulting and search firm.

Mr. Walker serves as Chair of the

U.S. Intergovernmental Audit

Forum, the U.S. Joint Financial

Management Improvement Program,

and the Center for Continuous

Auditing. He is on the Board of the

International Organization of Supreme Audit Institutions and various

educational and not-for-profit

entities. He is a Fellow of the National Academy of Public Administration and an active member of

various professional, public service,

and other organizations. Mr. Walker

is also listed in Who’s Who in the

World and Who’s Who in America.

Mr. Walker is a certified public

accountant. He has a B.S. degree in

accounting from Jacksonville University

and a Senior Management in Government Certificate in public policy

from the John F. Kennedy School of

Government at Harvard University.

E. C. “Pete” Aldridge, Jr.

Under Secretary of Defense for Acquisition, Technology and Logistics

The Honorable E. C. “Pete”

Aldridge, Jr. was confirmed as the

Under Secretary of Defense for

Acquisition, Technology and Logistics

on May 8, 2001. In this position, he

is responsible for all matters relating

Panel Chairman

David M. Walker

Comptroller General of the

United States

David M. Walker became the

seventh Comptroller General of the

United States and began his 15-

year term when he took his oath of

office on November 9, 1998. As

Comptroller General, Mr. Walker is

the nation’s chief accountability

officer and head of the U.S. General Accounting Office (GAO), a

legislative branch agency founded

in 1921. GAO’s mission is to help

maximize the performance and

assure the accountability of the

federal government for the benefit

of the American people. Over the

years, GAO has earned a reputation

for professional objective, factbased, and nonpartisan reviews of

government operations.

Before his appointment as Comptroller General, Mr. Walker had

extensive executive level experience

in both government and private

industry. Between 1989 and 1998,

Mr. Walker worked at Arthur

Andersen LLP, where he was a

partner and global managing

director of the human capital

services practice based in Atlanta,

Georgia. He was also a member

of the board of Arthur Andersen

Financial Advisors, a registered

investment advisor. While a partner

at Arthur Andersen, Mr. Walker

served as a Public Trustee for Social

Security and Medicare from 1990

to 1995. Before joining Arthur

Andersen, Mr. Walker was Assistant

Secretary of Labor for Pension and
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Appendix J

to Department of Defense acquisition, research and development,

logistics, advanced technology,

international programs, environmental security, nuclear, chemical, and

biological programs, and the industrial

base.

Prior to his appointment by President George W. Bush, Mr. Aldridge

was the chief executive officer of the

LTV Aerospace Corporation. He

came to that position from

McDonnell Douglas Electronic

Systems Company, where he served

as president from 1988 to 1992. He

was confirmed as the 16th secretary

of the United States Air Force in

June of 1986 and led the department until 1988. During the past

30 years, Mr. Aldridge has held

several significant positions within

the Department of Defense and

private industry. These include

advisor to the strategic arms limitation talks in Helsinki and Vienna,

senior manager with the LTV

Aerospace Corporation, senior

management associate in the Office

of Management and Budget,

Deputy Assistant Secretary of

Defense for Strategic Programs, vice

president of National Policy and

Strategic Systems Group for the

Systems Planning Corporation, and

under secretary of the United States

Air Force. As under secretary of the

Air Force, he provided overall

direction, guidance, and supervision

for the National Reconnaissance

Office and the Air Force space

program.

Mr. Aldridge’s outstanding work has

earned him numerous awards and

honors, including the Secretary of

Defense Meritorious Civilian Service

Award, the Department of Defense

Distinguished Civilian Service

Award, and the Department of

Defense Distinguished Public

Service Award, among many others.

In addition, he has held leadership

roles in defense, industry, and

aerospace related groups including

former president and fellow, American Institute of Aeronautics and

Astronautics (AIAA); chair, AIAA

Foundation Board; member, Defense Science Board; national

director and life member, Air Force

Association; and member of the

board of directors, Air Force Academy Foundation.

Mr. Aldridge received a bachelor’s

degree in aeronautical engineering

from Texas Agricultural and Mechanical University in 1960 and a

master of science degree, also in

aeronautical engineering, from the

Georgia Institute of Technology.

Frank A. Camm, Jr.

Senior Analyst, RAND Corporation

Dr. Camm leads multidisciplinary

analytic teams at RAND that seek

to improve services acquisition

policy in the Department of Defense (DOD). This work occurs in

three RAND-managed federally

funded research and development

centers (FFRDCs) that provide

nonpartisan, objective policy analysis

to various parts of DOD.

Dr. Camm has worked for RAND

for most of the past 25 years.

During that time, he has focused on

analyses of policies and practices

that define the relationship between

large, technically sophisticated,
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Appendix J

private companies and the government. These policies include

pricing, regulation, tax and liability

law, and government contracting

relevant to the energy, chemical,

automotive, aerospace, and electronics industries. His current work

includes an assessment of the

processes the Army uses to choose

the contract-organic split for

support of its deployed forces and

an assessment of recent innovations

in services acquisition in DOD as a

whole.

Dr. Camm has served on many

government committees. In 1986,

for example, he was a member of

the official U.S. delegation to the

United Nations Environment

Programme conference on stratospheric ozone depletion. As a

member of the Air Force Scientific

Advisory Board, he participated in

the 1994 summer study of life

extension and capability enhancement options for major Air Force

weapon systems. During 1997-98,

he chaired the Reparable Spares

Management Board for the commander of the Air Force Materiel

Command. Since then, he has

served on a variety of high-level

teams for the Office of the Secretary

of Defense and Air Force related to

sourcing, contracting, and logistics

management.

Drawing on his on-going work at

RAND, Dr. Camm has briefed the

Defense Depot Maintenance Task

Force (1994), the Commission on

Roles and Missions of the Armed

Forces (1995), the Defense Science

Board Task Force on Outsourcing

and Privatization (1996), and the

Secretary and the Chief of Staff of

the Air Force on a variety of resource

management policy issues.

Dr. Camm has a B.A. from Princeton

University and a Ph.D. from the

University of Chicago, both in

economics.

Mark C. Filteau

President, Johnson Controls

World Services, Inc.

Mr. Filteau is president of Johnson

Controls World Services, Inc., which

has a highly diversified portfolio of

contracts and joint ventures producing over $1.5 billion in annual

revenue. Johnson Controls Integrated

Facilities Management Division is

one of the largest providers of facilities management and specialized

technical services to commercial and

government customers worldwide.

Johnson Controls currently operates

major facilities for the U.S. government, including the Department of

Energy, NASA, the Navy, the Army,

and the Air Force, as well as for the

Canadian, British, and Malaysian

governments, Microsoft, IBM, Sun,

CSC, and Hoffman-LaRoche Pharmaceuticals.

Prior to joining Johnson Controls,

Mr. Filteau was president of

DynCorp Information & Engineering Technology, Inc. At DynCorp, he

led the integration of eight acquired

companies into one new business

unit that is now one of the top

information and communications

technology service providers to the

federal government. Mr. Filteau also

served as president of PRC Public

Sector, Inc., one of the leading

providers of emergency dispatch and

police records management systems,
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and as senior vice president for

information systems at BDM

International, Inc. In addition, Mr.

Filteau received several awards from

his clients, including a Commander’s

Award for Excellence from the Air

Force Logistics Command and a

NASA Achievement Award for his

work on the Hubble space telescope.

While pursuing doctoral studies in

management science at Florida State

University, where he received his

master’s degree in urban planning,

Mr. Filteau taught courses and

conducted research in facilities

planning and regional economics.

His work at Florida State earned him

the American Institute of Planners

Outstanding Achievement Award.

Before beginning his graduate

studies, Mr. Filteau served as a

VISTA volunteer. During this

period, he managed a non-profit

community service center, including

a 24-hour crisis intervention center

and community residences for

developmentally disabled adults.

Stephen Goldsmith

Senior Vice President,

Affiliated Computer Services

Stephen Goldsmith currently serves

as senior vice president for strategic

initiatives and e-government with

Affiliated Computer Services. He is

also faculty director for the Innovations in American Government

program at Harvard’s Kennedy

School of Government, chairman of

the Corporation for National Service,

and special advisor to President Bush

on faith-based and not-for-profit

initiatives. Prior to these positions,

Mr. Goldsmith served as chief

domestic policy advisor to the

George W. Bush presidential

campaign.

While serving two terms as mayor of

Indianapolis, America’s 12th largest

city, Mr. Goldsmith earned a

national reputation for innovations

in government. As mayor, he

reduced government spending, cut

the city’s bureaucracy, held the line

on taxes, eliminated counterproductive regulations, and identified more than $400 million in

savings. He reinvested the savings

by putting more police officers on

the street and implementing a $1.3

billion infrastructure improvement

program called Building Better

Neighborhoods. Under his leadership, Indianapolis enjoyed recordbreaking job creation and set a record

pace for new construction.

Prior to his two terms as mayor, Mr.

Goldsmith was the Marion County

district attorney for 13 years. He is

also a partner with Baker & Daniels,

an Indiana-based law firm.

Bobby L. Harnage, Sr.

National President, American Federation

of Government Employees, AFL–CIO

As national president of the American Federation of Government

Employees (AFGE), AFL–CIO, Mr.

Harnage leads the nation’s largest

union for government workers in

some 1,100 locals in the United

States and overseas.

Prior to becoming national president, Mr. Harnage served as AFGE

national secretary-treasurer for 6
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Appendix J

years, from 1991 to 1997. Under

his leadership, the union greatly

reduced delinquencies, created a

streamlined electronic membership

processing system, increased its

investment opportunities, undertook a successful database cleanup

effort, and overhauled the union’s

entire computer system. While

secretary-treasurer, Mr. Harnage

also played a key role as chair of the

union’s privatization committee—a

watchdog for defense workers and

the vital services they provide. Mr.

Harnage held numerous leadership

roles within AFGE, including 5th

district national vice president and

president of the Federation of

National Representatives (FNR)

negotiating team. As a member of

FNR he helped negotiate two

collective bargaining agreements.

Before becoming an activist with

the AFGE, Mr. Harnage had a

distinguished military and civilian

career with the Air Force. He served

as an air police investigator in the

Philippines, as well as a sheet metal

helper, and with the security police at

Warner Robins Air Force Base in

Georgia.

Mr. Harnage was raised and educated in Moultrie, Georgia. He

attended Norman Junior College

prior to entering the Air Force. After

his discharge from the military, he

attended Macon College and the

University of Georgia. He served as

a member of the labor advisory

board, Center for Labor Education

and Research, at the University of

Alabama and on the board of

directors of the Atlanta Metropolitan Area Red Cross.

Mr. Harnage is an expert marksman

who twice won the 8th Air Force

Individual Championship for small

arms. He also won the Georgia State

Championship, was a team member

of the Air Force Logistics Command

Championship Team, and placed

fourth in a worldwide military

competition in 1962.

Kay Coles James

Director, U.S. Office of

Personnel Management

On July 11, 2001, the United States

Senate confirmed Kay Coles James as

director of the U.S. Office of Personnel

Management (OPM). Ms. James

came to OPM from the Heritage

Foundation, where she was a senior

fellow and the director of The

Citizenship Project. She led

Heritage’s efforts to restore a strong

ethic of citizenship and civic responsibility and provided expert opinion to

elected and appointed officials nationwide on issues affecting parents, their

children, and society.

Prior to joining Heritage, Ms. James

served as dean of the School of

Government at Regent University

and chair of the National Gambling

Impact Study Commission. As

secretary of health and human resources

for former Virginia governor George

Allen, she designed and implemented

Virginia’s landmark welfare reform

initiative. Before serving in the Allen

administration, James was senior vice

president of the Family Research

Council in Washington, D.C. Under

former President George H. W. Bush,

Ms. James was an Assistant Secretary

for Health and Human Services. She
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also served under President George

H. W. Bush as associate director of

the White House Office of National

Drug Control Policy. She was

appointed by President Reagan and

reappointed by President George H.

W. Bush as head of the National

Commission on Children.

Ms. James has also served on the

boards of both the Fairfax County

and Virginia state boards of education, as well as the boards of the

Coalition of Christian Colleges and

Universities, the Fellowship of

Christian Athletes, and Young Life.

She has also served on the boards of

Amerigroup, Inc., PhyCor, Inc.,

Focus on the Family, and the Center

for Jewish and Christian Values.

A graduate of Hampton University

in Hampton, Virginia, James is the

author of three books and is a

frequent commentator and lecturer

on a variety of domestic policy

issues. Never Forget is her 1993

autobiography. Her second book is

Transforming America: From the

Inside Out (1995). Her third book,

on the subject of marriage, was

completed prior to her appointment

and will be released in September

2002. She lives in Arlington, Virginia, with her husband, Charles.

They have three children.

Colleen M. Kelley

National President, National

Treasury Employees Union

National President Colleen M.

Kelley is the leader of the National

Treasury Employees Union (NTEU),

the nation’s largest independent

federal sector union. As the union’s

top elected official, and as spokesperson for the union, Kelley represents NTEU in the media and

testifies before Congress on issues of

importance to NTEU members and

federal employees.

Kelley serves on the Internal Revenue Service (IRS) Modernization

Executive Steering Committee, with

oversight of the IRS reorganization

mandated by legislation. She serves

on labor-management partnership

councils for the U.S. Customs

Service, the Federal Deposit Insurance Corporation (FDIC), the

Department of Health and Human

Services (HHS), and the IRS.

Kelley is a member of the Federal

Salary Council, the Employee Thrift

Advisory Council of the Federal

Retirement Thrift Investment

Board, and a member of the Federal

Employee Education and Assistance

Funds (FEEA) Board of Directors.

Kelley is a member of the Board of

Governors of the Partnership For

Public Service, committed to

enhancing perceptions of public

service and encouraging participation in public service, and a member of the Committee for Excellence

in Customer Service, dedicated to

improving how government does

business.

A NTEU member since 1974,

Kelley was an IRS Revenue Agent

for 14 years. She served in various

NTEU chapter leadership positions,

including chief steward, vice president, and chapter president (1982-

1987) of NTEU Chapter 34 in

Pittsburgh, Pennsylvania.
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In August 1999, delegates to

NTEUs 47th national convention

elected Kelley National President.

She received 93 percent of the votes

cast.

A Pittsburgh native, Kelley joined

the IRS upon graduation from

Drexel University, with a bachelor’s

degree in accounting. She also

earned a master’s degree from the

University of Pittsburgh and is a

certified public accountant (C.P.A.).

Sean O’Keefe

Administrator, National Aeronautics

and Space Administration

Sean O’Keefe served as the Office

of Management and Budget’s

(OMB) representative to the

Commercial Activities Panel

through December 2001. After he

was sworn in as the National

Aeronautics and Space

Administration’s (NASA) 10th

administrator on December 21,

2001, he was replaced on the panel

by Angela Styles. Mr. O’Keefe came

to NASA from the Office of Management and Budget, where he had

served as deputy director since

March 2001. As the first deputy

cabinet officer appointed in the

Bush administration, Mr. O’Keefe

oversaw the preparation, management, and administration of the

federal budget and governmentwide

management initiatives across the

executive branch.

Before joining OMB, Mr. O’Keefe

was the Louis A. Bantle Professor of

Business and Government Policy at

Syracuse University’s Maxwell

School of Citizenship and Public

Affairs. He also served as the

director of National Security Studies,

a partnership of Syracuse University

and Johns Hopkins University, for

delivery of executive education

programs for senior military and

civilian Department of Defense

managers. Appointed to these positions in 1996, he was previously

professor of business administration

and assistant to the senior vice

president for research and dean of the

graduate school at Pennsylvania State

University. From 1989 until 1992,

Mr. O’Keefe served as comptroller

and chief financial officer of the

Department of Defense. In July

1992, President George H. W. Bush

appointed him Secretary of the Navy.

Before joining the Pentagon management team, Mr. O’Keefe served on

the United States Senate Committee

on Appropriations staff for 8 years

and was staff director of the Defense

Appropriations Subcommittee. His

public service began in 1978, when

he was selected as a presidential

management intern.

Mr. O’Keefe is a fellow of the National Academy of Public Administration and has served as chair of

an academy panel on investigative

practices. He was a visiting scholar

at the Wolfson College of Cambridge

University in the United Kingdom,

a member of the Naval Postgraduate

School’s civil-military relations

seminar team for emerging democracies, and has conducted seminars

for the Strategic Studies Group at

Oxford University. He served on the

national security panel to devise the

1988 Republican platform and was a

member of the 1985 Kennedy School

of Government program for national

security executives at Harvard University.
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Appendix J

In December 2000, Mr. O’Keefe

was the recipient of the Department

of the Navy’s Public Service Award.

He was also the 1999 faculty

recipient of the Syracuse University

Chancellor’s Award for Public

Service. In 1993, President George

H. W. Bush and Defense Secretary

Cheney presented him with the

Distinguished Public Service Award.

He is the author of several journal

articles; contributing author of

Keeping the Edge: Managing Defense

for the Future, released in October

2000; and, in 1998, co-author of

The Defense Industry in the Post-Cold

War Era: Corporate Strategies and

Public Policy Perspectives. He is also a

member of the Bohemian Club of

San Francisco.

Mr. O’Keefe earned his B.A. in

1977 from Loyola University in New

Orleans, Louisiana, and his M.P.A.

in 1978 from Syracuse University’s

Maxwell School of Citizenship and

Public Affairs.

The Honorable David Pryor

Director, Institute of Politics,

Harvard University

David Pryor became the director of

the Institute of Politics on August 1,

2000, after a long and distinguished

career in public service. He served as

a United States senator from Arkansas from 1979 until 1996. During

that time, he was secretary of the

Democratic Conference, third in the

Senate Democratic leadership, and

was a member of the Senate Democratic Steering Committee.

Mr. Pryor’s first committee assignment

in the U.S. Senate was the Committee on Agriculture, where he served

as chairman of the Agriculture

Subcommittee on Agricultural

Production and Stabilization of

Prices. He served on and chaired the

Senate Special Committee on Aging,

and chaired the 1995 White House

Conference on Aging. Mr. Pryor also

served on the Senate Finance Committee and the Senate Governmental

Affairs Committee and chaired the

Committee’s Subcommittee on

Federal Service, Civil Service, and

Post Office.

In addition to his career in the U.S.

Senate, Mr. Pryor was governor of

Arkansas from 1974 to 1978. He

was first elected to the Arkansas

House of Representatives in 1960,

where he served three terms. Since

his retirement from the Senate, Mr.

Pryor has been a Fulbright Distinguished Fellow of Law and Public

Affairs at the University of Arkansas,

Fayetteville, and a business consultant.

Mr. Pryor became a fellow at the

Institute of Politics in the spring of

1999. He received his L.L.B. from

the University of Arkansas School of

Law in 1964 and his B.A. from the

University of Arkansas at Fayetteville

in 1957.

Stan Z. Soloway

President, Professional Services Council

Stan Z. Soloway is president of the

Professional Services Council (PSC),

the principal national trade association representing the professional
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Appendix J

and technical services industry. PSC

is known for its leadership in the full

range of acquisition, outsourcing, and

privatization issues. Mr. Soloway

assumed the presidency of PSC in

January 2001. PSC’s member companies provide expertise in areas such

as defense, space, environment,

energy, education, health, and

international development that is

used to assist virtually every department and agency in the federal

government. PSC’s members also

have extensive business relationships

with state and local governments

and commercial and international

customers. All told, the professional

and technical services sector performs more than $400 billion in

service nationally, including more

than $100 billion annually in

support of the federal government.

Prior to joining PSC, Mr. Soloway

served nearly 3 years as the deputy

under secretary of defense (acquisition reform) and concurrently as

director of the defense reform

initiative. As deputy under secretary, he was the department’s senior

official responsible for the development and implementation of farreaching reforms to DOD’s acquisition processes and policies. As

director of the defense reform

initiative, Mr. Soloway led significant

departmentwide reengineering and

reform initiatives in areas as diverse

as privatization and outsourcing,

electronic commerce, financial

management reform, logistics

transformation, and quality of life

for troops.

Before his appointment to DOD,

Mr. Soloway was a public policy

and public affairs consultant for

nearly 20 years and a highly regarded

expert in, and frequent lecturer on,

acquisition, privatization, and

outsourcing issues. He served on the

policy committee of the Council of

Defense and Space Industry Associations, was co-founder of the Acquisition Reform Working Group, chairman of the Industry Depot Coalition, and founding member of the

Government Competition Coalition.

Additionally, he has produced local,

national, and international television

projects and has consulted on more

than a dozen campaigns for the U.S.

Congress and Senate.

In recognition of his leadership at

DOD, Mr. Soloway was awarded the

Secretary of Defense Medal for

Outstanding Public Service in April

2000; in December 2000, he was

awarded the Secretary of Defense

Medal for Exceptionally Distinguished Public Service, the highest

civilian award of its kind.

Mr. Soloway earned a degree in

political science from Denison University in Ohio, where he was elected to

the national men’s journalism,

national men’s leadership, and

national political science honorary

societies.

Angela Styles

Administrator, Office of

Federal Procurement Policy

On April 23, 2001, President George

W. Bush nominated Angela B. Styles

as administrator for federal procurement policy in the Office of Management and Budget (OMB). The
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Appendix J

United States Senate confirmed her

nomination by unanimous vote on

May 24, 2001. She replaced Sean

O’Keefe on the Commercial Activities Panel in December 2001 after

he was confirmed as the administrator of the National Aeronautics and

Space Administration.

Prior to confirmation, Ms. Styles was

counselor to the director of OMB.

From January to April 2001, she was

in a temporary appointment at the

General Services Administration’s

Office of Government Wide Policy

and Public Buildings Service. Before

joining GSA, Ms. Styles was counsel

for the Washington, D.C., law firm

of Miller & Chevalier. Her legal

practice concentrated in the area of

federal procurement law and litigation, including cost and accounting

issues, defective pricing, procurement fraud matters, contract disputes and claims, contract drafting

and negotiations, and compliance

matters.

Over the past several years, her

practice increasingly focused on

government contract disputes

involving cost accounting standards

compliance, cost allowability, and

allocation. Ms. Styles has litigated

contractors’ claims against the U. S.

government before the Armed

Services Board of Contract Appeals,

the United States Court of Federal

Claims, and the United States Court

of Appeals for the Federal Circuit.

Before entering the practice of law,

Ms. Styles worked in Washington,

D.C., as a legislative aide for Congressman Joe Barton and former

governor Will P. Clements in the Texas

Office of State-Federal Relations.

Ms. Styles is an active member of

the American Bar Association’s

Section of Public Contract Law,

where she recently served as chair

for the Legislative Coordinating

Committee, and is a former vice

chair of the Accounting, Cost and

Pricing Committee. Ms. Styles has

lectured on government contract

cost and accounting issues and is

the co-author of an article entitled

“Confirming Environmental Cost

Allowability Determinations to

CERCLA’s No-Fault Approach,”

98-7 Government Contract Cost

Pricing & Accounting Report at 3

(Fed. Pubs. July 1998).

Ms. Styles received a bachelor of arts

degree, with distinction, from the

University of Virginia. She graduated with honors from the University of Texas School of Law, where

she was an articles editor for the

American Journal of Criminal Law

and was appointed to the Order of

the Coif.

Robert M. Tobias

Distinguished Adjunct Professor,

American University

Robert M. Tobias is currently

teaching at American University as a

distinguished adjunct professor. He

is also the director of the newly

created Institute for the Study of

Public Policy Implementation,

which brings together members of

Congress, political appointees,

career executives, union leaders,

academics, and the consulting

community to discuss and attempt

to resolve public policy implementation issues.
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Commercial Activities Panel

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Appendix J

Mr. Tobias is a member of the

Internal Revenue Service Oversight

Board, which has broad strategic

and budget oversight responsibility

for the Internal Revenue Service. He

also serves on the Advisory Committee for Excellence in Government

and the Federal Acquisition Institute Research Advisory Board. Mr.

Tobias serves as president of the

Federal Employees Education and

Assistance Fund. Mr. Tobias is a

frequent contributor to Federal

Times, the Government Employees

Relations Report, and Government

Executive Magazine on current

federal sector public policy implementation issues.

Prior to his work at American

University, Mr. Tobias served for 31

years with the National Treasury

Employees Union (NTEU), from

1983 to 1999 as its president. As

NTEU’s general counsel from 1970

to 1983, Mr. Tobias focused NTEU

on creating employee rights through

aggressive negotiation and litigation.

Mr. Tobias also served on the government-wide labor management

partnership council that was established to support and nurture

collaborative labor management

relationships throughout the federal

government. In addition, he served

on the Department of Health and

Human Services, U.S. Customs

Service, Federal Deposit and Insurance Corporation, and Internal

Revenue Service labor management

partnership councils.

Mr. Tobias received his bachelor’s and

master’s degrees in business administration from the University

of Michigan, and he graduated from

the George Washington University

Law School, where he served as a

professor on the adjunct faculty for

22 years.
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Appendix J
130

Appendix K

Acknowledgments

Appendix K

American Federation

of Government Employees

Wiley J. Pearson

Jacqueline C. Simon

John Threlkeld

Contract Services Association

Cathleen D. Garman

Department of Defense

Annie L. Andrews

Joseph Sikes

Paul L. Solomon

Michael C. Wynne

Johnson Controls

Mark F. Wagner

Professional Services Council

Alan Chvotkin

Kevin Frankovich

National Treasury Employees Union

James M. Wall

Office of Management and Budget

David C. Childs

Keith D. Coleman

John C. Kalavritinos, Jr.

Office of Personnel Management

Mark A. Robbins

The Commercial Activities Panel wishes

to acknowledge the significant efforts of

the following individuals who contributed

to the work of the Panel and the preparation of this report:

U.S. General Accounting Office

Directors:

Jack L. Brock, Jr.

Barry L. Holman

Randall A. Yim

Project Director

William T. Woods

Counsel to the Panel

Daniel I. Gordon

Report Manager

Donald L. Bumgardner

Public Hearings

Washington, D.C.

Hearing Manager

James L. Higgins

Hearing Coordinator

Cecilia L. Niemi

Indianapolis, IN

Hearing Manager

Debra L. McKinney

Hearing Coordinator

Mary Brewer

San Antonio, TX

Hearing Manager

Marilyn K. Wasleski

Hearing Coordinator

Cecilia L. Niemi

Hearing Counsel

Stephanie J. May
131

Commercial Activities Panel

Acknowledgments

Appendix K

Appendix K

Other major contributers from the

U.S. General Accounting Office

Eric V. Addison

Grace A. Alexander

Orlando R. Boston

John G. Brosnan

Amy Sue Bunting

Louis A. Chiarella

John L. Formica

Scott Gannon

Alice H. Harrington

Allison J. Hazen

Chad R. Holmes

Thomas W. Hopp

Julia M. Kennon

Nancy T. Lively

Jeanette S. McKinney

Suzanne C. Melancon

Gary L. Middleton

Beth Miller

Wanda L. Okoro

Guy R. Pietrovito

Sylvia Schatz

Ralph O. White, Jr.

Judith A. Williams

Gregory H. Wilmoth
132

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